Let’s start with brutal truth about outsourcing software development.
More than half of outsourced project fails to meet financial goals, according to a study by Deloitte.
This truth can leave your twondering;
How can you as a startup founder avoid all the problems, risks, and dangers?
Is it even safe for a startup to outsource software development?
How can a startup, especially an early stage startup can decide whether outsourcing is even the RIGHT decision for you?
But First, A quick Risk Factors…
To deal with the risk, you need to establish risk awareness and develop risk-averse, and implement the dynamic and continuous tracking and control in the whole process of software outsourcing.
Throughout the whole process of software development outsourcing, outsourcing risk performed a variety of forms. Carefully analyzing the sources and characteristics of risks, I found that there are some risks on the contractor’s own technology, geography, methods, personnel and project management. The company internal risk can be grouped into the following categories:
1. Communication Risk
Of course communication is key for any kind of services.
If a company and contractor have a huge difference in the development of enterprise, periodic short-term contracts will have the risk in terms of a lack of sustainable development. As a result, the company will over rely on contractors, and even had to meet some contractors’ unreasonable demands.
We need a unified plan with contractors in terms of working languages and development philosophy, and establish long-term strategic cooperative partnership. From the above, we can see that lack of communication is a difficulty of offshore software development outsourcing.
In order to solve this, the team’s culture needs to be communicated with outsourced partner like us. Both sides need to pay more effort and patience to make different cultures to sync.
2. Operational Risk: Quality, Security and Even Morality
Generally, along with many variable factors, company has a long term project cycle. Thus, the lack of preparation may have an adverse decision. As a result, there is a risk of wavering on the direction of company’s product, which leands outsourcing project to be difficult to carry on.
Outsourcing service provider disregarding the customer service may have a serious impact on the quality of a software product or service delivery. Software development outsourcing inevitably make outsourcer access to business information and customer data, patents and proprietary technology.
So if you ignore the protection of the business information, it will have disastrous consequences for outsourcing activities. The moral hazard of outsourcer will be reflected in the activities of financial corruption, mismanagement and other consequences of outsourcing activities.
Your startup must protect your own intellectual property and trade secrets, reduce the risk of critical information leakage, and also prevent information steal from contractors.
3. Risk of Financial Cost: Risk of Hidden Cost
Cost savings is one of the most important reasons for enterprises to develop software outsourcing purposes. Often time, costs include explicit costs and implicit costs: the former include labor costs, the cost of software tools, hardware and office environment costs, and explicit costs can be more clearly observed. The implicit costs include the cost of the exchange and communication of outsourcing project management, the variable cost dealing with outsourcing content, and these costs may bring difficult estimation of the specific workloads, resulting in actual cost much higher than originally estimated cost.
Although completion of outsourced projects achieves the expected cost savings, short-term cost savings may have potential risks and will constitute an obstacle to the development of foreign enterprises.
4. Risk of Management Strategies : Risk of Losing Management Control, Expertise and Core Competence
Lack of professional and technical personnel and a high level of project management may create the risk of loss of control, so the company must hire people who are proficient in outsourcing software technology and also have good communication skills in project management, and conduct process tracking and metrics. Meanwhile hiring the third parties to achieve all-round monitoring and control.
Through software outsourcing, startups transfer the traditional internal business ownership and responsibility to the outsourcing service provider, and then layoffs could lead to the loss of technical personnel who are familiar with the business. As a result, in a dynamic market economy, intense competition in the labor market and constantly updated technologies may lead to mainstream loss of business, and ultimately the loss of market share.
Having said these risks out.
You can still see whether this is the right method for your startup or not.
So don’t get discouraged by these risks yet.
How Can You Decide Whether Outsourcing is Right for Your Startup?
The risks of offshore outsourcing is scary.
If you are considering outsourcing as a solution for financial reason then you should not even think about outsourcing is the solution for you.
Depending on company goals outsourcing might not be the best strategy and can make outsourcing a risky decision.
If on the other hand, your startups can identify risks I mentioned above, and you have the right communication skill and people. I highly recommend you to give a shot on your next app development project.
Before Starting Your New App Development Project…
Why don’t we talk a little bit more?
Like I said, communication is key right?
So feel free to drop me an email at taiki[at]d8ii[dot]com.