Offshore development teams have long been a staple in the global business strategy, particularly in the tech industry where IT accounts 71% for of the $731.3 billion global outsourcing market. Traditionally, outsourced teams are seen as a cost-effective solution for companies looking to expand their development capabilities without the overhead of local hiring. Common practices involve outsourcing routine, time-consuming tasks to countries with lower labour costs, thus freeing up in-house resources for core business activities. This model is primarily motivated by financial savings, access to a larger talent pool, and the ability to operate around the clock due to differing time zones.
There’s a clear economic advantage to outsourcing, businesses can focus on what they do best while capitalising on wage differentials between regions to access specialised workforce at affordable rates.
In fact, around 2 in 3 businesses identify enabling focus on core functions (65%) and cutting costs (63%) as key benefits of outsourcing. While onsite teams provide benefits associated with proximity like real-time collaboration, control and better communication, a new generation of cloud-based collaboration tools helps bridge this gap.
Emerging trends in offshoring IT development emphasise creating a symbiotic relationship where offshore software development teams are placed at the core of innovation and growth strategy instead of its periphery.
This article aims to explore these new and innovative approaches, shedding light on how offshore development reshapes industries beyond cost savings. We’ll also discuss common pitfalls associated with integrating offshore teams within your business processes and how to overcome them.
Offshore teams as innovation hubs
In recent years, the narrative surrounding offshore development has evolved from merely being a cost concern. Around 50% of executives identify talent acquisition as the top internal challenge in meeting the organisations’ strategic priorities while 56% say organisations do not have the right mechanisms to retain employees. As a result, 53% of businesses identified solving capability issues as a benefit of outsourcing along with access to intellectual capital (26%).
This shift suggests that offshore teams are increasingly seen as a strategic part of the company which drive innovation by tapping into diverse skillsets that are scarce domestically. This is reflected in a recent study which reveals that 87% of organisations consider external teams as part of their workforce.
While offshoring has traditionally been reserved for task execution, with the growing global technical expertise, many businesses have successfully leveraged offshore teams as innovation hubs for their organisation. Access to a global talent pool with diverse ideas and expertise has been a key driver of innovation for many organisations.
A recent study by Deloitte recognises this emerging trend and classifies outsourcing into three categories: Traditional Outsourcing, Managed Services and Operate Services.
Nearly two-thirds (67%) of executives surveyed indicated budget increases for Operate Services, followed by 57% for Managed Services and only 32% for Traditional Outsourcing.
Unsurprisingly, cost reductions remained a key driver for Traditional Outsourcing, however, the key driver for Operate Services was gaining access to new capabilities. This shift highlights the growing focus on using offshore teams for innovation and transformation, rather than simply reducing costs.
Read Also: Dedicated Software Development: Roles and Responsibilities You Can Outsource
Common challenges faced while working with offshore development teams
Working with offshore teams provides a plethora of benefits like building strategic capabilities through accessing a global talent pool. However, you can face various geographic, cultural and logistical challenges along the way. It’s important to understand these hurdles and how they might affect you so that we can explore ways to mitigate them to ensure a smooth working relationship.
Therefore, we’ve compiled a list of six common challenges businesses face while working with offshore software development teams and how to overcome them.
Challenge #1: Integration with the rest of the business
Integrating offshore teams with onsite operations is one of the primary challenges businesses face. Differences in time zones, cultures and communications often stand in the way of collaboration, usually leading to mismatched expectations, hindering project progress and team morale. While these differences can disrupt, implementing the right strategies can help smooth out these differences helping minimise and eliminate communication breakdowns.
Navigating differences in time zones can be tricky, therefore, it’s important to use appropriate frameworks and collaborative tools to overcome them. For example, Agile frameworks with short iterative sprints facilitate faster and smoother handoffs which makes tracking progress easier. Additionally, collaborative tools like digital Kanban boards provide real-time visibility into project progress, allowing everyone to be on the same page regardless of location.
Read also: Agile Software Development Lifecycle
‘Us and them’ is another common issue where onsite teams fail to relate to offsite teams due to cultural differences and lack of daily physical interactions. Without relatability, communication suffers as teams are unable to empathise with each other. Therefore, frequent face-to-face interaction using video conferencing services like Teams and Zoom is crucial as it allows both teams to familiarise themselves and most importantly humanise each other.
Challenge #2: Scalability of innovations
Another common challenge businesses face in later development stages is the scalability of the innovations developed by offshore teams in the context of different markets and regions. Failure to understand the intricacies of local markets, user preferences and regulatory frameworks can lead to significant setbacks, impeding the potential for widespread adoption and long-term success of your solution.
There are many ways to approach this problem like setting up cross-functional teams which combine the technical expertise of offshore employees with the local knowledge of on-site teams. However, a crucial step is to ensure that, when shortlisting offshore partners, the offshore development team is well-trained in methodologies like Agile. With Agile’s focus on iterative development and continuous delivery, teams can quickly adapt to market feedback and deliver high-quality software that meets user requirements.
Challenge #3: Quality control and standards
Maintaining consistent quality standards across geographically dispersed teams is a significant concern. Without proper oversight, there might be discrepancies in the quality of deliverables leading to solutions that fail to fit in the broader context. This often leads to significant reworks which balloon initial time and cost estimates.
It’s important to maintain proper hygiene while vetting potential offshore development partners by evaluating their portfolios to ensure your ‘standards of excellence’ match. It’s also imperative to clearly communicate your requirements in writing from the project’s onset, formalising standard operating procedures and keeping regular progress update meetings to foster a culture of transparency and accountability. By combining these techniques you can establish a clear and collaborative working relationship, increasing the chances of your project’s success.
Case in Point: Hertz vs. Accenture
A cautionary tale regarding poor quality control and standards is the $32 million dollar lawsuit filed against Accenture by Hertz Corporation. Hertz is one of the world’s largest car rental brands, operating more than 10,000 locations worldwide, operating other brands as well like Dollar and Thrifty. With competitive pressures from Uber and Lyft threatening Hertz’s bottom line, Hertz contracted the IT consulting behemoth, Accenture, in 2016 to redefine the customer experience on Hertz’s digital platforms by redesigning their website and mobile applications.
After multiple delays, and team-level changes Accenture delivered a product in 2018 that Hertz deemed unusable. Following this revelation, Hertz filed a $32 million lawsuit in 2019 claiming breach of contract where Accenture delivered an unfinished product that did not meet initial agreed upon requirement, and that they had lost confidence that Accenture was capable of finishing the project. Poor quality of code was the primary issue with two primary deficiencies in the products’ versatility:
- Extensibility: an initial part of the requirements stated that Accenture would develop common core libraries that would be extended across the website and applications of all the different brands of Hertz like Dollar and Thrifty. Hertz claimed that Accenture had deliberately disregarded this requirement without consulting and that the code was specifically applicable to Hertz’s operations in North America, not their global portfolio.
- Responsiveness: another core requirement was a responsive website that successfully scales content to different screen sizes. While the website scaled to desktop and mobile phones, it did not scale properly on medium-sized displays like Tablets.
Ultimately, Hertz contracted the project’s completion to IBM, who completed it after having initially lost the contract to Accenture.
Challenge #4: Overreliance on offshore teams
A longer-term complication that develops while working with offshore teams is businesses sometimes neglect investing in developing in-house capabilities and become too dependent on offshore teams. Overreliance may expose the businesses to vulnerabilities resulting from disruptions like geopolitical instability, or fluctuations in the availability of skilled talent. A recent example is the ongoing Russia-Ukraine which has disrupted the operations of teams established in either country.
The key to success while navigating this challenge is how you set up your offshore development program. Adopting knowledge transfer mechanisms like regular training sessions and cross-functional teams allows you to cross-train offshore and onsite teams. This develops technical expertise in onsite teams and contextual knowledge in offshore teams leading to more well-rounded talent. Moreover, extensively working with dedicated offshore teams enables you to evaluate the real-world performance of off-site team members, opening up career advancement pathways that help you develop an onsite team consisting of people you’ve worked with.
Quality documentation also significantly eases the process of knowledge transfer. Businesses need to ensure that their offshore development partners employ healthy practices like maintaining high-quality design documents, architecture diagrams, coding documentation standards and project plans.
When Overreliance Goes Wrong: Fujitsu and the British Post Office
The British Post Office scandal personifies one of the perils of relying too much on offshore partners, with unqualified on-site staff. In 1999, the British Post Office (BPO) contracted the Japanese IT company Fujitsu to develop accounting software for them, aiming to transition from paper-based to digital records. After developing and implementing the accounting software, dubbed Horizon, across the BPO’s infrastructure, several bugs arose across the span of a decade.
Failing to train their staff on the new system, the BPO was blindsided when the bugs caused discrepancies in their financial records. Instead of investigating the software, the BPO tragically accused several thousand subpostmasters of fraud, prosecuting 700 people between 1999 and 2015. An Ex-Post Office investigator into the system claimed that he knew about the issues with Horizon, but wasn’t ‘technically minded’. Once the scandal came to light, a series of lawsuits followed with the Criminal Case Review Commission reporting the incident as “the most widespread miscarriage of justice” it had ever seen.
While Fujitsu’s negligence was the primary reason for failure, when working with offshore development partners it’s important to build in-house technical capabilities as well. An in-house employee with a technical background not only helps surface issues with development but keeps your development partner accountable. This provides you with a second opinion instead of your development partner being your single source of truth.
Challenge #5: Turnover in offshore development teams
In certain offshore locations, the prevalence of high turnover rates among team members poses a significant obstacle to innovation efforts. With high turnover, the constant influx of new team members also necessitates additional training while onboarding increasing costs and slowing down overall progress. Furthermore, the loss of experience and institutional knowledge disrupts project continuity and ultimately, the ability to meet critical project delivery deadlines. Alarmingly, an official analysis of LinkedIn’s users revealed that Professional Services (13.4%), which includes IT consulting companies like IBM and Accenture, is the industry with the highest turnover rate followed by Tech and Media (12.9%).
Perspective is important to overcome this challenge, businesses need to graduate beyond cost-focused ‘software farms’ that are plagued with high turnover. Instead, partnering with organisations that prioritise employee well-being, and compensate them fairly while maintaining a positive work culture with adequate career progression opportunities should be key. Additionally, working with partners that employ healthy development practices like prioritising clean, well-documented code and maintaining centralised knowledge bases helps reduce the impact of occasional employee turnover.
Challenge #6: Intellectual property (IP) concerns
Legal frameworks and enforcement mechanisms aren’t usually as stringent in offshore countries. As a result, companies often hesitate while sharing critical information due to data security and IP theft concerns. Not only do businesses face the risk of losing control of their intellectual property, but offsite teams are unable to fully perform due to communication breakdowns resulting from trust concerns.
While offshore software development teams present data security and IP theft concerns, there are steps businesses can take to mitigate these risks. During the initial consideration stage, when shortlisting potential partners it’s important to look for reputable partners with a strong track record of upholding data security and IP theft protection measures. It’s important to look at their portfolio of clients that trust them with data, testimonials and independent reviews.
Additionally, working with offshoring partners with a strong physical presence in countries with robust data and IP protection legislation like the UK and the EU adds an extra layer of assurance.
The stringent, enforceable laws act as a deterrent – providing you with the peace of mind necessary for a more trusting, collaborative working relationship.
Best practices for successful offshore development projects
When engaging with an offshore development partner, it is crucial to establish a clear framework of expectations that guides all aspects of the collaboration. This ensures that both parties are aligned on objectives, processes, and outcomes, facilitating smoother project execution.
Additionally, your potential provider’s tools and approaches might help you evaluate if their operational style aligns with yours, considering their approach to planning, implementation, and decision-making processes. For more information about this topic you can read our guide on How to Hire a Dedicated Development Team.
Step 1: Working with expectations
When engaging with an offshore development partner, it is crucial to establish a clear framework of expectations that guides all aspects of the collaboration. This ensures that both parties are aligned on objectives, processes, and outcomes, facilitating a smoother execution of the project. Moreover, your potential provider’s tools and approaches might help you evaluate if their operational style aligns with yours. Therefore, you need to considering their approach to planning, implementation, and decision-making processes.
Here are the tools that can help both sides set clear expectations effectively:
Statement of Work
Statement for work (SOW) is a document an offshore team provider might prepare before the project kick-off to make sure both align on project expectations. A well-structured SoW is indicative of a provider’s methodical approach to managing projects, outlining all project specifics, including scope, timelines, deliverables, and even payment terms.
While the SoW needs detail, it should allow some flexibility to accommodate necessary adjustments as the project progresses. This ensures that the SoW has clear mechanisms for handling changes, which can help prevent misunderstandings and conflicts.
Service Level Agreement (SLA)
Service Level Agreement (SLA) is another document that needs close inspection as it tells about the company’s commitment to quality. A well-crafted SLA has clearly defined rules for product acceptance criteria, delivery timeframe, defect resolution and response times as well as the responsibilities of both parties along with escalations procedures and remedies.
Step 2: Setting clear roles and responsibilities
Clearly define the roles and responsibilities of both your team and the offshore team. Understanding who is responsible for each aspect of the project can prevent overlaps and gaps in responsibilities.
A RACI matrix is a chart that clarifies the roles and responsibilities of individuals or teams in relation to various tasks or deliverables within a project. RACI stands for Responsible, Accountable, Consulted, and Informed:
- Responsible: Who is responsible for doing the work?
- Accountable: Who makes the decisions and takes ownership of the work?
- Consulted: Who needs to give input before the work can be done?
- Informed: Who needs to be kept updated on progress?
This matrix is very useful in preventing confusion over who is expected to do what, thereby reducing overlaps and ensuring no tasks are neglected.
Additionally, you can work on preparing detailed organisational charts together with a provider that can help visualise the structure of the project team and clarify reporting lines and hierarchies. These charts are particularly useful for large teams to understand how they fit into the broader project framework.
Step 3: Planning and execution
Embracing Agile methodology enhances the flexibility and efficiency of managing offshore development projects. At GoodCore, for example, we start with creating a high-level roadmap to outline the essential functionalities. The project is then segmented into smaller, manageable sprints, prioritising the delivery of core functionalities. This iterative process allows for the swift release of updates and facilitates ongoing adjustments based on user feedback.
Additionally, it’s important to implement robust mechanisms to track the progress of project milestones and the quality of deliverables. Effective tracking identifies deviations early, enabling prompt corrective actions. Utilising project roadmaps for progress monitoring and periodic progress reports helps maintain transparency and keeps all stakeholders informed.
Step 4: Regular communication and reporting
Through years of experience, we’ve realised that to foster an environment of transparency, you need a structured communication strategy. Look for partners with a robust communication strategy with well-defined channels, response-times and meeting types – the key is effective communication which conveys information completely as well as concisely. Therefore, our project managers usually architect a sophisticated communication strategy that details the schedule, channels and meeting content for communicating with both the client and team members. We believe in effective communication that keeps projects progressing smoothly without stealing too much time from key project stakeholders. Here are some of the key types of meeting we incorporate into our communication strategy:
Step 5: Quality assurance processes
Robust Quality Assurance (QA) processes are necessary to ensure that issues have been ironed out before they reach users. By adopting practices like DevOps, we’ve streamlined quality assurance by promoting continuous improvement and automating testing at each stage of the development process. This approach of Continuous Testing integrates QA early on in the development lifecycle enabling early issue detection, maintaining software quality, and accelerating time to market. While engaging potential partners you should ask for an outline of their QA process as well as the tools and procedures they use at each step.
Step 6: Continuous improvement feedback loop
The key to building lasting relationship with clients is through continuous improvement. Therefore, we’ve ingrained continuous improvement into our process with regular reviews at all levels as part of our end-of-sprint retrospectives. At the end of each sprint, in these retrospective meetings, we discuss what went well, what didn’t, and how our processes can be improved. At the end of these sessions, we document all insights and share them throughout our organisation through our centralised company-wide wiki (Confluence). We use these insights to identify trends, solve problems, and implement improvements systematically to ensure an uncompromised customer experience.
While assessing a client’s capabilities, it’s important to also factor in their ability to learn and adapt. As a general rule, look for teams with a mixture of seasoned industry veterans for stable project execution as well as fresh, young and innovative minds for long-term flexibility and ability to adapt to the changing technological landscape.
Step 8: Closing the project
The project closure process should culminate with a comprehensive User Acceptance Testing (UAT) phase to ensure that the final product adheres to the agreed-upon standards. UAT allows end-users to validate the functionality and performance of the application against their requirements, ensuring any critical issues are identified and resolved before final delivery.
Moreover, it’s important to establish clear expectations for ongoing support or maintenance after the project’s completion. This includes outlining the scope of post-launch services such as system updates, bug fixes, and possible enhancements. Setting up a structured support system helps maintain the software’s efficiency and ensures client satisfaction over time. Agreements on the duration, terms, and conditions of the support should be documented to avoid any misunderstandings in the future.
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Conclusion
The narrative surrounding Offshore Development is shifting from merely saving costs towards viewing offshore teams as integral to driving growth and innovation. Businesses are now leveraging offshore development to access global talent and build capabilities to stay competitive in today’s business landscape.
While challenges exist, selecting the right development partner and adopting best practices can help you smoothly collaborate and execute your project. We at GoodCore understand that finding the right partner can be a long and tedious task, therefore if you’re looking for a well-established offshoring development partner with years of experience, you can explore our services and get in touch with us to explore how we can bring your business idea to life.
Frequently Asked Questions
What is the difference between offshore and onshore team?
Offshore teams are located in a different country than the client company, whereas onshore teams are located in the same country as the client’s headquarters or subsidiary location.
Which approach provides better quality software, onshore or offshore software development?
The quality of software development depends on several different factors beyond location like team expertise, quality of communication, development methodology, timeline and infrastructure. Generally, it’s easier to maintain tighter control with onshore software development with easier communication and collaboration due to physical proximity and cultural alignment.
However, advances in digital collaboration tools and infrastructure have bridged this gap and have made collaboration much easier with offshore teams. Moreover, offshore teams allow you to benefit from diverse mindsets with technical expertise, allowing you to build new organisational capabilities while focusing on your core business and controlling costs.
Ultimately, there is no one-size-fits-all approach. Whether to opt for onshore or offshore software development depends on your budget, priorities, project scope and other contextual elements.
What is a dedicated development team?
A dedicated team is a group of dedicated sofware development professionals who are exclusively assigned to work on a specific project or set of projects for you. This is in contrast to traditional outsourcing models where software development professionals work on multiple projects for different clients simultaneously. While dedicated teams tend to be more expensive, they offer a number of additional benefits like higher levels of commitment, shorter timelines, continuity and familiarity.
