The biggest problems with IT Outsourcing. And solutions to each & every one of them :)

Clients using our platform often ask: Why shouldn’t I approach outsourcing companies directly rather than sourcing talent through a B2B marketplace, like YouTeam or VenturePact?

Of course this is possible, but is it optimal?

The Elephant in the Room

The natural assumption would be that renting tech talent through a digital platform would add to the cost of development services, due to fees or commission. But in fact, there is no cost differential at all, because the platform effectively displaces the need for software vendors to invest in Marketing & Sales related to the deals converting through this channel.

The vendors are happy to pay commission to the platform that marketed their services and attracted the right clients to them.

With that little preconception addressed, let’s explore the fundamental differences of working with a software vendor directly versus working with a hand-selected supplier through a purpose-built platform.

What do we mean by B2B IT Outsourcing?

B2B IT Outsourcing is a practice in which an offshore software vendor performs development tasks and/or provides consultancy services for an onshore company — functions that could have been or are usually done in-house. Outsourcing is typically used by companies to save costs and time.

Outsourcing can range from a large contract, in which a company like IBM manages IT services for a company like Xerox, to the practice of hiring independent contractors and temporary office workers on an individual basis.

From extensive experience discussing outsourcing challenges with the tech community we understand that opinions about outsourcing are mixed with lack of trust at the heart of less positive sentiments.

What are the problems associated with Outsourcing?

The most significant issues that arise include:

1.  The Inability to compare ‘Apples with Apples’ – selecting the most appropriate vendor for the technical needs of your project.

2.  Difficulties in undertaking Independent Due-Diligence on the outsourcing companies.

3.  Verifying of the technical level of individual engineers.

4.  Information asymmetry, outsourcing companies provide very little information about the individuals who will be assigned to the project.

5.  The lead time for team assembly. Project commencement can take several months.

6.  Typical engagement models are not very flexible for the client.

7.  Independent escrow services are not available.

Are there solutions available to all/some of the issues?

Many of these issues can be addressed through use of an appropriately curated B2B marketplace for tech talent that matches businesses, with engineers available within software companies around the globe.

Interestingly, there only exist two substantial B2B marketplaces for tech talent – VenturePact & our own YouTeam platform, with the most well-known marketplaces providing freelance talent instead of full-time employees.

Let’s now focus on comparing Traditional ‘Pipeline’ outsourcing with Selecting Outsourcing Partners through a purpose-built Digital Platform.

How do we at YouTeam use a Digital Platform to address outsourcing problems?

YouTeam started as a product consultancy for startups, subcontracting actual development tasks to a small circle of carefully vetted software agencies in Ukraine. We gained a significant amount of outsourcing experience as a direct result of doing it on dozens of client projects for which we were the Product Managers.

As Product-minded folk, it occurred to us that the next step would be to develop a digital platform to streamline our internal processes and provide information about the instantaneous availability of individual engineers working within our partner organisations to the public.

So, here are the outsourcing problems we encountered and their respective solutions:

Problem 1 – The Inability to compare ‘Apples with Apples’

The biggest challenge and problem is for the client to make a decision satisfying at least two of the three major dimensions depicted below, without having all the required information available.

In the context of selecting appropriate Software Vendors:

–  Quality depends on the vendor’s level of expertise in a given technology both at company level and the level of the individuals which are being considered for your project

–  Speed relates to the time period starting from the initial step of searching process to the time the developer actually starts the work

–  Price could be the lump sum or the negotiated hourly rate.

If the vendor withholds information about any of the above parameters it is impossible for the client to finalise their decision.

Vendors will be typically unable or unwilling to provide information about Price and Speed upfront as it might compromise their negotiating position or for any number of other reasons i.e. they don’t understand the scope clearly enough. Vendors might be able to define the price and substantiate quality, but then it turns out that they don’t have any engineers available.

Trying to get a decent level of clarity on these three parameters, across multiple vendors can be a precarious and time-consuming process and with no guaranteed result. It can be like being on a merry-go-round.

Solution 1 – Utilise a database of information about the most promising vendors, which provides:

–  Important pricing information, like hourly/monthly rates (Price dimension).

–  Information about the instantaneous availability of individual engineers, which allows for the appropriate planning of their onboarding onto your project (Speed dimension).

–  Technical backgrounds of individual engineers (Quality dimension).

Having this access allows clients to make informed decisions about which software vendor to partner with, based on the up-to-date information instead of having to rely on the quality of a given company’s marketing materials.

Let’s take a very brief look at what else the platform gives visitors transparency into:

Problem 2 – Difficulties, as well as the time-consuming nature of undertaking Independent Due-Diligence on shortlisted vendors, especially when it comes to software development outsourcing companies in the UK.

YouTeam understands this problem all too well because we undertake a vetting process, before admitting new vendor onto the database.

Here is a very short summary of this complicated process:

–  Shortlisting the right vendors based on a wide range of performance criteria (projects completed, clients reviews, tech stack of the engineers, company structure, industry awards, and recognition etc.).

–  Thorough due-diligence on:
     – Track Record
     – Legal
     – Processes & Culture
     – Management & Operational Staff
     – Technical Veracity

Solution 2 – Shortlisting from a group of already professionally pre-vetted companies

Our vendors will work on multiple, if not dozens of projects throughout their lifetime on the platform. This provides a strong case for us to place emphasis on pre-vetting them before admittance to the platform. Ordinarily, clients would have to do it on their own, potentially wasting considerable time & cost.  

Having (now) onboarded more than 70 software development firms onto the platform, we have plenty of experience in knowing what to look for. We also have a lot of more leverage over vendors, if something were to go wrong. Learn more about our vetting process here.

Problem 3 –  Verification of the technical level of individual engineers, i.e. avoiding paying for a senior developer and only getting a strong middle dev after 8 weeks of searching.

Solution 3 – Having the ability to shortlist several engineers for each role, interviewing them yourself, or appointing a Team Advisor. Once they pass the interview, you can set test tasks to validate their familiarity and competency in a particular programming language.

Problem 4 – Information asymmetry, outsourcing companies provide very little information about the individuals who will be actually assigned to your project.

An important question we often don’t ask ourselves as Product Owners is: How much do we really know about our suppliers at the time of engagement?

Most of the times you won’t even be able to tell who your team will comprise of, let alone how well you will collaborate.

More information about information asymmetry is detailed in this blog article about ‘why outsourcing sucks’.

[tweet_box]It is highly important to have as much information about the individuals assigned to your project as possible[/tweet_box]

Solution 4 – Having the ability to search a database full of detailed profiles of candidates. Then only appointing an outsourcing company on the basis of them having suitable engineers available. Being able to interview the engineers themselves to verify their technical, communication & English levels.

Once you find an engineer that appears to suit your needs, you can then very quickly book an interview to make sure he or she what you were looking for!

How quick and easy is that? Cuts out all the bureaucracy and gets you a true representation of who you’re likely to work with!

Problem 5 – The lead time for team assembly and commencement can be several months

Solution 5 – Have access to a database full of 100s of highly qualified engineers available to join projects within the next week or two.

Solving the problem of information asymmetry and providing the instant information on engineer’s availability enables us to reduce the team assembly time from 8 weeks to a couple of days.

Problem 6 – Typical engagement models not being very flexible for the client, i.e large lump sum projects

Solution 6 – The ability to rent tech talent from a minimum of 1 developer-month to multiple years and ramping the number of remote engineers working on your project up and down as your requirements fluctuate.

Our model is based on outsourcing to individual technologists employed in nearshore locations. This is perfect for rapidly growing businesses, particularly startups and scale-ups, who need a longer-term dedicated team solution. YouTeam allows you to leverage the HR and management expertise of established software companies to grow your team with higher quality professionals.                 

Problem 7 – Independent escrow services are not available. In most cases, you will need to pay large deposits and you may not be transferred all of the code and corresponding IP until you have paid the final invoice.

Solution 7 – Having the ability to eliminate quality & financial risks associated with development through the use of code and secure payment system to make sure that all IP is transferred. With all payments managed through an independent digital platform, which is only released to the vendor after the work is accepted.