why outsourcing fails

Why Software Development Outsourcing Fails Most of the Time

Software development outsourcing is on the rise.

More and more clients are entrusting their major and minor projects to outsourcing companies. And even though enterprises and other establishments were somewhat pessimistic towards the idea before, luckily, their views are being altered bit by bit. 

A GSA report in 2018 shows that 70% of the companies surveyed are going to outsource more in the upcoming years. And research by Technavio shows that ” the IT outsourcing market size will grow by $98 billion during 2020-2024 “.

But despite its tremendous growth, global outsourcing has high failure rates. According to Dun & Bradstreet’s Barometer of Global Outsourcing, “20 to 25% of all outsourcing relationships fail within two years, and 50% fail within five”. 

Many establishments experience delays, budget overruns, low-quality services, and even contract termination. 

But what exactly is the problem? How come almost half of the outsourcing companies cannot deliver the required value? 

Why do they fail? 

And most importantly, how can you avoid possible complications? 

The blame doesn’t solely lay on the outsourcing companies.

A client’s unfamiliarity with software development and outsourcing processes, their unclear expectations, and their lack of proper project management and project estimation may all lead to disaster.

Now let’s dive deeper into each of these complications:

Insufficient technical expertise

Companies usually outsource their software development to escape the costly and stressful process of hiring permanent employees.

But they sometimes lack the required technical knowledge and expertise in software development and project estimation, and this may lead to the following complications with the outsourcing company:

  • Sometimes clients demand a feature in their product that increases the costs and extends the timeline of the project, but it’s not beneficial to their business.
  • Clients cannot create a balance between their software development costs and the minimum scope of business at the same time.
  • Clients cannot conjecture the best technology to use for their software development.
  • Considering their business plan and its development in the future, clients need to determine the technical basis of their product (besides the best technology) at the beginning of the outsourcing process. But they tend to fail in doing so.
  • Clients fail to estimate the costs and the timeline of each feature in the process of outsourcing their software development.

Try getting help from a third party in this situation. Many online platforms offer consulting services and can help you resolve these problems. 

Unfamiliarity with software development is the initial cause of project failure. This factor is the main problem that leads to some of the following setbacks.

Unclear expectations and objectives

Clients usually fail to delineate their project’s objective and desirable result; this affects both them and the outsourcing company’s perspective of the deliverable product and outcome.

Without a clear-cut understanding, clients change their orders frequently, and this causes delays and cost overruns.

Clearly understand the implications of the project and have clear and concise standards and preferences. Be as transparent and realistic as possible about your goals. Then, make sure your outsourcing company understands your outlook and is on the same page with you.

Ambitious project estimates

Some outsourcing companies set unrealistic deadlines and estimations for software projects when bidding for a project and writing a proposal to win the clients over.

And some clients accept their conditions because they are unfamiliar with their software development process. They attempt to save time and costs, but they end up with an unsatisfactory product and spend more time and money on redoing the project.

For instance, if two companies propose completing your project in five months and one company offers the same services in three months, and you choose that one company, you’re not in for a bargain; you’re in for a fraud! 

Be realistic in your timeline and budget estimates, and avoid any company that sets unattainable goals; you don’t want your outsourcing company to bail on you after one payment!

To avoid making ambitious and unrealistic estimates, it’s better to know about global outsourcing rates before outsourcing your software project to another company.

Improper planning

Clients assume that by signing a contract with outsourcing companies, they hand their project off to them entirely. But the truth is the project still needs management and supervision, so it doesn’t deviate.

Set your priorities straight and plan your project thoroughly before announcing the release date of your product, this way you can build your project estimates afterward and let the outsourcing company know about them in detail.

Have a consistent methodology for planning and executing your project. Most companies use Agile Project Management methodologies and avoid setting everything in stone.

If you want to keep things flexible as well, you cannot plan every small detail; but try to specify the tasks for your nearest milestone. 

software development outsourcing failure
Lack of communication 

Sometimes clients don’t share some information with outsourcing companies because they believe some things are apparent. But if the outsourcing company doesn’t completely understand what they’re supposed to accomplish, then the work will not be completed as expected. 

What is apparent to you may not be as clear to the outsourced team, so don’t hesitate to share every detail of the project with them. In this case, it’s okay to overshare to some extent. Try to use every opportunity to close the communication gap; be sure to hold regular video conferences and give and receive feedback frequently.

In some cases, clients avoid sharing some information because they don’t trust the outsourcing company enough and don’t want to take a risk and have their idea stolen. 

To avoid this conflict, have your outsourcing company sign a confidentiality agreement or an NDA (non-disclosure agreement) and delineate their security responsibilities; this creates a confidential relationship between both parties. Consequently, the outsourcing company is bound not to disclose any information covered by the agreement.

Being aware of these factors and resolving them will mitigate the risk of project failure in outsourcing your tech project.

Read our top 5 tips about successfully outsourcing software products.

If you need help from a third party, we at WinATalent offer technical advice and consultation so you can get your outsourcing strategy right.

We estimate your project’s scale and budget in different circumstances and provide you with the information you need, so you can successfully outsource your tech project.

We also have a network of vetted talents who are willing to help you develop your tech project, so you have the most desirable outcome.

Contact us, and we will get in touch with you within one working day.

Sign up now for free!

15 thoughts on “Why Software Development Outsourcing Fails Most of the Time

  1. Good blog, Ladan. The blog gives a clear idea of what you should do to avoid failure of projects that are outsourced. The main point is that the companies need to define their requirements, plan right and then approach an outsourcing company. The outsourcing company can then deliver the output.

  2. Thanks, it was insightful!
    Can you also explain how to find a suitable software outsource company to work with and which points must be considered in choosing one?

  3. In my experience, you always fail because there was some kind of misunderstanding or miscommunication. If I want to give only one advice, it is “document EVERYTHING”

  4. This is really helpful, because everyone is talking about outsourcing it projects but the main issue is how to outsource software projects successfully and minimize the risk.

    Of course, outsourcing has its merits. It can lower your development costs and you can access more varieties of skills. You can choose between software agencies or freelancers in different countries. But the downside is less control over freelancers, which needs its proper considerations.

    Platforms which use vetted systems for qualifying freelancers such as Toptal, Lemon and WINaTALENT may be a good choice to manage this difficulties.

  5. I think ambitious project estimates lead to all the other complications.
    If you know what you’re supposed to develop and are aware of the resources you need, you consequently won’t plan things inaccurately and have unclear objectives.

  6. why outsourcing fails has been usually my concern because I’m working with several outsourcing software development companies.

    software development outsourcing is a tricky situation, you have to handle many conflicts but that’s been working for me because the trade-off is beneficial to my small business. I don’t have enough investments to hire full-time employers, so I try to learn and manage working with agencies sucessfully.

  7. In my opinion, signing NDAs isn’t always an option, especially when working internationally.
    NDAs are like copyright laws; there’s no international rule for either of them, and if an outsourcing counterpart from another country decides not to follow the NDA rules, there’s nothing much you can do.

  8. I can relate to these comments Ladan, very factual and to the point!
    However, I see hope with more competency driven by the trent to remote teams.
    I believe that with all the hype about the benefits of outsourcing the main problem lies in customer experience with agile methods and their expectations.
    Competent agilists can deal with these challenges, the difficulty is to find them!

    1. Thanks for your comment Zai 🙂
      And yes you’re completely right.
      I personally think it takes some time for the outsourcing companies to align what they offer with the market’s expectation in order to create a better experience for their customers.
      Competent agilists can in fact do that. They can create a balance between agility and other factors, but as you rightly said, they’re not easy to find!

  9. Thank you, I’ve recently been searching for information about this subject for a long time and yours is the best I have found out so far.

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