IT Outsourcing Ultimate Guide to Unlock Potential Business Success

In today's fast-paced and technology-driven business landscape, leveraging external expertise has become not just an option, but a necessity for companies seeking to stay competitive and innovative. This guide is designed to demystify the process of IT outsourcing, providing insights into how it can be a game-changer for your business. From understanding the basics of IT outsourcing to exploring advanced strategies for successful collaboration, we'll guide you through every step of the journey. Whether you're a small startup or a large corporation, this guide will equip you with the knowledge and tools needed to make informed decisions and harness the full potential of IT outsourcing for your business success.

What is IT Outsourcing Services?

According to Gartner, IT outsourcing is the use of external service providers to effectively deliver IT-enabled business processes, application service, and infrastructure solutions for business outcomes.

Outsourcing encompasses a variety of services, including software development, web development, mobile development, Software as a Service (SaaS), and cloud-based services. It aids businesses in crafting suitable sourcing strategies, choosing the ideal IT service providers, negotiating optimal contracts, and managing these agreements to foster enduring, mutually beneficial partnerships with external vendors. Essentially, the principle is straightforward: Employ external specialists for IT necessities, rather than relying on internal recruitment.

To put it as simple as possible, IT Outsourcing means hiring a third-party service provider to fulfill your IT related needs, instead of sourcing talent in-house.

Types of IT Outsourcing Services

IT outsourcing specialists operate from remote locations to meet your IT requirements. The location of these outsourcing companies can significantly influence expenses, operational procedures, and strategic business planning. Below, we discuss four distinct categories of IT outsourcing based on location and their unique characteristics.

Nearshore Outsourcing

Nearshore outsourcing or nearshoring happens when you engage an IT developer from a location closer to your country, which is only 1 or 2 hours different from the local time zone. Of course, nearshoring is only feasible if the chosen country promises a lower development cost compared to your country. 

Nearshoring gives you an economical approach to outsourcing while allowing the possibility for physical meetings.

Onshore Outsourcing

When you’re onshoring, you’re engaging an IT service provider within your country. Also termed as homeshoring, this method eliminates time zones and cultural differences, which give you a huge advantage when it comes to urgent situations. You and your IT partner can have an offline meet-up and directly discuss issues in the most convenient and efficient way. 

Furthermore, in events of kicking off the project or initial release of products, the whole team can easily get together and set up the event. With everything within the country, you can have more control over the project and the development process as well as save up lots of effort in communicating and setting up working procedures.

Offshore Outsourcing

Also known as offshoring, this arrangement involves working with developers situated in countries with a large time zone difference. Offshore developers could be situated 6 hours or more apart from your local timezone.

By going offshore, you’ll have access to a larger pool of talents in countries with lower hourly rates. Besides the lower cost, some companies have opted to offshore some of their IT processes to ensure round-the-clock availability and support.  

Hybrid Outsourcing

The hybrid model uses a mixture of multiple types or styles of outsourcing that work best for both your company and your IT partner. The ultimate goal of the hybrid model is to achieve the balance in the outsourcing process, which is maintaining tight control and collaboration while increasing team flexibility and throughput at a more cost-effective blended cost.

There are many different forms this type of model can take. The most obvious example is to blend team approach of resources from both your on-site teams and your outsourcing partner. In this instance, one or more outsourcing teams will work together with your own team to complete the project successfully.

Explore our insights into IT Outsourcing with the exclusive eBook “Key to IT Outsourcing: The Ultimate Guide 2024” at: morsoftware.com/ebook/it-outsourcing-guide 

Guide on choosing an IT Outsourcing plan

Delivery models of IT Outsourcing

• Project Based Outsourcing

In this model, you’ll contract the entire project to an external vendor. The vendor will commit its resources to work on the assigned task and deliver the project on an agreed timeline. As such, you don’t need to set up an IT department in your company. Project-based model is a viable option when the task involved demands expertise that your company lacks. For example, you intend to build a customized inventory app for your business, but software development isn’t your company’s strength.

• Dedicated Team

As the name implies, the dedicated team model involves the vendor assigning a team of IT talents that work specifically for your business. With this setup, the dedicated team will work exclusively on your project at an agreed rate. Usually, a dedicated team comes with a project manager, who oversees and organizes tasks among the members.

• Outstaff Model  

The out-staff model, or staff augmentation, is where you utilize developers employed by an outsourcing vendor. The vendor officially employs these developers, who then work on your project. This model is ideal for companies with an existing IT team who need developers with particular skills for short or long-term projects, bypassing the need for a lengthy recruitment process. 

Types of Contracts

In IT Outsourcing, there are 2 main types of contracts: 

• ODC Contract

Provide dedicated resources for customer. Assigned engineer(s) will work under customer’s instruction.

This is a type of outsourcing arrangement where a dedicated team of software developers and engineers is established offshore to work exclusively on a client's projects

• Fixed-price contracts

Best practice in case of project requirements when architecture design is clearly defined. 

In this type of contract, the scope, timeline, and price are agreed upon upfront. The outsourcing provider is responsible for delivering the project within the specified parameters, and the client pays a fixed price for the completed work.

Select the Right Combination of Outsourcing Models (Hybrid Outsourcing Model)

When selecting an IT outsourcing model, businesses must consider a range of factors to ensure the chosen approach aligns with their operational needs and strategic objectives. Here, we'll explore how to select the right combination of outsourcing models, focusing on key factors such as cost-effectiveness, time zone differences, cultural compatibility, and unique business needs and requirements. 

• Cost-Effectiveness

Cost-effectiveness is a primary consideration when selecting an outsourcing model. It's not just about finding the lowest price but ensuring value for money. This involves assessing the cost relative to the quality of services and the potential return on investment. 

• Time Zone Differences

Time zone differences can be a challenge or an advantage, depending on how they are managed. Businesses can choose models that either overlap significantly with their working hours for real-time collaboration or differ to ensure round-the-clock productivity.

• Cultural Compatibility

Cultural compatibility plays a crucial role in the smooth operation of outsourced projects. Understanding and respecting cultural differences can enhance communication and collaboration.

• Unique Needs and Requirements

Each business has unique needs and requirements that must be addressed by the outsourcing model. This includes technical expertise, industry-specific knowledge, and scalability.

In addition to the above factors, businesses should also consider:

• Quality Assurance: Ensuring the outsourced team maintains the desired level of quality.
• Data Security and Compliance: Especially crucial for businesses handling sensitive information.
• Scalability and Flexibility: The ability to scale services up or down as needed.
• Communication and Reporting Structures: Ensuring clear and effective communication channels.

Different business situations call for tailored IT outsourcing model combinations. To help you get a better picture of the Hybrid Outsourcing Model, here are several examples illustrating how businesses might combine different outsourcing models to address specific needs:

Startup Scaling Up:

• Combination: Nearshore + Offshore
• Scenario: A tech startup needs to scale up its development capabilities without significantly increasing costs. 
• Application: They utilize nearshore outsourcing for roles requiring close collaboration and cultural alignment, like project management. Simultaneously, they employ offshore outsourcing in regions like Southeast Asia for bulk coding and testing tasks, taking advantage of cost savings.

Established Enterprise Seeking Innovation:

• Combination: Onshore + Offshore
• Scenario: An established enterprise wants to innovate its product line while maintaining core business operations smoothly.
• Application: The company uses onshore outsourcing for high-level consulting, strategy, and innovation due to proximity and ease of collaboration. For routine IT operations and development tasks, they use offshore teams to optimize costs.

Mid-Size Business with Specific Software Needs:

• Combination: Hybrid (Onshore + Nearshore)
• Scenario: A mid-size business needs specialized software development without incurring the high costs of fully onshore outsourcing.
• Application: They opt for a hybrid model, using onshore resources for critical phases like initial planning and final integration, while nearshore teams in similar time zones handle the bulk of the development work, offering a balance of cost and convenience.

Financial Institution Requiring Secure Data Handling:

• Combination: Onshore + Multisourcing
• Scenario: A financial institution needs to ensure high-level data security and compliance with regulations.
• Application: They keep data-sensitive tasks onshore to adhere to strict regulatory requirements. For different IT functions like application development, cloud services, and customer support, they use a multisourcing approach, selecting specialized vendors for each function.

We hope that one of the Hybrid scenarios provided above might align with where your business is standing and what kinds of ITO model you are looking for.

If you still have not figured out the ITO models that suit your business from our examples, contact us and get free consultation now!

When should you go for IT Outsourcing services?

When applied correctly, IT outsourcing results in tremendous cost savings, flexibility and helps you to reach the market in a quicker time. These are some great scenario for you to go all out for IT Outsourcing: 

You Need Technical Support

In the software development industry, knowledge and skills can get obsolete quickly. They can be replaced with newer tech stacks that are beyond your company’s existing capability. In such a scenario, you’ll either need to upskill your IT team or outsource part of the project to an IT vendor.

Obviously, getting an experienced vendor for the job is the quickest way to improve an existing app. It spares the trouble of upskilling your team or hiring a new developer who could take on the job.

You’re A Leading Expert In The Industry

As an industry veteran, you’re familiar with your customer’s problems and know how to get them solved. However, your business may not be in the IT field nor possess the necessary skill sets to turn the ideas into an app.

As such, outsourcing is often the better solution than hiring an in-house team. By leveraging outsourcing vendors, you get to test the market with an app while minimizing the risk of hiring in-house experts.

You’re Running An Early Stage Startup

Chances are, you’re running the startup in bootstrap mode, where funds are tight and you need to get an MVP to the market as soon as possible. You need to test your ideas quickly and find if they’re aligned with what users need. 

To minimize the risk and speed up the process, it’s better to hire an outsourcing vendor to develop the app.

Why should you go for IT Outsourcing services?

IT outsourcing enables businesses to drive innovation, reduce costs, enhance efficiency, and focus on strategic growth initiatives, making it a compelling choice for many organizations. Some competitive advantages when going for IT Outsourcing are: 

Reduce business costs

When you outsource to countries with lower costs of living, you’ll be paying a lower rate for the service rendered. This translates into significant operational cost reduction for your business. 

Gain access to world-class capabilities

Going beyond the local talent market allows you to connect with global tech talent and there is no shortage of them. If you're hiring from Eastern Europe, you’ll have access to more than 1 million highly experienced tech experts.

Increase flexibility and scalability of your project

Outsourcing removes the time-consuming process of finding the right developers. Besides, you’ll also have the flexibility of adding or removing remote developers according to current needs.

However, along with the pros, it comes with some cons for IT Outsourcing as follow:

No full control 

Unless you’re hiring a dedicated team, you have very little control over the app development. This is particularly true when you entrusted an outsourcing vendor that is juggling a few projects simultaneously.

Security & Confidentiality Risks

Outsourcing may expose sensitive company data to third-party vendors, raising concerns about data security and confidentiality, particularly if the vendor has lax security protocols.

Cultural Differences

Differences in work culture and business practices between your organization and the outsourcing provider can lead to friction and inefficiencies.

Why choosing Vietnam for IT Outsourcing services?

Choosing IT outsourcing in Vietnam offers several advantages, making it an attractive option for many businesses. Here are some key reasons why you might consider IT outsourcing in Vietnam:

Cost-Effectiveness

One of the primary advantages of outsourcing to Vietnam is cost savings. The cost of labor in Vietnam is relatively lower compared to many Western countries, which can significantly reduce overall project costs without compromising quality.

Skilled Workforce

Vietnam has a growing pool of skilled IT professionals, including software developers, engineers, and IT specialists. The country has invested heavily in STEM education, resulting in a tech-savvy workforce that is competent in various modern technologies and programming languages. 

Favorable Business Environment

Vietnam has been improving its business environment to attract foreign investment. The government policies are increasingly supportive of the IT sector, making it easier for foreign companies to outsource their IT needs to Vietnam.

Growing Tech Hub

Vietnam is rapidly becoming a significant tech hub in Southeast Asia. With a growing number of startups and tech companies, the country offers a dynamic and innovative environment for IT development.

Language Proficiency

English proficiency among Vietnamese IT professionals is generally good, particularly in the younger generation. This reduces the language barrier, making communication smoother.

Guide on selecting an IT Outsourcing partner

Choosing the right IT outsourcing partner is crucial for the success of your project. Here are steps to help you make an informed decision:

Step 1: Define Your Requirements

Clearly outline your project objectives, scope, timeline, and budget. Identify the specific skills and expertise required from the outsourcing partner.

Step 2: Research Potential Partners

Conduct thorough research to identify potential outsourcing companies. Look for firms with a proven track record, relevant experience, and positive client testimonials.

Step 3: Evaluate Experience and Expertise

Assess the outsourcing partner's experience in your industry and with similar projects. Look for expertise in relevant technologies, methodologies, and domains.

Step 4: Check References and Reviews

Request references from past clients and review online feedback and testimonials. Contact references directly to gain insights into the outsourcing partner's performance and reliability.

Step 5: Assess Technical Capabilities and Working Compatibilities

Evaluate the outsourcing partner's technical capabilities, infrastructure, and resources. Ensure they have the necessary skills, tools, and technology infrastructure to meet your project requirements.

Step 6: Assess Financial Situation

Evaluate the outsourcing partner's financial stability and reputation in the market as well as your company’s financial capabilities at the moment. This way can help you and your ITO partner come up with the best deal that fits each other budget and interest the most.

Step 7: Negotiate Contract Terms

Review and negotiate contract terms carefully, including pricing, service level agreements (SLAs), intellectual property rights, and dispute resolution mechanisms. Seek legal advice if necessary.

Step 8: Start with a Pilot or Trial Project

Consider starting with a small pilot project to test the outsourcing partner's capabilities, communication, and delivery processes before committing to a larger engagement.

Step 9: Monitor Performance and Provide Feedback

Continuously monitor the outsourcing partner's performance against agreed-upon metrics and provide feedback for improvement. Maintain open communication channels to address any issues or concerns promptly.

By following these steps and conducting thorough due diligence, you can select an IT outsourcing partner that meets your project requirements and contributes to its success.

MOR Software as your trusted ITO partner

MOR Software is a leading software outsourcing company in Vietnam with years of continuous innovation and enhancement of high-quality software services for both domestic and international markets. 

As one of the leading IT companies in Vietnam, MOR Software not only provides modern technology software but also accompanies customers throughout their development journey. With a team of multidisciplinary engineers and experts, MOR always delivers innovation and competitive advantages in the technology development trend.

After  years of strong growth and development in the IT industry, MOR Software has expanded its scale to major cities with 6 offices in Vietnam, Japan and Korea.

Our Products and Services

As one of the leading IT companies in Vietnam, MOR Software not only provides modern technology software but also accompanies customers throughout their development journey. With a team of multidisciplinary engineers and experts, MOR always delivers innovation and competitive advantages in the technology development trend through the following products and services:

• Software Development Services
• Website Development Services.
• Mobile Development Services
• Salesforce Development Services
• Offshore Development Services

Furthermore, we provide consulting and development services in modern technology software, such as:

• AI application research and AI system development
• Blockchain and Bitcoin development/operation
• Cloud computing solutions
• IoT development and digital transformation

Achievements and Awards

Since its establishment, MOR Software has continuously innovated and upgraded high-quality software services for both domestic and international markets, solidifying its position as one of the top software exporting companies in Vietnam. The evidence is the prestigious achievements and awards in the IT industry that MOR Software has garnered during its 7 years of strong and successful development:

• Ranked in the Top 10 Leading Information and Communication Technology (ICT) Companies in Vietnam 2021 - Impressive Growth category.
• Sao Khue Award winner in the Software Outsourcing category for four consecutive years (2020, 2021, 2022, 2023).
• Achieving ISO 9001:2015 - Quality Management System certification and ISO/IEC 27001:2013 - Information Security Technical certification are significant accomplishments for MOR Software.
• Becoming a Salesforce Consulting Partner and an ISTQB Platinum Partner.

In conclusion, IT outsourcing presents a powerful strategy for businesses looking to enhance their operational efficiency, access specialized skills, and drive innovation. By understanding the different models, benefits, and challenges of IT outsourcing, companies can make informed decisions that align with their goals. Whether it's reducing costs, tapping into global talent, or staying competitive in a fast-paced digital world, IT outsourcing can be a pivotal element in a business's journey towards success. 

As the digital landscape continues to evolve, embracing IT outsourcing can be a game-changer, allowing businesses to stay competitive, innovate, and thrive in today's fast-paced world.