Software Development Outsourcing Trends in Current Global Macro-environment

2020 has been both a profound and disruptive year for all industries and sectors, especially software development and technology. This new normal is not likely to change soon. As software vendors and enterprises adjust to the changes this unprecedented year has brought, the need to continue business initiatives using expert resources and knowledgeable personnel increases. To survive, companies must optimize expenditure, enable core business focus, solve capacity issues, and access intellectual capital.

Software Development Outsourcing Trends in Current Global Macro-environment
Software Development Outsourcing Trends in Current Global Macro-environment. Photo by Nicole Wolf on Unsplash

These growing needs create a ‘perfect storm’ scenario, in which leadership looks for long-term partnership and guidance on their digital journey to both accelerate their strategic initiatives and achieve a faster return or payback. Those looking to weather the storm must understand current trends to enable effective planning.

Read on this article to learn about the top five software development outsourcing industry trends and how they will affect the next several years during and after the current global macro-environment.

Here, we look at the top five software development outsourcing industry trends and how they will affect the next several years during and after the current global macro-environment.

Table of contents

Trend 1: The availability of skilled workers continues to decline.
Trend 2: Software vendor leaders base outsourcing company decisions on more than just price.
Trend 3: Flexibility and communication are often the most significant influencers of successful project completion.
Trend 4: Outsourcing percent of total IT budget had dipped, but continues to rise overall.
Trend 5: Mitigate the risk of mismatching expectations with the final deliverables with digital transformation journey stages assessment.
Looking Ahead

Trend 1: The availability of skilled workers continues to decline.

By 2030, demand for skilled workers will outstrip supply, resulting in a global talent shortage of more than 85.2M people and $8.5T unrealized global revenue. The hardest hit will be Level A workers, considered highly skilled professionals, due to their post-secondary education or a high-level trade college qualification. And, the world’s leaders in business, finance, and software, including the UK, United States, Singapore, and Hong Kong, are expected to experience the most substantial deficits of these vital experienced resources. The technology industry already impacts every other sector of the global economy.

As business leaders continue to revise plans and strategies based on the changing world dynamic caused by the turbulent year, the need for innovation becomes apparent. For example, robotic process automation (RPA) is implemented in place of in-person workers, limiting the potential spread of illness. Innovation in artificial intelligence (AI) and machine learning (ML) drives automation, and the people-technology partnership promises enhanced productivity and employee safety across every industry. But, the availability of digital talent attraction and retention proves a significant challenge to transform to keep up with customer demands.

Obtaining or extending groups with an engineering partner deliver problem-solving by providing the required employee skills, building solutions and products from the ground up, or offering niche expertise based on technical advisory.

To combat the growing issue, software vendors look to establish a go-to pool of resources available for use in teams or as single replacements for specific projects.

Trend 2: Software vendor leaders base outsourcing company decisions on more than just price.

US software engineer’s median yearly salary in 2019 landed at $112k but can reach up to $129k per year for machine learning and data science experts. Working with development partners can enable companies to save budget while accessing highly qualified specialists. Working with an outsourcing partner allows companies to eliminate costs associated with employee downtime, benefits, location, and other human issues.

It would seem logical to find the cheapest resource to get the work done. However, not all development resources are created equal. Leaders have discovered that they need to build teams to excel or surpass their current in-house staff. Knowledge and expertise are considered before price to provide real ROI for the end-product.

To ensure value-over-price, companies look to analyze outsourcing vendors based on the vendor’s service models and cooperation approaches (flexibility), domain expertise (available CoEs), portfolio of current/previous projects (case studies and client testimonials), client feedback (NPS), knowledge of resources (engineering and delivery excellence) and ramp-up speed (SmartStart).

“Master your strengths, outsource your weaknesses.” –Ryan Khan, Founder of The Hired Group

Trend 3: Flexibility and communication are often the most significant influencers of successful project completion.

28% of businesses reported poor communication as the primary cause of failing to deliver a project within its original timeframe. In comparison, productivity improves by up to 25 percent in organizations with connected employees. As many software companies have adopted a full work-remote policy due to the global need, communication is more crucial than ever.

Communication barriers, including different time zones, languages, project comprehension, and cultural conventions, can prove challenging to overcome unless partners establish proven, effective, and transparent communication methods. Companies must understand project expectations to eliminate scope creep while diving into the outsourced team’s development quality standards. Perception of what each team member is working on, how often they check-in code or complete their sprints, and understanding success measures can be challenging to determine in advance. When working with an extended team, flexible contract terms have become a significant advantage with rapidly changing environments.

The goal for any development project is for the extended team to act and feel like members of the in-house team. Before allocating resources, leaders look to user-centric methodology to validate their digital journey, and when their expectations represent their actual needs, they match the workers accordingly. Removing the old adage of ‘one size fits all’ is not relevant for 2020 and beyond.

Trend 4: Outsourcing percent of total IT budget had dipped, but continues to rise overall.

The global IT outsourcing market will grow by $98B during 2020-2024, rising at a CAGR of 5 percent. Growth may continue to climb, as 78 percent of businesses have a favorable view of their outsourcing relationships. Using outsourced development and IT resources has become standard business practice for all sizes of software companies and enterprises. Extended software development teams open the door to knowledge that may not exist from hiring in-house staff. Especially during global uncertainty, using advanced, highly trained resources allows companies to continue or re-prioritize development projects.

Leaders look at current resources (in-house staff hours, existing skills and expertise, budget) to identify what is lacking, and where extended teams can fill the gaps. The business will analyze, calculate, and determine business metrics to evaluate if additional outside resources bring value, identifying longterm and short-term requirements.

To better understand a potential partner’s strengths, leaders look to previous and current clients for successful validation. A partner’s Net Promoter Score (NPS) measures customer experience and predicts business growth. This metric provides the core measurement for customer experience management programs worldwide and can quickly inform companies if their potential partner comes highly recommended or not. Additionally, case studies and client testimonials uncover past projects and client successes.

For companies looking to establish new software product development, cost savings, optimization of business processes, service quality improvement, or other specific business needs, extended teams can prove beneficial.

Trend 5: Mitigate the risk of mismatching expectations with the final deliverables with digital transformation journey stages assessment.

The first step in any software development journey is for software vendors and enterprise leaders to understand where they are in their digital journey. A company in the Reveal Digital Journey stage is typically in the initial planning cycle, considering an idea. If the concept is more fleshed out, but they are looking for a partner to help build upon and ‘walk with them,’ this is considered the Transform Digital Journey stage. The Accelerate Digital Journey stage consists of teams who are looking for experienced resources to drive them forward. In contrast, the Optimize Digital Journey stage implements resources to enhance current solutions.

Determining the exact digital journey stage for the team or solution is often the first step to realize expectations and uncover value when working with extended software development teams. Working with an experienced partner to discuss the current status and final deliverables provides higher value than merely adding specific resources to a project.

Key questions to discuss with a development partner may include:

  • How advanced are we in our digital journey? Are we in the early stages (Reveal), deciding what to create and where to win in the market? Or in the later digital journey stages (Accelerate), to launch quickly, with quality?
  • Have we used software development team extensions previously? How did that work for us and our company?
  • What digital transformation or development initiatives are currently on our roadmap?
  • What KPIs will we use to measure success?
  • How quickly does our project or outside resources need to ramp-up?
  • What are the most critical factors for the success of our development project?

Looking Ahead

The current macro-environment caused by the COVID-19 pandemic crisis will reverberate for many years, but this is an opportunity for many organizations. Independent Software Vendors (ISVs) and enterprises can begin to develop their road to recovery and even expansion now, with the help of extended software development teams. For successful project fulfilment, leaders will start by measurably defining their needed achievements, unique for each company and project. Regardless of the intended outcome, i.e., for new software product development, cost savings, optimization of business processes, service quality improvements, or other specific business needs, the leaders should look for a partner to provide digital strategy and support.

Extended Software Development teams deliver:

  • Flexibility to provide the right number of resources and services for the proper length of time, with shorter PoCs available
  • Project delivery enables individual resource staffing to complete the project and sprints with team staffing and management.
  • Scalability allowing teams to increase and decrease quickly, as needed
  • Speed with fast resource ramp-up times, eliminating wasted hours.
  • Knowledge and Experience from in-depth delivery and engineering excellence standards, creating resources equal to current inhouse staff
  • Centers of Excellence stand behind every employee to go beyond pure resourcing, to real innovation.

Source: SoftServe

Thomas Apel Published by Thomas Apel

, a dynamic and self-motivated information technology architect, with a thorough knowledge of all facets pertaining to system and network infrastructure design, implementation and administration. I enjoy the technical writing process and answering readers' comments included.