Challenges of IT outsourcing – manage them with NATEK

Author: Dorian Chęciński

26 May 2023

IT outsourcing is gaining more and more recognition from companies of various sizes. Considering that the IT outsourcing sector is expected to increase its revenue from USD 526.6 billion in 2021, to USD 682.3 billion by 2027 this trend isn’t slowing down. 

Outsourcing nowadays is a sophisticated solution. It helps a wide spectrum of companies worldwide to complete their projects in a timely manner, while also cutting costs. Expertise, and experience of IT outsourcing companies such as ours, are one of the main reasons why businesses choose to outsource.

But there are two sides to every coin. 

In this article, we will answer two crucial questions:

  • What challenges you can encounter in your outsourced project?
  • How do we at NATEK make sure that such challenges will never be a case in our projects?

IT outsourcing challenges 

Outsourcing an IT project is strictly connected with picking the right vendor. It is very important to check the background of your future partner. Thanks to that you can ensure they can manage the project you are about to commission.  

At NATEK we have worked with dozens of clients from very demanding industries such as banking, telecommunications, pharmacy, and automotive. Thanks to the expertise that we’ve gained over the last 19 years, our processes are transparent and well-planned. That allows us to address and prevent challenges in the bud.  

Now, let’s look into the challenges you shall consider while making your decisions.  

Choice of contract type

One of the most important steps is to work out the initial assumptions and estimations. That’s because the whole development process will be carried out based on them.

You may encounter multiple challenges and dependencies while estimating your project. Hence it may become problematic to pick the right contractual type which will mitigate all risks connected with estimations and undesirable outcomes.   

There are two approaches to consider in the initial preparation for outsourcing software development project:  

  • Are you leaving the estimation and the project execution fully on outsourced partner?  
  • Will your teams analyse the needs and provide supplier with already estimated project scope?  

Choosing the approach will have direct impact on contract type for the project. It is crucial to pick the right approach, to make sure that your budget will not run out. 

How do we overcome this challenge?

All depends on the complexity of the application and its functionalities that you are going to deliver. Each application has its key users who are likely the requestors of the project. Their level of clarity about the project may help you to decide.  

Is it better to leave the estimation to the supplier or rather perform it internally? Knowing your organizational culture, the key users and their objectives may help you to decide. Our experts always strive to thoroughly analyse your project, budget, requirements, and all relevant issues. So if you are not sure, they will help you make the best decision for your business. 

This decision is crucial as there are two distinct types of contracts to consider, that vary significantly. 

Time and material

In the time and materials contract, payment is based solely on the number of hours worked by the team and the materials utilized. The hourly rate of software developers may vary based on the expertise of the team members. The client is billed on a regular basis as the project progresses. Yet, the main risk is lack of commitment from outsourced partner to timeline.

This type of contract is often used by software development companies when:

  • the scope of the project is still unclear;
  • when changes to the project scope are expected.

Time and material can provide more flexibility and transparency for both the client and the service provider. That is because the actual hours and materials used are recorded and reported. However, it may also result in higher costs for the client if the project takes longer than expected, or if the hourly rates are higher than anticipated. 

Fixed price

In the fixed price contract, the client pays a predetermined price for the agreed-upon scope of work. The actual time and materials used to complete the project are not relevant here. This type of contract is often used when:

  • the project scope is well-defined;
  • the time and materials required are predictable. 

A fixed price contract provides a clear understanding of the costs and deliverables of the project for both sides. However, it can also result in additional costs for the client if changes to the project scope or unforeseen circumstances arise during the project. Additional work beyond the originally agreed scope equals higher costs.

Choice of the right contract type, and approach is not an easy task. Therefore, in NATEK we have a team responsible for business & system analysis, as well as conducting initial talks. Their task is to determine the scope of the project and the type of contract. Thanks to them our clients can enjoy only the upsides of contract they pick.  

Lack of control

This is perhaps the biggest challenge while outsourcing software development and results from the nature of this business model. If you have a whole team responsible for software development in-house, then your management processes are designed in a way you will be able to easily manage their work and make changes on the run. 

Yet, if you decide to create a project with the help of a software development outsourcing partner either as managed team or managed services, you will have to reckon with the fact that the project will be mainly managed by the vendor of your choice.   

Therefore, it is worth knowing from the very beginning how you as a customer will interact with your partner. It is very important to keep up to date with what is happening in the project to make sure that what is being created matches your vision and needs. A well-designed software development process should take into account you and your opinion. After all, it is YOUR project that is created. 

What if you can’t participate in creating your own project and control what is produced? Then there is a possibility that the end product will differ from what was assumed at the beginning of cooperation. 

How do we overcome this challenge?

Since 2004 we have been delivering software development projects to many clients.  

Over 1 million hours of project development experience allowed us to create our processes in a way that makes it possible to connect our expertise with the customers’ opinions and vision so that it’s always the client who makes the most important decisions, and the end product is what they envisioned. 

Our two main methodologies of choice – SAFe and Agile, enable us to involve customers in the whole development process, so that they can be always up to date with the planning sessions.  

The planning sessions are regularly scheduled events held throughout the year where multiple teams within the same Agile Release Train (ART) meet to align to a shared vision, discuss features, plan the roadmap, and identify cross-team dependencies. 

Whether you choose managed team or managed service outsourcing projects, in each delivery model we perform “daily stand ups”, which allow Scrum teams to monitor progress on the task and ensure compliance with SLAs (service-level agreements) per category of user requests. Daily monitoring is an essential part of performance monitoring using these methodologies. 

Planning and monitoring are essentially the key factors for customer not to lose control but to have good view on what is and will be going on with the project itself.   

Addressing the scale  

Many projects start out very modest but grow into large and complex systems over time. When the project grows, the team responsible for delivery must grow with it, to meet the expectations of the client. That is why you should check whether the vendor you are choosing will be able provide you with scalability 

If the company you choose is not able to scale with the project, then you may run into a problem because, suddenly, some features will not be delivered, and the deadlines will be constantly shifted. This is because your vendor can turn out to be too small to continue your project. 

Now, handing over started project to another company that will have the resources to run it further is a task that will consume a lot of time and money. Naturally the company you are resigning from must transfer all the knowledge, access, codes, and structure they have built so far to your new supplier. And that is not always an easy task.  

How do we overcome this challenge?

Each quarter, we identify and assess the velocity, and size of the team with the planned work. In case there is going to be an additional workload expected, NATEK adds additional specialists to carry out the project and ensures they are up to speed to perform as soon as possible.  

Thanks to our large talent pool, proactive client-oriented processes, and thorough recruitment methodology, scaling along with the project is not a problem for us. 

Addressing the capacity of the supplier to scale up or even down if needed, ensure knowledge transfer and continuity during the project are aspects that need to be addressed up front before starting cooperation with the chosen supplier.   

Big rotation of people involved in your project

While outsourcing software development services in a managed team, or managed service model you can encounter yet another challenge – the rotation of people.  

Each time an employee leaves your vendor’s team, it is associated with finding an appropriate replacement, replacing an employee for the time of searching, and weakening the performance of the entire team. All that can consume a lot of time, and budget.  

Additionally, when a new employee joins the team, the rest of your outsourced specialists will have to find time to support the new member with knowledge transfer.  

How do we overcome this challenge?

NATEK uses a number of approaches to minimize the rotation within our teams. The company monitors the level of attrition based on the adopted metrics, and at the same time sets organizational goals in this area for line managers. The core for each project is to build vision for all team members in terms of organizational career path and allow further ‘job rotation once the project is finished. These processes implemented several years ago have repeatedly contributed to reducing the turnover rates in various groups of IT employees. 

Furthermore, investing in the development of knowledge of IT employees by co-financing their training, certificates, or educational and e-learning projects helps to retain talents and builds continuity.  In our annual survey on satisfaction with work in projects, work mode, and managerial support, 96% of NATEK employees and associates feel well supported by their managers. 

So should you be afraid of outsourcing your project?

Have you carefully analyzed the vendor you want to work with? Asked them the right questions about potential challenges before starting the cooperation? If the answer to both is yes, then you shouldn’t worry. Remember it is also worth checking whether your potencial vendor has already carried out projects like yours. This is very important because it can speed up the software development processes while also reducing costs and risks.

Summing up

IT services make up for an astonishing 72% of all global outsourcing contract values, and that is not without a reason. 

Choosing an experienced company instead of building your own in-house team allows you to shift your organizations’ focus. You can concentrate on building its core capabilities and with no doubts, save time & money.

Outsourcing individual consultants when your company has IT departments is also a globally appreciated business model. 

Are you looking for a seamless outsourcing experience? Reach out to us and cooperate with one of the best outsourcing companies in the CEE region!


Dorian Chęciński


Related posts:

Other posts: