7+ Types Of IT Outsourcing and How to Choose the Best One

In this post, we’ll explore the major types of IT outsourcing services, including software outsourcing services, and compare them to each other and in-house development. Outsourcing strategies provide access to skilled professionals outside of organizations and help manage costs or extend your staff potential effectively.

It ensures quality and timely delivery, allowing business owners to focus on core objectives while the external team manages operations. Selecting the right IT outsourcing type or model is vital for boosting business efficiency.

? At TATEEDA, we have over 10 years of experience in managing our outsourced R&D divisions and collaborating with individual IT professionals and partners spread across more than 16 countries, encompassing both nearshore and offshore web system development locations. Despite software outsourcing challenges such as considerable distances and time zone discrepancies, our U.S.-based project managers, software engineers, and remote developers are meticulously organized and perfectly synchronized.  This ensures that client projects are executed and delivered on time, enabling clients to save up to 20% or more on their product budgets. Our remote team, consisting of over 60 developers and testers, successfully supports one of our largest U.S.-based clients—referred to here as “Travel Nurse Healthcare” (name protected under our NDA policy)—in enhancing their integrated web and mobile time and task management system for travel nurses. If you require an estimate for outsourcing services, please contact us→

Hiring an employee in the U.S. can be expensive, with recruitment fees alone costing up to 30% of the employee’s annual salary. For example, outsourcing recruitment for a position with a $50,000 salary could save between $7,500 and $15,000 in fees. 

Additionally, other significant expenses like relocation can reach up to $25,000, and setting up a new workstation can cost up to $3,000. Given these high costs, outsourcing IT services abroad emerges as a cost-effective alternative, allowing businesses to tap into global expertise without the financial burden of local hiring.

However, outsourcing extends beyond simply relocating IT tasks and positions to vendors outside the United States or other economically developed countries. There are various types of IT outsourcing models, including onshoring and mixed models. 

These models may distribute tasks or functions across multiple vendors and locations, providing agile supply chains meeting specific operational needs.

Outsourcing IT services can be classified in several ways, primarily based on the type of services provided and the provider’s location. 

These IT outsourcing types provide various strategic options for U.S. businesses to optimize their IT operations and software development costs. 

? Here are some additional facts and important numbers about the tech outsourcing market trends and perspectives in general: 

Potential Labor Cost Reduction	Up to 90% compared to U.S. wages; typically, cost reductions range from 20-30%.
Annual U.S. Jobs Outsourced	Approximately 300,000
Value of Global Outsourcing Market	$92.5 billion total; U.S. contributes $62 billion
Percentage of U.S. Businesses Outsourcing	over 65% outsource at least one department
Main Reason for Outsourcing Among Businesses	~60% cite cost reduction as the primary reason
U.S. Businesses Planning Changes to Outsourcing	70% are considering adjustments to their outsourcing strategies
Interest in Nearshoring	33% of U.S. businesses prefer nearshoring operations to nearby countries

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A Wide Spectrum of IT Outsourcing Types

Different types of IT outsourcing models offer distinct corporate advantages and can be selected based on the specific needs and goals of the company:

• IT Staff Augmentation: This method involves temporarily hiring a limited number of IT specialists to address specific skill shortages, allowing for flexibility and expertise on an as-needed basis.
• Hire a Dedicated IT Team: Companies can engage IT professionals acting as remote departments or project teams with this model. This arrangement ensures a dedicated focus on the company’s projects, functioning as an integrated extension of the in-house team.
• Project-based or Task-based Outsourcing: This approach sees a company outsourcing discrete project parts, such as application maintenance or quality assurance, to focus internal resources on critical development tasks.
• Offshore Outsourcing: Engaging with a service provider located in a different part of the world, such as India, Poland, the Philippines, or establishing R&D in Ukraine, is known as offshore IT company outsourcing. Popular among U.S.-based companies, this model offers significant cost savings and access to a diverse talent pool.
• Nearshore Outsourcing: Opting for a contractor from geographically close locations, such as Mexico, Brazil, or Colombia, constitutes nearshore outsourcing. Preferred for its logistical convenience, this model also offers reduced time zone differences and cultural alignment, which can greatly enhance communication and project coordination.

Choosing Specific Types of IT Outsourcing Models Based on Organizational Needs

Different organizations have unique IT outsourcing needs influenced by budget constraints, flexibility requirements, and recruitment challenges. By strategically selecting and implementing the most suitable types of IT outsourcing, organizations can maximize benefits and minimize drawbacks. 

This flexibility is specifically reflected in the types of outsourcing objectives and types of IT outsourcing services available, each tailored to meet the diverse requirements of these organizations:

• Cost Considerations: Especially for small to medium-sized enterprises (SMEs) with limited capital, outsourcing IT services offers high-quality solutions without the overhead of maintaining a large in-house IT department.
• Flexibility Needs: Dynamic entities such as startups and non-governmental organizations (NGOs) benefit from scaling IT operations flexibly to meet current needs without long-term employee commitments.
• Recruitment Challenges: Large enterprises and government entities often need help recruiting skilled IT professionals. Outsourcing provides access to a global talent pool, easing the process of finding specialized skills.

Examples of Benefiting Organizations:

• SMEs leverage outsourcing to reduce costs and compete on a larger scale with advanced IT solutions.
• Large Enterprises use outsourcing to address skill gaps for complex projects that require specialized expertise.
• NGOs rely on outsourcing to handle IT tasks efficiently, allowing them to focus on their core missions.
• Government Entities utilize outsourcing to enhance service delivery and meet the public’s digital needs effectively.

IT Outsourcing Types Classified by Function

Companies often delegate specific functions to external service providers to harness specialized expertise and optimize their operational efficiency. Here, we delve into some commonly outsourced IT functions, explaining each role and its advantages.

Application Development and Maintenance

Outsourcing mobile application development allows businesses to tap into global engineering potential for the creation of products that meet specific user requirements. This can range from mobile apps to comprehensive enterprise systems. Maintenance involves regular updates and fixes, ensuring the software continues to function smoothly against evolving business needs. 

QA/Testing

Quality Assurance (QA) and testing are crucial for ensuring the reliability, functionality, and performance of software before it goes live. 

Outsourcing software QA testing tasks can provide access to dedicated professionals who bring advanced testing methodologies and tools to the table, ultimately enhancing product quality without the need for substantial upfront investment in technology and training.

Infrastructure Management

Infrastructure management oversees essential operational components such as data centers, networks, and cloud services. 

? A growing trend among businesses is to adopt a “cloud-first” strategy, with 90% viewing cloud computing as essential to their outsourcing efforts. Despite recognizing its benefits, data security concerns remain significant obstacles to its widespread adoption.

Outsourcing this function helps companies manage the complexity of their IT environments more effectively, with providers offering 24/7 monitoring, support, and proactive management that ensures high availability and performance continuity. 

Key offerings include DevOps services which integrate development and operations for smoother workflow, and Azure cloud software development services, enhancing scalability and system efficiency.

Cybersecurity

With cyber threats becoming more sophisticated, maintaining robust security measures is paramount. Outsourcing cybersecurity allows organizations to benefit from specialized knowledge and cutting-edge technology tailored to defend against the latest threats. 

? Due to budget cuts, reduced staff, and escalating cyber threats, 83% of IT leaders are exploring outsourcing for their security needs. Although 91% of IT professionals currently manage security in-house, the majority are considering external solutions to bolster their defenses.

This function typically includes continuous monitoring, threat detection, incident response, and compliance management, helping businesses protect their data and systems comprehensively.

IT Consultancy

IT consultancy involves expert analysis and advisory services to help businesses develop strategies that align technology with their broader business goals. 

Consultants can assist in everything from system implementation and integration to digital transformation and technology roadmapping. 

Through consultancy, businesses can leverage AWS solution development services, which provide tailored solutions using Amazon Web Services, enhancing their cloud capabilities and infrastructure resilience.

IT Outsourcing: Cooperation Models

IT outsourcing is distinguished by various cooperation models, each designed to meet specific project requirements and organizational strategies.

Outstaffing/Body Leasing: Companies hire external staff like pre-vetted React.js developers under this model, expanding their teams temporarily without long-term commitments. It offers increased managerial control but challenges integrating external staff into company culture.

Full Delivery Management: Under this model, the outsourcing vendor takes full responsibility for managing the project, which is particularly beneficial for tasks like custom .NET software development projects. It suits small businesses without dedicated IT resources, enabling them to concentrate on core business functions while the vendor manages IT tasks. However, this may lead to reduced control over the project’s finer details.

Build-Operate-Transfer (BOT): The BOT model involves the vendor building and operating a project before transferring ownership to the client. This approach is often used for establishing operations in new markets, such as setting up a research and development center in a foreign country. The model can be lengthy and complex but effectively mitigates early-stage risks.

Advantages and Disadvantages of Each Model:

Model	Advantage	Disadvantage
Outstaffing/Body Leasing	Enhanced control over work processes	Integration challenges with internal teams
Full Delivery Management	Focus on core business without IT distractions	Possible lesser control over project details
Build-Operate-Transfer (BOT)	Risk mitigation with a phased approach	Complexity and duration before full ownership

IT Outsourcing: Business and Pricing Models

Tech outsourcing pricing models are crafted to suit different project scopes, budget constraints, and control requirements.

Time and Material: This model is preferred when project scopes are not clearly defined and might change over the duration. Clients pay for the actual time spent by IT professionals and materials used, which allows for flexibility in modifying the project requirements on the go. It’s ideal for projects where new features might be added as the development progresses.

Fixed Cost: The Fixed Cost model is suitable when project specifications are well-defined and unlikely to change. It involves a predetermined price for the entire project, providing clients with a clear budget and timeline. This model is perfect for projects with strict budget constraints and when the client wants minimal involvement in the day-to-day management of the development process.

Hybrid Models: Hybrid models combine elements of both Time and Material and Fixed Cost models. They are used when certain aspects of the project are predictable and others are variable. For example, core application development could be fixed, while additional features might be billed on a Time and Material basis. This model offers a balance between flexibility and budget certainty, making it suitable for projects with both stable and evolving elements.

Model	When to Use
Time and Material	Best for projects with evolving requirements or when additional features may be added over time.
Fixed Cost	Ideal for projects with well-defined scopes, fixed deadlines, and strict budget constraints.
Hybrid Models	Suitable for projects that have both stable and variable elements, offering flexibility and budget certainty.

Not Sure Which IT Outsourcing Model to Choose?

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IT Outsourcing: Project Scale and Provider Requirements

IT Outsourcing for Small-Scale vs. Large-Scale Projects

The scale of a project significantly influences the choice of an IT outsourcing provider. Small-scale projects might require a nimble and flexible approach, suitable for providers who specialize in rapid deployments and can operate with lean methodologies. 

In contrast, large-scale projects often necessitate providers that can meet stringent compliance standards and manage extensive resources over longer timelines.

Key Compliance and Provider Credentials to Consider:

• HIPAA Compliance: Essential for projects handling sensitive health information in the U.S.
• PCI-DSS Compliance: Crucial for projects involving payment processing to ensure secure transactions.
• HL7 Compliance: Important for healthcare applications requiring interoperability between medical systems.
• ISO Certification: Indicates a provider’s adherence to international quality standards.
• AWS Partner Status: Demonstrates expertise and reliability in managing cloud solutions.
• Provider Size and Stability: Indicated by the number of employees and annual turnover, which can impact a provider’s capability to handle large contracts and complex projects.

IT Outsourcing: Geography

Overview of Geographic Outsourcing Types:

• Onshore IT Outsourcing: Involves partnering with providers located within the same country. This is often chosen for its advantages in alignment with local legal standards, ease of communication due to no language barriers, and similar work culture.
• Nearshore IT Outsourcing: Refers to outsourcing to providers in geographically close countries. For U.S. companies, this often includes nations like Mexico, Brazil, and Colombia. Nearshore outsourcing offers reduced time zone differences and easier travel logistics, making it favorable for projects requiring frequent collaboration.
• Offshore IT Outsourcing: Engaging providers from distant regions, such as Eastern Europe or Asia, typically offers cost efficiencies. Popular destinations include India, Poland, Ukraine, Vietnam, and the Philippines, known for their vast talent pools and competitive pricing.
  

Geographic Type	Benefits	Popular Destinations
Onshore IT Outsourcing	Maximizes compliance and ease of integration with domestic standards and regulations.	Tech hubs across the U.S., such as Silicon Valley or Austin.
Nearshore IT Outsourcing	Balances cost with convenience, facilitating smoother collaboration and faster turnaround times.	Tech firms in Mexico City, São Paulo, or Bogotá.
Offshore IT Outsourcing	Provides substantial cost savings and access to a diverse set of skills and technologies not readily available locally.	Software development centers in Bangalore, Kyiv, or Manila.

How to Choose the Right Type of IT Outsourcing for Your Needs

1. Assess Your Needs and Goals: Begin by clearly defining your project requirements and business objectives to understand what you need from an outsourcing relationship.
2. Budget and Cost Evaluation: Analyze your financial resources to determine how much you can afford to spend on outsourcing and what payment model aligns with your budget (fixed cost, time and material, etc.).
3. Geographical Preferences: Decide whether you prefer onshore, nearshore, or offshore outsourcing based on factors like time zone differences, cultural alignment, and cost considerations.
4. Identify Required Expertise: Pinpoint the specific expertise and skills your project requires. This could range from advanced technological capabilities to specific industry knowledge.
5. Decision-Making Framework: Develop a framework to evaluate potential outsourcing providers. This should include key performance indicators, service level agreements, and compliance standards.
6. Research Potential Partners: Conduct thorough research to gather information on potential outsourcing firms. Look into their reputation, past projects, and any reviews or testimonials from previous clients.
7. Evaluate Expertise and Track Record: Assess the providers’ technical and project management expertise and their track record in handling projects similar to yours.
8. Cultural Fit and Communication: Ensure that the potential partner shares similar values and has effective communication practices, crucial for long-term collaboration.
9. Set Clear Expectations: Clearly communicate your expectations regarding deliverables, timelines, and engagement models to avoid misunderstandings.
10. Expert Consultation: Consult with industry experts or advisors to validate your outsourcing strategy and choices, ensuring they align with best practices and your business goals.
11. Data Security and Compliance: Verify that the outsourcing provider adheres to international standards like GDPR, ISO, or specific compliance needs such as HIPAA or PCI-DSS, depending on your industry.
12. Finalize Partnership: Once a suitable partner is identified and all criteria are met, finalize the partnership with a formal agreement that includes all terms of engagement, confidentiality clauses, and other legal protections.

Conclusion: Your Strategic IT Outsourcing Partner

This article has explored the various types of IT outsourcing available to businesses, emphasizing the importance of selecting the right model to align with specific organizational needs and goals. Here are a few key takeaways:

Strategic Alignment	Choosing the correct type of IT outsourcing is crucial for aligning IT functions with business strategies.
Strategic Alignment	Choosing the correct type of IT outsourcing is crucial for aligning IT functions with business strategies.
Diverse Options	Understanding the differences between onshore, nearshore, and offshore outsourcing helps in making informed decisions based on project requirements, budget, and compliance needs.
Expert Consultation	It is advisable to consult with IT outsourcing experts to ensure that the selected approach maximizes benefits while minimizing risks.

TATEEDA GLOBAL: Your Trusted IT Outsourcing Partner

• Location: Based in San Diego, California, TATEEDA GLOBAL operates as an onshore company with a broad network of nearshore and offshore specialists.
• Compliance: We adhere to the highest standards of compliance, including HIPAA, PCI DSS, CCPA, and HL7, ensuring that our services meet rigorous regulatory requirements.
• Services Offered: Our offerings include IT staff augmentation and custom software development, tailored to meet diverse client needs.
• Project Execution Model: We utilize a hybrid approach, combining onshore management with nearshore and offshore development capabilities to provide continuous, cost-effective, and compliant IT services.

If you require an estimate for IT outsourcing, please contact us→