Taking a Data-Driven Approach to Software Development Outsourcing

The use of data has always been relevant in every industry, including outsourcing. It has become more valuable since the internet explosion. Individuals and businesses have used a large amount of information via search engines, emails, social media, e-commerce platforms, and other online channels.

As technology evolves, so is data. Today, we deal with vast amounts of information. How can you leverage it for your outsourcing initiative?

This page tackles a data-driven approach to outsourcing your software development project. Learn how to use relevant, valuable, and reliable data to improve your technical outsourcing model. 

Read on.

How To Take a Data-driven Approach to Software Development Outsourcing 

Companies usually outsource a specific function, division, or part of their operations to third-party service providers. They employ this business strategy for a handful of reasons. In its 

Global Outsourcing Survey 2022, Deloitte cites the top drivers for outsourcing:

• Cost reduction – 57%
• Business strategy – 51%
• New capabilities access – 49%
• OPEX reallocation – 45%
• Internal leadership changes – 33%

Information technology outsourcing (ITO) accounts for the biggest industry slice among all segments. And, according to Statista, software application development is the most commonly outsourced IT function.

Software development outsourcing is when you delegate your software development project to an external vendor instead of handling it in-house. Your hired service provider handles specific functions, such as:

• Software requirements analysis
• Software planning and designing
• Language programming and coding
• Pilot run or testing
• Software deployment
• Software maintenance and upgrade

Software development might be too technical for an outsourcing project. But when tackling this, you also rely on relevant, reliable, and accurate data for various aspects of your project. You can collect data through the following:

• Internal sources (your database, CRM system, etc.)
• External sources (social media, industry research, public datasets, etc.)
• Data collection strategies (web analysis, social media monitoring, customer surveys, etc.)
• Data collection tools and technologies (data analytics, predictive analytics, IoT devices, etc.)

Fernando Lopez, Marketing Director at Circuit, highlights the importance of leveraging data for outsourcing. 

Lopez explains, “Data is a vital part of business planning and implementation. It provides real value by offering critical ideas from various perspectives. With this in place, you can analyze information in various ways, gain innovative ideas, and ultimately make informed business decisions.”

That said, here’s how to take a data-driven approach to your software development outsourcing project:

1. Conduct data-oriented research for vendor selection

Outsourcing has a wide range of industry segments, such as business process outsourcing (BPO), healthcare BPO, e-commerce BPO, and ITO. It operates globally with thousands of service providers in the Philippines, India, Mexico, Ukraine, Poland, and the United States. 

How can you ensure you hire the right outsourcing partner for your software development project? Perform due diligence and employ valuable data! 

You can get a list of prospects from online outsourcing marketplaces and partner with niche-specific outsourcing agencies such as YouTeam. Then, visit the websites of each prospect to check their services, case studies, whitepaper, etc. 

The steps above are crucial for identity verification and critical selection. Make sure to consider the following:

• Niche or industry: What industry do they cater to? Is it the IT sector, specifically software development?
• Field of specialization: What is their expertise? Do they specialize in software development projects?
• Track record of experience: How long have they been in the ITO industry? How long have they been providing software development services?
• Labor workforce: Do they have an expert team of software developers? Do they have the relevant educational background, employment experience, as well as IT training and certification?
• Digital tools and technologies: What technological resources do they use for outsourcing services? Customer relationship management (CRM) systems, robotic process automation (RPA), artificial intelligence (AI) and machine learning (ML), or data analytics? 

2. Develop a service level agreement (SLA) backed by data

A service-level agreement (SLA) is essential in outsourcing. The SLA defines your relationship as a client with your hired service provider. This legally binding contract can be instrumental to your outsourcing success.

Leveraging data to create a comprehensive, detailed, and data-driven SLA is best. Why? The outsourcing partnership covers several areas you must not neglect. 

Start by utilizing internal sources like your database and CRM system to identify business needs and outsourcing requirements. Likewise, use external sources, such as outsourcing industry players and government authorities, to discover best practices and establish legal compliance. 

From there, cover the following in your SLA contract:

• Operational objectives: Define your goals for outsourcing your software development project. Is it to create new and innovative software products or optimize your software-as-a-service (SaaS) offer?
• Key metrics: Set key performance indicators (KPIs) for your software development outsourcing. Focus on efficiency, quality assurance (QA), and customer satisfaction (CSAT).
• Scope of work: List the specific software development functions and tasks to handle. Will it cover software analysis and include software maintenance as well?
• Processes and policies: Work with your hired service provider to lay out your software development project’s standard operating procedures (SOPs). Include your business policies for compliance.
• Pricing Structure: Clearly outline the cost for the outsourcing services. Define the pricing model for the outsourcing partnership, whether fixed price (FP), time and materials (T&M), or staffing pricing (SP) model.
• Specific Clauses: Include those that might impact your outsourcing engagement, like indemnity clauses, intellectual property (IP) rights, data privacy policies, and network security requirements.

3. Use data for establishing knowledge base and BPO training

Knowledge transfer and solid training are imperative in outsourcing. 

Share your knowledge, processes, and practices with your BPO partner while allowing them to demonstrate their expertise, make decisions, and implement best practices. Likewise, invest in proper training to enhance the knowledge and skills of your BPO team. And this essentially applies to software development outsourcing.

Max Wesman, Founder & COO of GoodHire, recommends using reliable data for knowledge base and BPO training.

Wesman said, “You cannot just rely on any data. You must collect diverse information from various sources, whether internal or external. This can help build your knowledge base and optimize your BPO training.”

Wesman recommends the following for your software development outsourcing project:

• Knowledge base center: Establish your software company’s knowledge base center with helpful information. You can start with organizing and maintaining internal data stored in your database. Then, you can also get valuable information (like standard software development workflows and best practices) from your BPO service provider. Outsourcing with global operations can be a great source of knowledge and information!
• Frequently asked questions (FAQs): Collect as many questions about software development processes as possible. Then, provide clear, concise, and concrete answers in your resource guide, which your various stakeholders can easily and quickly access. FAQs can be extremely helpful not only to your internal employees and BPO team but to your actual customers. 
• Training materials: Build your training materials used not only for your BPO team but for all your employees. These materials must include key concepts about software development, including the processes and standard workflows for all functions involved. They can make your training much more structured, organized, and seamless!

4. Leverage data for process and product improvements

Process/product improvement is key to success in any company or organization. Constantly identify areas for improvement and find effective ways to address them. This applies all the more to software development outsourcing.

Software companies must keep up with rapid technological advancements and evolving software development trends. Now and then, you see new products out in the market. Even established ones must offer something new to the table (in terms of features). 

Accessing relevant data can help you make informed decisions for your software development outsourcing. 

For one, it allows you to learn best practices from industry competitors. It also helps you understand the customer journey and provide the software they need. Ultimately, accessing data using analytics enables you to improve your software development processes and products.

That said, take a data-driven approach to improving your software development outsourcing SOPs:

• Work Efficiency: Ensure your offshore developers follow the standard workflows. They must be able to accomplish tasks and deliver their outputs as promptly as possible.
• Quality Assurance (QA): Ensure your BPO team adheres to quality standards and business policies for legal and regulatory compliance. Even writing compelling email content can make a difference in your outsourced team’s communication and collaboration.
• Customer Satisfaction (CSAT): Use data analytics to understand the customer journey, analyze your customer experience, and improve your products or services. Conduct surveys for customer feedback and measure CSAT.

5. Utilize data for cost management

The Deloitte report above shows that cost reduction is the top reason for outsourcing. This applies to software development outsourcing projects. You basically outsource to cut the expenses involved in designing and developing software products, aside from accessing technology and expertise.

As such, businesses conduct a cost-benefit analysis when outsourcing. They employ cost management during the outsourcing engagement to save costs in the long run. What better way to proceed with this than to leverage data?

Relevant and reliable data lets you access various pricing models. Then, you can choose the most appropriate one and include that in your SLA contract. Below are common pricing structures used in the BPO setup:

• Fixed price (FP) model: The FP model has a standard rate you agreed with your outsourced software developers paid monthly, quarterly, or yearly.
• Time and materials (T&M) model: The T&M model lets you bill your service provider based on how long they complete the software development project.
• Staffing pricing (SP) model: The SP model allows you to hire a team of full-stack software developers (staff) and pay them for their services.
• Cost reimbursable model: This pricing structure lets you set a limit for consumable expenses and pay a certain percentage if your outsourced developer exceeds the limit.
• Consumption-based model: This pricing structure involves billing a service provider for the usage, which applies to web hosting related to software use.

Final Words

The use of relevant and valuable data can positively impact businesses across all industries. As such, take a data-drive approach to software development outsourcing. As discussed above, it can assist in:

• Service provider selection
• SLA creation
• Knowledge base and BPO training
• Process and product improvements
• Cost management

However, using data requires extensive research, critical analysis, and careful implementation. Likewise, leveraging digital tools and technology can help in optimizing your project. Ultimately, harnessing the power of data can contribute to a successful software development outsourcing project!