IT Outsourcing Model: What You Need to Know to Choose the Right Model

it outsourcing model

Before outsourcing your IT functions, it is the IT Outsourcing models that you need to choose for your business. To know this, you need to research and understand more about your requirements, the current market and the benefits of each model. Let’s look into the most popular IT Outsourcing models there are to understand this.

The most popular types of IT Outsourcing models

The IT Outsourcing models are categorized by location. To be more specific, you can have onshoring, offshore and nearshore IT, outsourcing models.

Onshoring IT outsourcing model

With Onshoring IT outsourcing models, your business and the outsourcing vendor will be located in the same region, the same country or even the same city. The outsourced team will be working in the same GMT as you and very much likely to speak the same language. This is a huge advantage for the communication between both parties.

However, onshoring IT outsourcing model is currently not the most ideal option when a business wants to outsource its IT functions, as the cost for setting up an outsourced team is very costly. Besides the small amount of recruitment cost that can be saved when you outsource, you still have to pay the employees in a high salary range. As a result, the edge of competitive cost is no longer available, which can make a big impact on your decision whether you should choose onshoring IT outsourcing or not.

Nearshoring IT outsourcing model

By nearshoring, we mean the IT outsourcing model in which your business and the outsourced team are located in neighboring countries. For example, you’re a business from Japan, and you choose a vendor from Vietnam, which is only 2 hours behind. In this model, the communication barrier and the cultural difference are limited, and the cost is still very reasonable.

Offshore IT outsourcing

Offshore IT outsourcing is perhaps the most popular and frequently-applied outsourcing model among the three. This is also the most budget-friendly model for the companies that are seeking a way to reduce the cost and invest more in core functions rather than technological matters. As opposed to the benefits from the low cost, the biggest problem with offshore outsourcing is communication.

To conclude, if you want to emphasize communication, onshoring is seemingly the most effective model. With onshoring, any feedbacks and reviews will be answered quickly, without any delay. In case of emergencies, the clients can contact the vendors right away via phone calls, which are accessible anywhere, anytime.

But if cost-cutting is your utmost priority, you should go for nearshoring and offshoring, as you can get the equivalent high-quality work at a much reasonable price.

It is often thought that the price comes with quality, but this does not simply apply to IT outsourcing. Thanks to geographical pricing, the price for technological services in some countries is lower than the others, hence your business can exploit this “gap” to gain financial benefits from it.

With the quality of IT outsourcing is currently being improved, more and more businesses are choosing these models. The problems with communication and language barriers in outsourcing countries have been dealt with, helping the businesses work seamlessly with each other.

IT outsourcing pricing models

Based on the pricing model. we have these four for you to consider:

  • Project-based
  • Time & Material
  • Dedicated team
  • Staff augmentation

To choose what IT outsourcing pricing model you should follow, you should know your financial situation and your management method. By knowing how you are going to collaborate, you will have better plans to streamline your visions and goals.

Project-based IT outsourcing model

Project-based IT outsourcing model is the working model in which your business and the outsourcing vendor work on the basis of the project. This model is usually applied when you want to outsource small-sized or mid-sized projects in a short amount of time.

Normally, a project-based model requires you to have clear requirements of what you want from the outsourcing process. This model is suitable for those businesses that have clear goals and a small budget.

About the financial matter, you will have to pay a fixed amount of money for what you want. For any more requirements, you want to add to the project, it is very likely that you will have to pay an additional fee.

All in all, the project-based model is for clients who know exactly what they want and how they want it with their IT functions. And to know these, it is a must that your business goes through business analysis and market research.

Time & Material IT outsourcing model

The time & material IT outsourcing model is another popular model that is being applied in many businesses in the world. With this model, you will have to pay for the hourly wage and material costs, which might vary throughout your project.

In terms of project requirement, time & material is for the businesses that do not have concrete requirements of the project. There might be some wireframes and ideas, but they don’t have a detailed plan in mind. In another way, these businesses want to discover their way through.

This situation is very common, especially in such a disruptive and ever-changing economic climate. Customers’ behavior changes on a daily basis, and many enterprises want to stay ahead of the curve. In order to do this, their application/product has to keep up with the changes and the latest technologies, and this can be achieved effectively with the time & material IT outsourcing model.

Dedicated Team IT outsourcing contract

A dedicated team has a similar way of operation as Time and Material, but the difference lies in how the recruitment goes.

For the project-based and T&M projects, you wouldn’t have to worry about who will do the project for you. As long as the requirements are met, the vendors can hire and delegate tasks as they please.

However, for the case of a dedicated team, the vendor with a talent pool will have to propose candidates with suitable skillsets and experience, then the client will choose the team members.

In terms of payment, the pricing system is quite transparent, the clients will pay monthly in accordance with the team size. The pay includes members’ salaries, service providers’ fees and any other additional fees that have been agreed upon before.

The scope of a dedicated team is normally big, and they will work on projects that are not strictly predefined, with requirements that can change over time. Since they are technically vendor’s employees, the vendors can give them multiple tasks of multiple projects. This feature can be further addressed in the contract between the vendors and the clients.

Staff Augmentation

Staff augmentation is basically hiring tech talents from vendors and having them work as your full-time employees. Payments for staff augmentation is the same as in dedicated team IT outsourcing models, meaning that the staff should be paid monthly.

How to choose the most suitable IT outsourcing models

Even though there are multiple ways to implement your IT outsourcing, they are not one-size-fits-all for your business.

Especially when working with the IT Outsourcing vendors, you can go for a more flexible model, whichever suits your requirements and goals. There are always choices for you to go with the hybrid pricing model.

But to choose the suitable IT outsourcing models for your business, you have some clarifications to think of first:

  • The goal of your project, whether it is clear or still in the fog
  • The scope of your project. From the goals of the whole project, you can estimate how much time will it cost you to complete the goal.
  • Your preferred project management methodology. For example, if you want to follow the Agile or Scrum methodology, project-based is definitely not your ideal way to go.
  • How do you expect the scalability from your outsourcing team?
  • What technical skills and level of experience do you expect from your team members?

All of these things above are the thing that you must know about yourself before signing in to any IT outsourcing model. Once these are clarified, you can simply go to any vendors and discuss your “order” to find the best team to work for you.

Struggling with finding the best engagement models for you? Get free consultancy from our experts of Lotus QA. We will give you 24/7 support to find the perfect solution for yours. Contact us:

Subcribe To Our Blog

    Popular Post

    Related Post