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IT outsourcing definition, types, models, and everything you need to know to get started

And if the outsourced function involves company data or knowledge then this should be taken into account. Look into the outsourcing company carefully to ensure you data will be protected. Handing off a particular project to an agency or contractor with the expertise to deliver on that project quickly and efficiently will lead to increased productivity.

What is Outsourcing in IT

Typically the provider of nearshoring services is in the same time zone as you or only one or two hours difference. Offshoring is when a company outsources its IT activities to an external provider overseas. Many choose offshoring as their preferred IT outsourcing for the main reason that the offshore countries offer cheaper costs, low or no tax, a larger technical workforce, or a stable political environment. IT Outsourcing, also called contracting out IT services, is the business practice of having other parties not employed by your organization handle some IT functions. Businesses today can outsource several IT tasks or services, including programming, application development, as well as technical support.

How to find the right software development company for the job

The T&M pricing model can be appropriate for large and long-term projects where scope and specifications are difficult to estimate in the initial stages. The most significant advantage of this model is its flexibility, as specifications and enhancements can be negotiated upon at any project stage. The downsides of T&M pricing are low budgeting control as you can’t accurately predict how much money you’ll spend and pricing for ‘idle time’ – a period when developers are waiting for client feedback and can’t work on a project. With this model, you hire remote developers who create a project and report directly to you. These specialists may form your entire development team or collaborate with the in-house developers. Unlike the project-based model, a dedicated team is more engaged in the project and works on it full-time.

What is Outsourcing in IT

Sometimes insourcing involves hiring new employees, either on a permanent or temporary basis, to execute the tasks being insourced. Companies might need to invest in new equipment, hardware and software when insourcing, and they might need to reengineer business processes as well. Companies engaged in outsourcing must adequately manage their contracts and their ongoing relationships with third-party providers to ensure success. Some might software outsourcing and outstaffing find that the resources devoted to managing those relationships rivals the resources devoted to the tasks that were outsourced, thereby possibly negating many, if not all, of the benefits sought by outsourcing. By outsourcing, companies could free up resources (i.e., cash, personnel, facilities) that can be redirected to existing tasks or new projects that deliver higher yields for the company than the functions that had been outsourced.

IT outsourcing models

Many organizations bring in a sourcing consultant to help establish requirements and priorities. Third-party expertise can help, but it’s important to research the adviser well. Some consultants may have a vested interested in getting you to pursue outsourcing rather than helping you figure out if outsourcing is a good option for your business.

What is Outsourcing in IT

A Fixed-Price agreement states that the vendor is obliged to complete a project within a fixed time. The fixed price is estimated by multiplying the volume of work by the hourly rate, together with other fees. Clients also cannot change any specifications or requirements unless they pay additional fees. Project-based IT outsourcing is an excellent choice if you want the vendor to take full ownership of your entire project. It’s the vendor’s job to manage the project and deliver the final product that meets your requirements.

What Is Outsourcing? Definition and Guide

While many firms prefer skilled staff members, it mostly makes sense to hire specialists rather than hiring newbies. An expert would hold the caliber to execute a specific job quickly without delaying routine operational jobs. It is important to communicate with employees and make them feel included during times of major change.

This outsourcing model works well for clients interested in long-term cooperation as their projects require a significant amount of work. An outsourced team can offer ideas and suggest alternative solutions and doesn’t need the complete set of project requirements at the beginning. Hiring a dedicated team gives you full control over the project and more flexibility with the project costs as you can change the team size as requirements change. This model also gives extra time for your in-house team to work on the big picture. A dedicated team best suits for complex long-term projects with the potential to expand and for early-stage startups that are expected to grow.


Outsourcing allows businesses to focus their attention on the areas they are most skilled at and let outside resources handle the other necessary tasks. IT outsourcing means that a business transfers a part of IT-related tasks to a third-party contractor to save costs. Basically, this means having those tasks done by others while controlling all the processes fully.

What is Outsourcing in IT

If they chose to “nearshore” the work, they may develop a relationship with a Canadian or Mexican third party. If they “onshore” the project, they would likely communicate with a business close by or hire independent contractors. Outsourcing business functions is sometimes called contracting out or business process outsourcing.

IT Outsourcing Pricing Models

Resources that are scarce at home can sometimes be found in abundance elsewhere, meaning you can easily reach them through outsourcing. Whether it’s leveraging cutting-edge technologies, implementing industry best practices, or accessing niche domains, IT outsourcing enables you to bridge skill gaps and harness the expertise of global professionals. Over the years IT outsourcing has emerged as the go-to strategy for tech companies striving to navigate the ever-evolving technology landscape and secure the expertise necessary for their success in the digital era. This approach offers access to a full range of different skills, a good balance between cost and value, and the opportunity to tap into the foreign market.

  • All the other disparities between the core and remote teams are either negligible or manageable, as a rule.
  • Simply put, Business Process Outsourcing involves outsourcing a particular business process, such as HR, IT, accounting/payroll, customer service, and other tasks, to an external provider.
  • What’s more, geographical proximity usually prompts cultural affinity, which further facilitates collaboration and productivity.
  • When considering the decision to outsource a company function, there are a number of different vendors and contractors to choose from.
  • They are reliable, thorough, smart, available, extremely good communicators and very friendly.
  • Outsourcing includes utility services, software as a service, and cloud-enabled outsourcing.

This is the reason many companies from the United States, Canada, Australia, Europe, and other countries prefer offshore outsourcing for a variety of industries, not just for BPO companies. Other types of creative process outsourcing involve content creation, graphic design, video production, and voice recording. Traditional companies may find it hard to stay current with the ever-evolving world of technology. If a widget company wants to build a webiste, it would make sense to outsource the job to someone (or a web dev company) who can build a website quickly and properly. KPO tackles knowledge-based processes, such as data analysis, R&D, or market research. For example, a new company without an in-house lawyer could outsource legal research, contract management, document review, and other law-related tasks to a third-party law firm or lawyer.

Offshore Software Development in Ukraine: A Must for Startups?

Freelance contractors offer different pricing structures based on their level of services and experience. Although it may take some upfront effort to obtain price quotes and determine who the best fit is, it can be cost-effective in the long run. When companies develop a clear plan and strategy for outsourcing, it can help the company make better decisions and maximize the relationships with its outsourcing partners. There is no doubt that outsourcing works – a study from IBM Research showed that businesses that outsource have lower expenses and higher operating income than a business that doesn’t outsource.

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