Organization | June 18, 2021

7 phases of the IT outsourcing process. Why take advantage of outsourcing companies? 

Companies often strive to recognize the best third-party vendors. When it comes to IT outsourcing, we are partners, that is true. We pay attention to mutual respect, communication and the spirit of collaboration. But before we get to that stage, there are a number of contractual aspects to be checked. In the article below, I describe 7 phases of establishing cooperation with an IT outsourcing provider.

IT outsourcing cooperation

What is Business Process Outsourcing (BPO)? 

Companies are most often familiar with the definition of outsourcing and the process itself holds no secrets for them. Let me just briefly remind you that BPO (Business Process Outsourcing) is a process whereby a company transfers different segments or services of their business to another company. BPO is often associated with front office customer care workers, but the term is much broader and includes all back office business functions too.

Types of IT outsourcing

Sometimes the operating activities are relocated to another country¬†‚Ästif¬†the other country is¬†far away, this kind of outsourcing is called‚ÄĮoffshoring (offshore outsourcing);¬†if in a nearby country¬†it is known as¬†nearshoring (nearshore outsourcing); and¬†if inside¬†national borders ‚Ästonshoring.¬†

Read also: Nearshore vs. offshore software development 

Why do companies outsource? 

There are many reasons behind the relocation of business processes, and these reasons have evolved over time. For example, in the past, the main reasons for outsourcing services were reduced costs and saved time.

Nowadays lower costs of services are not the key decisive factor anymore. Many companies often lack highly qualified employees and hence decide to take advantage of outsourcing benefits. In the IT industry in which we operate, Business Process Outsourcing (BPO) allows companies to acquire specific, usually rare competences.

Advantages of IT outsourcing

As a consequence, a company using outsourcing services can gain a competitive advantage and improve its market position on both strategic and functional levels. For example, a number of companies have decided to hire software developers as they need to augment their staff in order to carry out innovative projects. Furthermore, Business Process Outsourcing improves the cost structure considerably and allows great flexibility within an organization, especially when implementing the Agile model of cooperation. But what path leads to collaboration?

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7 steps to establishing IT outsourcing cooperation 

Every Business Process Outsourcing starts with assessing the company needs and planning the sourcing process. Next comes the selection of service providers, negotiation of the contract, executing service transition, monitoring and controlling.‚ÄĮLet‚Äôs have a closer look at the seven steps of the IT outsourcing process. 

Key phases of the outsourcing process 

The key phases of the outsourcing process (especially in IT outsourcing relations where projects are often critical for digital transformation) are as follows:

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1. Assessment (and development of strategy)  

The first stage of outsourcing, and very often the most difficult. The buying company conducts a thorough assessment of their sourcing needs.‚ÄĮWe described it in detail earlier on in the text: Custom software development companies ‚Äď how to find the best?

2. Proposal (and selection of a service provider) 

To get information from providers, the buying company will create and send at least one of the following documents to the external market:  

  • Request for Information (RFI) ‚Äď its purpose is to determine which of the providers is able to deliver the required services. The document includes details related to providers‚Äô capabilities. 
  • Request for Proposal (RFP) ‚Äď it is helpful in determining the bidding process and the terms of the contract. 
  • Request for Quotes (RFQ) ‚Äď it enables a company to gain insight into the cost of services. 
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3. Due Diligence

This is the process of gathering and evaluating information about each other‚Äôs capabilities to form a structured relationship. 

4. Contract procurement 

Both parties formalize their business relationship by means of a written agreement. The companies will negotiate the specific terms of their relationship and will then sign a contract, typically one of the following: 

  • Master Services Agreement (MSA)¬†‚Ästone of the most typical types of contractual agreements,¬†used in relationships where one company has to work on¬†a¬†project or projects with another company. It usually covers¬†areas¬†such as¬†intellectual property, confidentiality, terms of payment, responsibilities, warranties and work standards.¬†
  • Service Level Agreement (SLA)¬†‚Äď a critical component of any outsourcing and technology vendor contract. It lists and clarifies expectations¬†pertaining to¬†service type and quality.¬†¬†
  • Non-Disclosure¬†Agreement (NDA),¬†also known as a Confidentiality Agreement (CA)¬†‚Ästin general, these are agreements that¬†protect sensitive information.¬†Cases in which confidential information might be protected through an NDA can include¬†business models, plans for a new tool or software product, information about clients etc.¬†

Read more: Discover added value and unexpected benefits of IT outsourcing!

5. Implementation

After the contract is signed, the two companies will begin transitioning resources and responsibilities from the business to the outsourcing company. This represents the official launch of the project.

6. Managing / delivery 

This stage is typically the longest because it involves managing the business and maintaining a working relationship throughout the contract.

7. End of the contract / transfer 

At the last stage of outsourcing, repatriation involves the transfer of resources and responsibilities back to the original companies. Usually, cooperation between companies in the area of outsourcing lasts longer than one project. After the first project is completed, the outsourced teams start the next projects, sometimes to do with maintenance, but often the development of new software products or functionalities. Once finalized, the relationship lasts for years at a time.

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Software development outsourcing models and pricing

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Most of the contracts for Information Technology outsourcing services are billed based either on Time and Material or Fixed Price (small IT tasks) model. Nowadays, IT outsourcing services are developing and even more complex partnerships are possible. In such a case, a service provider and a client share risks, rewards and core competencies. Even setting up an operational subsidiary of the client’s company in a remote location can be outsourced to a local service provider.

Best practices in cooperation with a support provider

Before signing the contract 

  • Make sure that the outsourcing company’s cultural values correspond with yours. This way you will minimize the impact of potential differences.¬†
  • Identify potential risks, and sign an NDA (non-disclosure agreement) to verify whether the software development company will be able to deliver the required product.
  • Select an engagement model. Discuss it with your IT partner to choose what fits best (consider whether you need, for example, the support of several developers, a separate team, or programmers who will complement your in-house team).¬†
  • Choose and get to know the specialists who will be working with you. Take into account not only their expertise and seniority but also soft skills and suggestions made by an external service provider.¬†

During the cooperation 

  • Allocate time for a kick-off workshop. It usually takes a couple of days and its goal is to introduce team members, discuss the project’s goal and roadmap, as well as define roles and rules of communication, reporting, etc. This is also the right time to set up the infrastructure. 
  • Focus on communication. Use project management tools to facilitate communication with the external company, give feedback, and be open to receiving it. Agile project management methods should make dialogue easier. 

Outsourcing service providers ‚Äď summary

While looking for new IT providers, companies often struggle with the process of selecting the best candidates, whether due to inexperience, lack of industry knowledge or research, or poor planning. But luckily, there are multiple recognized outsourcing veterans, e.g. Polish software development companies, which play an important role in the worldwide outsourcing market thanks to qualified and experienced professionals.‚ÄĮWhile searching for the best service provider, it is worth familiarizing yourself with the 7 phases of cooperation which I have described above. This will allow you to establish relationships that can bring benefits to both parties for many years to come. 

Read more: The best practices in IT Nearshoring

Contact me on LinkedIn

Agata has years of experience in a software development environment, which helps her to understand how to manage internal and external IT product development. It is her role to help clients to maintain control in outsourced software development projects, reach deadlines and maximize business goals. In her private life, she is an enthusiast of antique jewelry and escape rooms.

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