Software Development Outsourcing Models Explained: Ultimate Guide

Software development outsourcing has gained popularity as business leaders seek to develop robust applications with cutting-edge features.

Numerous software development outsourcing models exist to help drive projects forward and create exceptional applications with a strong return on investment (ROI).

Read on to discover the different outsourcing models and how they can be applied to a dedicated software development team.

Key Takeaways

• Software development outsourcing is when a business hires a third-party team to build software with dedicated resources.
• Business leaders can choose from three main software development outsourcing models: location, relationships, and contracts.
• Selecting the most appropriate model can significantly reduce the development cost without compromising quality.
• Many startups use a dedicated software outsourcing partner to launch competitive applications for clients and customers.
• For complex projects, business leaders adopt multi-source outsourcing approaches that combine other models at various stages of development.

What Is Software Development Outsourcing?

Software development outsourcing is when businesses use a third-party development team to create applications to meet their business goals.

The software development industry offers various services, from design and coding to testing and post-release maintenance.

Partnering with an outsourcing provider allows for projects to be created within a timeframe and budget by offering access to specialized expertise.

It also ensures flexibility is built into the process, with clear collaboration and communication channels to keep development aligned with the client’s vision.

With the outsourcing market expanding, it is the go-to approach for startups and other businesses seeking full-cycle project development.

Discover MyDevTeam’s software development services.

What Are Software Development Outsourcing Models?

Selecting the best software outsourcing model that matches your project’s objectives is critical when outsourcing software development.

Here’s a brief overview of the three main categories of outsourcing models typically adopted for software development projects:

• Location-based software development outsourcing models: The broadest category, location-based outsourcing models are focused on where the development team operates in relation to the client.
• Relationship-based software development outsourcing models: These models focus on the composition of the development team and the degree of cooperation with the clients.
• Contract-based software development outsourcing models: Contract-based models offer a more straightforward approach based on an overall price to complete the project.

By researching how each model operates, projects can be launched that ensure optimal software development best practices are applied.

Advantages Of Outsourcing Software Development

Whether creating applications for local businesses or software for thousands of employees, outsourcing software development can deliver results.

Here’s an overview of some of the main benefits of outsourcing software development for your project:

• Improving cost efficiency: Developing an application through an in-house team involves a series of expenses around recruitment, training, and the provision of equipment that an outsourcing company already has in place.
• Accessing a global talent pool: Partnering with a software outsourcing provider delivers instant access to a team of software engineers with the necessary technical expertise to create outstanding applications.
• Integrating dedicated development tools: Outsourcing services utilize the latest software development technologies to ensure applications are produced to the highest possible standards.

Evaluating the advantages of outsourcing software development can help you hire a team that matches your project’s requirements.

How To Select The Best Outsourcing Model For Your Project

Here are some considerations when hiring software developers with the right outsourcing model for your project:

• Project scope: Different outsourcing models work best depending on a project’s overall scope, so understanding its core requirements is the first step to choosing the best one for a project.
• Anticipated timeline: A project’s duration plays a significant role in the development lifecycle and the optimal outsourcing models that deliver results through streamlined processes.
• Degree of client involvement: Businesses requiring a more hands-on approach to development must select an outsourcing model that aligns their project management with the software developers.
• Specialist industry expertise: If you’re developing software for a niche industry with strict regulations, select a dedicated development team and model that addresses these concerns.

Understanding these criteria will help ensure your outsourced team is equipped to manage the project and achieve your business goals.

Location-Based Software Development Outsourcing Models

Location-based outsourcing models are available for all types of software development, and each has advantages and disadvantages.

Let’s break down the different location-based categorizations and how they can be applied to development projects.

Onsite Outsourcing

This outsourcing model provides a variation of in-house outsourcing for businesses that require developers to operate in the same location.

Unlike traditional in-house development, however, this model involves a third-party agency handling the hiring and vetting process for the client.

The result is a hybrid approach to software development outsourcing that retains the advantages of in-house development without the associated disadvantages.

Businesses can avoid the costs of recruitment and onboarding while still seamlessly integrating them into their internal processes.

One challenge businesses sometimes face with onsite outsourcing is skills shortages, with the model reliant on skilled talent in the client’s city.

This potential obstacle aside, the onsite outsourcing model allows new team members to integrate and adapt to the client’s systems fairly quickly.

It’s an effective outsourcing model for projects that require tight and ongoing collaboration, face-to-face meetings, and adaptable project management.

Offshore Outsourcing

As the name implies, offshore outsourcing occurs when businesses hire developers based in a different country and time zone.

Offshore development allows access to worldwide talent, reducing expenses due to lower living costs in regions such as India and Latin America.

While this model is cost-effective, offshore software development lacks the streamlined communication of collaborating with developers in the same time zone.

Cultural differences and language barriers may also negatively impact the smooth running of a project in some circumstances.

On the other hand, partnering with an offshore team can help with around-the-clock project development and enhance agility.

By leveraging different time zones, business leaders can balance internal work processes with the external team to deliver 24/7 productivity.

Onshore Outsourcing

Onshore outsourcing is when a business partners with an outsourced team in the same country, but not specifically the same region.

In this model, developers will work on the project from a remote location separate from the client, adopting a remote work approach to collaboration.

There may also be time zone differences when choosing onshore outsourcing; for example, if a business in New York partners with developers in Texas.

On the other hand, this development outsourcing model avoids the cultural differences and potential language barriers associated with offshore outsourcing.

It can also ensure more robust protocols for data protection and compliance with industry-based regulations throughout the entire project.

This model can be especially valuable when developing software built around sensitive user data, such as healthcare and financial applications.

Nearshore Outsourcing

Nearshore outsourcing is closely related to offshore outsourcing and involves hiring a development team based in a neighboring country.

This closer proximity alleviates some of the issues around time zone differences, allowing for ongoing collaboration between clients and developers.

Many businesses leverage nearshore staffing for complex roles, as companies frequently utilize it to develop applications and reduce costs.

This approach helps address the challenges related to cultural differences often faced when collaborating with an offshore development team.

Developers in neighboring countries are more likely to be aligned regarding company culture and adopt similar business practices to the client.

Multi-Source Outsourcing

Complex projects that often require a range of expertise blend the various models through multi-source outsourcing.

This approach is highly flexible, drawing on a combination of onsite, offshore, and nearshore outsourcing, based on the specific project requirements.

Multi-source outsourcing enables projects to be divided into various components, applying different models for UI/UX design, security, and general coding.

The result is an approach that draws on the skills and technologies of the best developers for specific roles and responsibilities.

This strategy allows business leaders to draw on global talent when required, choosing multiple vendors for a flexible development team.

It can also be applied ad hoc, such as outsourcing for industry-based technical expertise to ensure protection against cybersecurity threats before launch.

Relationship-Based Software Development Outsourcing Models

The custom software development process requires varying degrees of collaboration between clients and the software development team.

Here are the main relationship-based outsourcing models you can consider when developing software:

Dedicated Team Model

One of the most common models businesses adopt for projects is the dedicated team model, which handles all aspects of development.

Partnering with a dedicated software development team covers a complete service, including planning, design, development, and testing.

This approach allows businesses to avoid time-consuming and costly recruitment and hiring and to save money on providing development resources.

As such, the dedicated team model is often used by startups and smaller companies that lack the internal resources and employees needed for development.

It also allows for varying the composition of a dedicated team at various project stages, drawing on technical expertise as and when required.

Managed Team Model

The managed team model of outsourcing software development provides a collaborative approach, incorporating an external team with in-house staff.

This model sees the external team adopting responsibilities surrounding the software development workflow and coordinating with the client’s employees.

It allows for robust project management and collaboration on the day-to-day operations, aligning all parties on the relevant tasks.

At the same time, the managed team model delivers a flexible approach to development with similar scalability features as with dedicated teams.

Clients can draw on the external team’s specialist skills when required, optimizing the available resources to suit the project’s development pipeline.

This setup can be achieved without sacrificing the time and attention needed to focus on other business priorities and develop core competencies.

Staff Augmentation Model

Most software development projects require various skillsets at different points in the lifecycle, which the staff augmentation model aims to address.

It is designed to allow clients to alter the software development team structure at critical milestones without the need for hiring and training new staff.

A business’s in-house team may be sufficient for some processes, but additional designers and software engineers may be necessary for some tasks.

By applying the staff augmentation model, developers can be hired to handle complex processes on a short-term basis.

While integrating this extended team model can pose challenges surrounding in-house work practices, it’s an effective method for quickly filling a skills gap.

Project-Based Model

The project-based model is similar to the dedicated team model in that all development tasks are outsourced to a third party.

A key difference between the dedicated and project-based model is how the overall project management is handled over the lifecycle.

While clients typically manage projects with dedicated teams, the project-based model outsources project management to the development team.

As such, project-based outsourcing allows businesses to take a hands-off approach to software development and focus on mission-critical objectives.

It’s a popular software outsourcing model for smaller companies that lack experience creating applications and do not have an in-house team.

Recommended read: The best examples of custom software development.

Contract-Based Software Development Outsourcing Models

The last core category of outsourcing models is contract-based, with two approaches commonly used for software development:

Here’s an overview of the fixed-price model and the time-and-materials model in the context of bespoke custom software development:

Fixed-Price Model

One of the simplest outsourcing models companies can adopt is the fixed-price model, in which a project rate is agreed upon at the outset.

This price is determined by estimating the project’s duration and the resources needed to complete it according to the client’s specifications.

When developing the fixed-price model, factors such as the need for experienced developers and the necessary tools are also considered.

The approach is best suited for businesses that need tight budget control and have a clearly defined concept for the outsourcing company to work with.

However, it can also lead to problems later in the development lifecycle, particularly if new features need to be integrated into the application.

Time & Materials Model

Another approach to billing is the time and materials model, which allows for more flexibility and adaptability than the fixed-price model.

This model begins with a general estimate from the outsourcing company and potential costs should the software development timeline change.

Clients can then assess their budget on an ongoing basis and consider whether to expand the project’s scope over time.

Businesses should choose a reputable outsourcing company before adopting this model, as it is susceptible to manipulation by unscrupulous providers.

Choosing The Best Software Outsourcing Company For Your Business

Once you understand the software development outsourcing models, it’s time to select the best software outsourcing partner.

Consider these factors when choosing a software development company for your new project:

• Relevant industry experience: If you’re launching a project that requires specific industry experience, you’ll need to partner with a service provider who understands the rules and regulations involved.
• Communication and collaboration tools: Outsourcing software development to an external team requires robust communication and collaboration tools. Before choosing a partner, evaluate how they align these processes with internal and external project managers.
• Time zone differences: Outsourcing software development can sometimes introduce time zone differences that impede collaboration, making checking the team’s geographical location essential.
• Language and culture barriers: If you’re considering offshore outsourcing, the associated cost reduction can come at the cost of language and culture barriers, limiting communication and negating cost savings in the long run.

By shortlisting potential development outsourcing companies, you can partner with one that aligns with your values throughout the entire development process.

Discover the cutting-edge tech we use at MyDevTeam.

Outsource Software Development With MyDevTeam

Whether you’re hiring developers for a startup project or revamping an existing platform, MyDevTeam offers comprehensive solutions for outsourced development.

By partnering with MyDevTeam, you can access the following services:

• Complete cross-platform software development: Reaching the broadest possible user base requires full cross-platform support. MyDevTeam’s experts ensure applications function on desktop computers and various portable devices.
• Dedicated industry-based experience: MyDevTeam has experience building digital products for all major industries, covering healthcare, entertainment, logistics, construction, and retail.
• Integrated development and operations (DevOps): MyDevTeam’s DevOps services ensure projects are developed to the highest possible standards, increasing efficiency and streamlining collaboration.
• Staff augmentation services: Projects that require scalable teams can use MyDevTeam’s staff augmentation model to assist with UI/UX design and access professional software engineers for seamless integration.
• Access to the latest cutting-edge tech stacks: MyDevTeam develops software using an extensive selection of tools, from cutting-edge artificial intelligence tools to open-source technologies.

With flexible software development models and a proven track record of success, MyDevTeam brings innovation to every project.

Summary

With increased demand for custom applications that drive business goals, the software development industry continues to expand.

Selecting the optimal software development outsourcing model is critical for ensuring projects are completed on time and within budget.

Businesses can collaborate with outsourced team members throughout the project and draw on the skills of experienced developers.