IT outsourcing for modern businesses requires a comprehensive plan which involves defining clear goals and setting up the most effective collaboration model. If businesses implement these partnerships correctly, it becomes easier to innovate and drive products or services to levels beyond what their internal teams can accomplish.
Many service providers offer partnership solutions that meet high business standards in today’s competitive world. When choosing the perfect engagement model, you should not only factor in transparency and a strong governance framework for all aspects of the partnership. Weighing the potential reward against the risk is equally important while ensuring that the solution your outsourcing partner offers reaps the most rewards for your investment.
To achieve this, it is essential to know that there can never be a one-size-fits-all solution in the tech landscape. So, understanding which outsourcing engagement model best applies to your unique business situation is useful. Let’s explore the most popular choices by delivery method and compatibility with different projects.
Time and Materials (T&M)
We refer to this as the ‘pay-as-you-go’ model and it is especially popular in Agile software development. The billing process is straightforward because a weekly or monthly fee is based on the actual time each team member reports. T&M is flexible when it comes to the allocation time of professionals which may start from 25% or higher depending on project demands. As a client, you can choose to involve IT specialists with different skillsets when necessary.
During iterations, your partner focuses on rolling out and improving a specific part of the project until the product development phase is completed. This model differs from the fixed price in terms of client engagement. You can smoothly navigate a process and suggest improvements for a desirable outcome if you do two things. The first is to actively participate in each iteration while the second involves offering feedback to the project management team after every sprint. You can even ask for modifications to the product development process in real-time for greater visibility into operations.
How Useful Is T&M?
This approach is useful for medium and large software projects where the scope of work and requirements are hard to determine in advance. These may change in the development process where new specifications can always result from deliverables. Notably, the risk of being active in project development is spending too much time on improving the final product because this can shift focus away from achieving other strategic goals.
T&M is the right fit for companies that have:
- No fixed requirements
- Large projects starting from the ground up
- Projects in industries with varying workloads and workflows, like R&D
- Flexible deadlines
Companies favor this engagement model when they decide to enhance their in-house development teams. Clients can work with a group of professionals with specific skills to meet their needs and scale up or down when necessary. This approach allows an enterprise to decide whether it wants to manage a team by itself or assign project management to a vendor. It is also possible to engage a team of professionals that, other than developers, may include QA engineers, designers, and project managers. You can have the vendor allocate a team of senior experts or hire middle and junior professionals who will follow the instructions of your onsite engineers.
Whether you cooperate with a nearshore or offshore partner does not matter. As a team, they acquire the experience in your specialty and consistently update their product knowledge throughout the collaboration. By assessing the project scope, you can decide the number of team members you want and determine if their qualifications, as well as expertise, match the project demands.
How Does The Dedicated Structure Work?
The project management flow depends entirely on unique business preferences. There can be a CTO who assumes control of the vendor’s project management tasks, and they remain responsible for all deliverables. Another common practice is to have a technical lead in the offshore team who manages the team locally while contributing to both development and coding. Customers can also choose to focus on the business development aspects of product development and assign the IT infrastructure and software development to their outsourcing partner.
Although businesses usually hire development teams for a specific period, there is always a likelihood of extending the partnership once a contract expires. Billing is simple as you cover the monthly wages of your IT partner’s team members, in addition to any management and infrastructure expenses they incur.
A dedicated development model is suitable for:
- Projects with continuous workflows
- Companies that understand the complexity of their projects
- Large or long-term initiatives
- Organizations that want to cater to fields such as product testing services and legacy modernization and maintenance
In this engagement model, an IT partner offers a single monthly plan with a fixed fee. It is not only easy for potential customers to understand. They prefer this option because it shatters cost barriers to entry and makes high-end resources accessible to SMBs. Also, instead of paying the full purchase price at once to gain access, customers spend less monthly. Some vendors offer multiple options with fixed-price subscriptions, and they freeze the price of a plan or each service in a bundle. As the budget is known in advance, customers find it more comfortable paying a set price at the beginning of each billing cycle.
Apart from being more economical, the fixed fee structure provides a safety net for businesses that do not want to underprovision or overprovision especially in uncertain circumstances like COVID-19. They can also plan ahead of time and make the most of their available resources. Consider how we at Clouve make this possible by offering DevOps services at an affordable monthly fee with all cutting-edge technologies and workflows in use.
Suitable For SMBs?
The fixed price system is suitable for startups or SMBs with relatively small, well-specified projects, limited budgets, and a clear scope of work. As part of an agreement, an outsourcing partner provides a fixed cost according to the nature of the deliverable. Outsourcing providers also complete the work more efficiently so they can maximize the value derived from contracts.
Why Go For The Fixed System?
As a client, you specify the business problem and your vision of how you would like your outsourcing partner to resolve it. A best practice is to go through the discovery phase together during which both parties establish definitive business and software requirements. This contributes to a complete understanding of the final product and deliverables.
A fixed fee is the most feasible option in terms of cost. Right from the start, you know the exact amount of money you will invest in services. There will be no alterations in the software development and project management processes, allowing you to accelerate time to market and provide great customer experiences.
When To Avoid
You might want to revisit your decision if you wish to regularly adjust your product to market or competition changes. This is because it brings scope vs estimated time of delivery and expenses into the equation, making flexibility a concern. Although an outsourcing partner might apply changes to the scope via a formal procedure, doing so will affect the time and cost of the final product. As a result, we do not recommend this model if there is an ongoing need to test and modify functionality.
Here is a checklist of business scenarios in which the fixed price system is an ideal choice:
- Short-term projects
- Limited budgets
- Strict deadlines
- MVP development
- If you do not want to involve your teams in project-based software development tasks
- If you want a best-of-breed, ready-made solution for a fixed price
- Test drives to determine if a vendor is qualified enough to deliver the expected result
The key takeaway is to choose a proper engagement model that aligns your strategic plans with your partner, allowing you to build a solid foundation for innovation. Discuss your project needs with your outsourcing partner to determine what model will work best for your business.
At Clouve, we bring our skills and technology to design, implement, and maintain quality IT infrastructure. We enable our customers to have continuous delivery pipelines and provide a highly resilient architecture that runs 24/7. Our subscription-based IT model promises professional, flexible, and secure services at a fraction of the cost of outsourcing. You can use our ticket-based system to choose the business plan that meets your needs, and we look into automated tasks, regular maintenance, and cloud IT support. Please contact us to get started today!