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Krusche & Company (K&C) has offered nearshore IT outsourcing solutions to some of Germany and Europe’s most established brands, successful SMEs and exciting start-ups for nearly 25 years now. We’ve been involved in the selection process organisations go through to select their outsourced IT vendor countless times.
We’ve seen the good, the great, the bad and the ugly when it comes to these methodologies or lack thereof. And we’ve had plenty of first hand experience of the outcome. There is a clear trend towards longer and more productive working relationships with partners who approach us with already well-defined requirements and preferences and a thought-through methodology for establishing if prospective IT outsourcing providers are a good fit.
Ultimately, a clear understanding of needs and consideration of how they are likely to evolve in the future works strongly in favour of both sides of an IT outsourcing relationship. Any sustainable long term partnership is founded on both sides knowing what they need to be successful and there being a match. Cultural compatibility and establishing strong working relationships between key stakeholders is also vital.
Establishing mutually beneficial B2B partnerships only happens consistently (you might occasionally get lucky shooting in the dark) if you know what you want from your vendors. And you have a solid methodology and processes to assess if a potential provider represents a match for those requirements.
This is almost a quarter of a century of our insight into the methodology of the partners we’ve most successfully provided nearshore IT outsourcing services to. If you are embarking on that journey now, what better start than learning from the experience of those who have travelled it before you?
These insights will benefit:
- Any organization evaluating or purchasing IT outsourcing services and vendors.
- Executives who want to standardise vendor selection methodologies
- Project teams faced with specific vendor selection initiatives
Why do organisations outsource software development and other IT services?
The three core reasons why organisations use outsourced, often nearshored, IT professionals are:
- Cost
- Lack of qualified professionals within budget
- Flexibility
- Revenue growth
During the major global economic downturn between 2008-2012, growth in the IT outsourcing sector was driven by the need for organisations to cut costs. In the years since, while cost has remained a factor (recently coming into sharp focus again), it has, says Ole Jeppesen, CEO and founder of Resiport, a Software Outsourcing Advisory as a Service platform, been superseded by increased demand for qualified resources in the USA and EU meaning organisations struggle to attract a qualified workforce.
That disbalance in supply and demand has been heightened by many ‘old industries’ entering a period of digital transformation, where software and IT infrastructures have become integral to how they function. A robust IT infrastructure and progressive software strategy is now a requirement of almost every kind of business and vertical. That’s equally true in the NGO and state sectors.
Demand outstripping supply also, of course, feeds back into the cost factor. Domestically based software engineers and other professionals from project managers and consultants to infrastructure engineers are often excruciatingly expensive. It is also often difficult to hang onto them for any period of time or requires concessions that can be disruptive within the wider context of the organisation.
Another major factor in favour of IT outsourcing is the need for organisations to retain flexibility. The nature and dynamism of software and infrastructure development needs mean it can be close to impossible for organisations to plan and hire a full-time IT team that effectively satisfies requirements. Numbers and the skills and experience needed often vary meaningfully between different points in time.
As a result, it often makes much more strategic sense for organisations to maintain a core inhouse team whose resources reliably forward-planned. And augment that with outsourced IT teams and team extensions that can be scaled up and down with project cycles and adjusted for particular expertise.
Finally, the economic advantages of outsourcing are often seen as an enabler of revenue growth. Companies see it as strategically imperative to be first or quick to market with new products and services that use cutting-edge and future-proofed technologies. Often, the only way to practically achieve that is by leveraging IT outsourcing as a resource.
A guide to developing your own methodology for assessing IT outsourcing companies
Here’s our guide, based on 20+ years of experience on the other side of the fence, to the key elements and considerations your nearshore IT outsourcing partner selection methodology should include. You will almost certainly also have your own additions specific to your experience and requirements. But as a starting point, we’re confident adopting the following will stand you in good stead to forge long-lasting, mutually beneficial partnerships with the right IT services vendors.
Should you choose an onshore, nearshore or offshore IT outsourcing provider?
Organisations often focus on asking themselves from which country should they choose an IT outsourcing vendor. In most cases, that’s far less important than first answering the broader question of whether an onshore, nearshore or offshore vendor is best suited to the organisation’s needs.
The most important factor organisations should consider when answering this question is the level and ease of communication required. Certain tasks and projects need different levels of and different kinds of communication than others.
For some, video, voice and messenger chat may suffice. For others, physical presence might be a requirement because they need the kind of flow of ideas and understanding that is difficult to achieve through the filter of communications technologies.
Sometimes a hybrid solution can work. For example, one or a small number of project managers, consultants or key experts might need to be onsite permanently or with some degree of regularity. But for others working on the project or task, it might be perfectly workable, or even preferable, that they operate remotely.
If an IT outsourcing vendor is either nearshore or offshore, or providing a hybrid between nearshore or offshore and onshore, the most important factors to consider are time and expense of travel to the onsite location from their base, time zone difference and the speed and reliability of internet connectivity.
Travel time & expense
Post-Covid, there has been a drop in onsite collaboration during software development projects but it can still be a requirement or preference for some organisations at key points of the process. An onshore, nearshore or hybrid IT outsourcing model will be best suited to tasks and projects that require consistent or occasional face-to-face communication. If constant physical communication is not imperative, a hybrid or nearshore model can be the best solution. The vendor’s experts can easily and affordably travel to be onsite when necessary.
If face-to-face communication is a constant requirement, an IT outsourcing vendor offering onshore professionals and teams will be necessary.
If regular face-to-face communication is not a requirement, an offshore solution can be considered.
Time zone
Where a majority of work can be effectively executed remotely, the choice between a nearshore or offshore IT outsourcing vendor will often come down to time zone difference needs.
An 8 or 12-hour time zone difference could be a deal breaker for many organisations or projects. For other, it could actually be an advantage. For example, if the onsite team’s workflow might be improved by the offshore team completing their work ahead of their starting time.
If approximate overlap of time zones is required, or preferable, then a nearshored vendor would be the obvious direction to take.
Reliable connectivity
A factor that might be considered self-explanatory but too often overlooked is the internet connectivity that an IT outsourcing vendor relies upon. Do your research rather than only relying on vendor assurances.
Does the region(s) your outsourced resource will be based in benefit from high speed and reliable digital infrastructure? If not, what could that cost in terms of productivity and potentially not always being able to respond quickly in critical situations?
All of the above could be considered arguments for an organisation not to outsource IT needs but that is far from the case. Over the 2 decades+ of IT outsourcing being a key resource for organisations, it has been clearly demonstrated that it is more than possible to successfully outsource to anywhere in the world.
However, the clients of IT outsourcing vendors should appreciate and consider that each of the factors mentioned influences complexity. The more complexity attached to working with an IT outsourcing vendor, the greater the chance that so-called “hidden costs” will escalate.
What variables should you assess when analysing potential IT outsourcing companies?
When a decision has been made on the question of nearshore, offshore, onshore or hybrid, the choice of IT outsourcing vendor must then be narrowed down by analysing the variables candidates represent. Which are most important will vary depending on the client’s situation and project needs. But, in no particular order, the most commonly assessed variables when choosing a vendor are:
Cost
Cost is, inevitably, an important factor in the selection process of an IT outsourcing vendor. How cost is defined and evaluated is also often a decisive factor in how successful an organisation in outsourcing IT requirements.
A majority of organisations are experienced and sophisticated enough to assess costs holistically and within the critical context of revenues. But there are still enough that don’t to make it worth dallying on the point.
The now dominant ‘agile’ approach to software development and DevOps, means projects are now rarely priced as a defined number. An agile and DevOps framework demonstrably improves the quality of software products and IT systems. And mastered, should reduce IT costs in the long term, especially when viewed holistically with reference to revenues.
But an agile philosophy and DevOps framework do mean that it is becoming rarer and rarer for IT outsourcing vendors to provide an immutable bottom line price for a project or task. Which adds to the complexity of how clients assess cost.
The standard model of outsourced IT specialist pricing is a cost per hour or day, rather than for the end product. Of course, there is usually a budget in place and IT outsourcers will, based on technical specifications provided by the client, usually offer an estimate or even a fixed price with the caveat that will be adjusted if the specifications change.
The complexity is how to translate daily and hourly rates into cost, which also takes productivity and output into account. Hidden costs such as travel expenses, communication time and, ultimately, how quickly new software products or infrastructure are released can be just as influential.
How detailed costing estimates provided by the vendor are should be considered a strong indicator of how closely they will match actual costs. How granular is the breakdown? Does it take into account the potential need for periods onsite? Are they asking the right questions? What kind of guarantees are offered on budget and are they realistic or is there a sniff of them just saying what they think you want to hear to get the contract signed?
And I’m sure it doesn’t need to be said that the cheapest price quoted, however it may be framed, will not necessarily equate to the lowest ‘cost’ to the organisation when analysed holistically. Or be likely to.
Language
The level of competence an IT outsourcer’s management and engineers have in the primary language that will be used to communicate in is clearly an important variable for many clients. As a German-owned, managed and HQ-ed nearshore IT outsourcer, language is one of the most common variables we find ourselves assessed on.
The reality is, with our developers and other specialists majority based in nearshore talent centres in Eastern Europe, most of them don’t speak German to a high level. So if that is, and it sometimes is, a variable that has a heavy weighting for a client, we are usually not the best choice. Unless it is enough for a main point of contact, for example, one of our onshore consultants, to be a native or proficient German speaker.
In most cases, especially in the IT world, an intermediate to proficient level of English is enough to satisfy the language requirements of most clients. As a client working with nearshore or offshore IT outsourcing vendors, assessing language skills directly, during a technical interview or even independent language-specific assessment, is not a factor that should be forgotten.
Culture & professional culture
Culture is an intangible factor that can be hard to assess but is important to take into consideration. For example, Eastern European culture and professional culture can certainly be tangibly different to Western European norms of professional communication. Indian culture can be more ‘flexible’ when it comes to setting expectations and communicating problems.
Here culture and professional culture are grouped together because they can cross over and when it comes to working with nearshore and offshore IT specialists, the defining factor is usually their employer’s company culture. Local cultural norms will always be visible to some extent but how successful a partnership between IT outsourcing vendor will be is heavily influenced by how well aligned the professional cultures of the partners are.
An organisational cultural fit is key to establishing a transparent, trust-based working relationship. Without it, compatibility across other factors can become meaningless as breakdowns in communication will undermine the qualities that do fit. Check out our blog When does IT outsourcing work, and when doesn’t it?, for a deeper dive into this topic.
Technical expertise
While every other variable is important and influential to the overall success of a working relationship between client and IT outsourcer, the technical expertise of the individuals that will be assigned to your project is of course fundamental. If they don’t have the necessary hard skills, or have them to the required level, the project and partnership is doomed.
It is the responsibility of the IT outsourcer partner to only put forward experts that do have the technical background necessary for the project and their tasks within it. But it is also your responsibility as the client to confirm that selection by verifying it. You will also often have a choice between experts who could be assigned to your project.
Having a strong technical assessment and interview procedure in place is a must when you work with an IT outsourcing partner. Thoroughly vet the specialists your partner proposes to assign to your project.
Project & delivery management
In some cases, project and delivery management will be on the client side but it is also often provided, or partly provided, by the IT outsourcer. A hybrid model is also common, with a project manager on the IT outsourcer side and a product owner or manager on the client side.
If your IT outsourcer will contribute to project and delivery management, which would be especially common if they are providing a dedicated team rather than a team extension or individual specialists to augment your inhouse resource, that deserves as much attention during your assessment as the technical competencies of team members.
Does the delivery or project manager have experience in the role? Do they have appropriate qualifications and certification? Speak to them in person – are they a strong communicator? Can a reference from other clients whose projects they have worked on be provided?
Strong management will have just as much of an influence on team performance and productivity as the technical expertise of the team’s individual members.
Experience
One of the biggest benefits of working with an IT outsourcer, and one of the reasons why it can bring costs down even more than the difference in cost between hiring an IT specialist full-time or using a nearshore or offshore resource, is the experience they bring to the table.
A developer or consultant working for an IT outsourcing company will in most cases have worked on many more projects, and encountered and solved more distinct problems, than an inhouse peer who has worked for an extended period of time, possibly years, one project. Or in one environment.
That broader experience can often work to the client’s advantage and result in improved problem solving and productivity, as outsourced specialists will have more chance of having encountered similar challenges before or simply be more accustomed to encountering and solving new issues.
Assess how much experience the company has with technologies they will be working with for you, as well as the experience of individual team members. Have they worked on similar projects or in the same industry? Can they provide references or are happy to make an introduction to another client?
An extensive academic study on vendor selection methodologies found “the vendor’s performance is positively related to vendor’s experience and satisfaction”.
Vendor Satisfaction
This brings us to a final and rarely considered factor that is incredibly influential to the success of a client and IT outsourcing partnership – vendor satisfaction. The same study mentioned in relation to vendor experience found a close correlation between performance and satisfaction:
“it is also imperative that buyers, in order to enjoy maximum performance from the suppliers, try to keep them highly satisfied. It is more important to have a fully committed and dedicated supplier base, compared to that of competitors, than to make negligible savings “.
When reaching a decision on an IT outsourcing partner, an alignment of company cultures, business models (financial compatibility) and the supply and demand of required technical and management skills will all contribute towards vendor, and client, satisfaction.
Internal factors users of nearshore IT outsourcing services must address as the foundation for success outcomes
Client organisations of nearshore IT outsourcing companies often think that the success of a partnership will come down to how well they assess vendors before arriving at their eventual choice. But just as important is how well the client has addressed their own internal organisation and set it up for successfully working with outsourced IT specialists.
Resiport’s Mr Jeppesen says that in as many as 80% of the cases he consults companies on their IT outsourcing strategy and vendor selection process, he advises them to first go away and prepare themselves internally.
His experience is that some CxOs, CIOs and anyone else in a decision making role opt for nearshore IT outsourcing because they have reached the conclusion that a lack of inhouse experience, knowledge and skills means that planned projects and products won’t be realised otherwise. They don’t want to outsource because it has a role in the organisation’s business model and makes sense strategically. They only want to do so because they are afraid not realising IT projects will ultimately be worse for the company than compromising on outsourcing.
When the experience, knowledge and internal structures needed to support a successful IT outsourcing partnership are missing, that can turn out not to be the case. Nearshore or any other form of outsourcing can be a disaster.
Technical specifications provided to an IT outsourcing partner need to be thorough and easy to understand. Reporting and governance processes need to be in place and inhouse employees trained in their role in delivery management.
When collaboration is with a remote team, the human factor also becomes more important and influential. Internal employees have to be onboard and happy to work with colleagues in a new way and to allow for some differences in culture. They should also not be afraid they may lose their job to outsourcing, which can cause quiet resentment and a lack of cooperation.
These factors should all be considered and handled before an organisation brings in an IT outsourcing partner. If necessary, take a step back and solve these internal issues before moving forward. In the long run, doing so will save time.
Further reading on IT outsourcing partner selection methodologies
For managers, executives and other professionals who may be involved in the decision-making process for selecting an IT outsourcing vendor, here’s our further reading list:
Gartner Decision Tools For Vendor Selection
3 Advantages To Outsourcing Your Technical Interviews
A Rapidsoft Systems’ White Paper – IT Outsourcing: Software Development – Vendor Evaluation
K&C – delivering nearshore IT outsourcing excellence over nearly a quarter of a century
Krusche & Company (K&C) is a German-owned and registered nearshore IT outsourcing company based in Munich and with centres of technical excellence in Krakow, Sofia, Azerbaijan, and Iraqi Kurdistan and distributed IT specialists across Eastern Europe and Central Asia. Our presence across multiple geographies allows us to offer 3 nearshore rate tiers to fit different budgets. With almost 25 years of experience in IT outsourcing, we have worked with some of the biggest brands in Germany and Europe as well as numerous successful SMEs and exciting start-ups.
We specialise in cloud technologies, DevOps processes, web development, blockchain development, embedded development and QA and provide nearshore team augmentation and dedicated teams of developers, infrastructure expertise and consultancy. We provide a range of cooperation models from stripped back staffing to full delivery management.
If you are embarking on your IT outsourcing journey, or in the selection process of new vendors, we’d be delighted to talk!
