What Business Model to Choose for Your IT Outsourcing Company – Pros and Cons of Each – Worklog360

This post is aimed at technological solutions providers who offer outsourcing services to their clients. It will explore three different outsourcing business models options and list the pros and cons of each to help you choose which best suits the strengths and objectives of your organization. 

If you’re an IT service company choosing an outsourcing business model to offer clients, there are three main options in front of you:

1. Provide Individual Technical Experts to Work Directly with Clients’ Teams as Dedicated Agents

This outsourcing model involves you hiring individuals with technical expertise to work directly with your client’s existing internal teams. Essentially, you are hosting team members on their behalf, providing them with technical equipment and office space (remote working is also an option), take care of HR and legal matters such as contracts and health insurance, but the client is fully responsible for onboarding and organizing their new team members’ day-to-day and workload.

Pros:

• You are responsible for the hiring process, technical setup, HR and legal admin. However, once onboarded, each team member for a client’s team is a recurring revenue stream for your company that requires minimum upkeep. 

• The demand for outsourced software engineers and other technically competent staff is relatively high, so you will be able to find new clients

• If you do the hiring well and your client is satisfied with their new team member, this can be a long-term financially feasible relationship.

Cons: 

• Motivating the outsourced team members is out of your hands as you have no control over their work day-to-day and have no visibility over how they are treated within their teams and what tasks they are required to complete. 

• At the same time, maintaining low turnover is a priority for you as rehiring team members comes with additional overhead costs.

• If a client isn’t satisfied with the team member/s they received, they may decide to switch to another vendor of outsourcing services, or set up their own local operation.

2. Provide Complete Dedicated Development Teams that Work with Client’s Product Owners/Managers

Another option to choose from for your outsourced services business offering is to provide full teams to your client’s, which can include QAs, software developers, DevOps Engineers, and/or Project Leads. Those team members will then be working directly under your client’s own Product Owners and Product Managers. Those teams will act as an extension to your client’s workforce and it’d be your responsibility to put the team together according to the client’s brief.

Pros: 

• You provide an increased amount of value to your clients as you take more responsibility for building the solution they need. This includes choosing what technology stack to use, how to build the architecture, how to set up the development process and much more. Essentially, apart from the team you provide you utilize your expertise and know-how in setting up your clients for success. 

• The demand for outsourced software engineers and other technically competent staff is relatively high, so you should be able to rely on a consistent stream of new clients.

• If you do the hiring well and your client is satisfied with their new team members, this can turn into a long-term financially feasible (and profitable) relationship. In this case, the overheads are reduced over the course of the contract.

Cons:  

• In order to find and convince clients to trust you to build an entire team from scratch and outsource the solution development, you need to work hard at gaining their trust. You will need to showcase your expertise, wow them with past completed projects and stellar reviews from other happy clients.

3. Offer Specific Competence-Based Value Propositions

The third outsourcing solution business model that stands in front of you as an option is to dig deeper into your know-how and expertise and define specific value propositions you can confidently offer clients. For instance, you could have exceptional competence in Web and Mobile Applications Modernizations, Domain Specific (Fintech, Transport and Logistics) software development, ERP/CRM integrations and development. Realizing that, focus your marketing and sales efforts in searching for clients with those exact needs.

In this case, your teams will specialize in a particular domain and work for multiple clients at the same time, offering the same type of solution. You essentially build a “product” and then resell to different clients.

Pros: 

• Your teams have a clear focus as you build up the teams and their competences around core value propositions.
• Your teams have a roadmap of what is to come next, which keeps them more motivated. .
• The technology stack does not change so often in time people do need to learn new technologies for new clients. 
• You can work on more fixed projects with bigger margins, which makes it a financially profitable way to go.

Cons:  

• High competition in the space means you’d need to work hard to win new clients. This in turn might result in lower productivity.

All the discussed outsourcing solution business models you can base your service company around come with pros and cons. Just like in life, every decision and choice comes with an opportunity cost. Think hard about which one to implement and what makes sense for your business and its long-term objectives.

Whichever scenario you choose, you will be working with a number of outsourced agents whose time you need to carefully track and manage. For that purpose, you will need to use a good issue tracking solution such as JIRA or MsDevOps. Within those systems, there are solutions that go way beyond the default time tracking functionality by using third party add-ons to allow for easy time tracking and billing, detailed reporting, straight-forward timesheet management and approval and much more. Worklog360 for JIRA is one such solution that enables you to have visibility over all your projects and team members as well as how their time is spent at a glance, just a click away. Discover more here https://marketplace.atlassian.com/apps/1222428/timesheet-report-jira-time-tracking-calendar-budget?hosting=cloud&tab=overview.