Anti-Outsourcing: A New Model for Building Offshore Development Teams
Due to its risky nature and longterm effects on a business, outsourcing is typically approached with caution. New models centering around team integration successfully address many of the pitfalls.
The Risks and Limitations of Traditional Outsourcing
Outsourcing software development is widely known for its blind spots and risks. While it may be an option readily available to most CTOs, it is usually approached with caution because of the long term implications and potential pitfalls that come with collaborating with and depending on a traditional IT outsourcing provider.
The risks and drawbacks of working with most outsourcing firms vary in severity and often arise from insufficient integration of the outsourced team. Possible downsides include everything from a loss of control over the execution and quality of IT functions, to a knowledge gap in business and product understanding, to reduced morale and retention, along with an overall decline in organizational learning for both the outsourced provider’s team and the client.
Before outsourcing a part of your product or codebase to a third party provider, it is important to understand how incentive structures are shaped or misaligned. Knowing what drives an outsourcing firm’s business model and culture is key to avoiding future pitfalls. For example, most IT outsourcing businesses are inherently margin compressed because their value proposition often becomes a race to the bottom on price.
Naturally, this has a negative effect on the quality of the staff being outsourced. In addition, outsourcing firms are incentivized to add more resources to their payroll in order to extract more outsourcing fees from clients, with the focus placed on headcount rather than the quality and capability of the talent.
Talent Quality, Workflow Constraints and Cultural Silos
Although some companies using IT outsourcing providers insist on interviewing the talent assigned to them, a lower barrier to entry is often used because of the pressure to scale headcount quickly, sometimes at short notice. Even when a candidate performs acceptably in a technical assessment, they often fall short in product-focused abilities due to the rigid organizational structure found in most traditional outsourcing firms.
This should not be surprising. Being part of a siloed organizational chart that separates product development teams from users means outsourced talent is generally far less user centered than their product-focused in-house counterparts.
The standard workflow for many outsourcing providers involves outsourced resources receiving tasks from a local project manager who communicates product features and the roadmap with the client’s product owner. As a result, outsourced talent rarely gains a holistic view of the client’s end product or business model. This can create a ripple effect that harms product quality through UX oversights and limitations, ultimately weakening the company’s long term competitiveness.
“Customers won’t care about any particular technology unless it solves a particular problem, in a superior way.”, Peter Thiel (Co-founder, PayPal)
To make matters worse, a new trend has emerged over the last decade. The most skilled technical talent has increasingly migrated away from outsourcing companies to join companies building their own products or services. This trend has been especially noticeable across Central and Eastern Europe because of the greater influx of product companies and the higher pay they offer. As a result, the marginal quality of technical talent at most traditional IT outsourcing companies has begun to decline. Not only does this talent lack essential product and user-centered skills, but they are, on average, less technically capable than previous generations.
Beyond uncompetitive pay, being placed in an outsourced function, when not properly managed, can reduce employee morale and retention. Technical talent in such organizations is often rotated reluctantly from project to project. This increases the risk of product and documentation inconsistencies and limits the resource’s ability to go deeper on a project and expand their technical capabilities. Combined with the siloed org chart, outsourced talent rarely sees the impact of their work on users. This significantly affects morale and often leads to accelerated attrition and loss of project IP.
A final potential drawback of working with a traditional outsourcing company, although not an exhaustive one, is the reduction in overall organizational learning. Because of the siloed working structure mentioned above, real time two way feedback loops between in-house and outsourced teams are often weakened, especially when it comes to day-to-day insights that are not consistently documented.
Over time, these small missed interactions accumulate and create critical knowledge gaps between the outsourcing provider and the in-house team. This can leave the company vulnerable and less competitive, while also locking it into the outsourcing provider because of the high switching costs and restrictive exit barriers typical of traditional outsourcing engagements.
The Emergence of Integrated Team Augmentation Models
Although traditional outsourcing has dominated the market since the early 90s, with Accenture, Capgemini and Cognizant rising to prominence and establishing offshore development centers across Eastern Europe and India, new models have emerged. These new models address many of the problems associated with using a traditional IT outsourcing provider.
The success of these new models largely stems from one major factor: team integration. A holistic integration of internal and external team counterparts provides a much closer alignment between provider and client, enabling smoother development processes and more fluid knowledge sharing between organizations.
By augmenting teams in a more comprehensive and connected way, these new models ensure that offshore teams function as a direct extension of in-house teams, while still offering the flexibility of an elastic staffing solution. Carbon, as an example of such a model, offers short and long term product and engineering team augmentation services from its semi-distributed hubs in Central and Eastern Europe and North Africa.
“The talent that Carbon finds are fully integrated into our team, work-wise, culturally, in every respect, helping us build more user centred products and services”, Nasreen Abduljaleel (CTO, MarleySpoon)
Although these new models still operate as an outsourced extension to in-house teams, the way they collaborate is notably different. In these engagements, the outsourced team reports directly to the in-house product owners and is not siloed or kept at arm’s length from the product, the business or its users. This naturally supports clear communication and strengthens product thinking, improving the overall user experience of the product or service being developed and supporting ongoing organizational learning. Carbon’s outsourced engineering teams work as an arm of in-house teams and take part in regular standups and product development meetings.
Another significant advantage of more holistic integration between external and internal teams is the positive influence on company culture. This is supported through more thorough culture fit screening during hiring and reinforced through continuous collaboration. Cultivating a shared culture enhances employer brand strength, reduces employee attrition and encourages higher workplace productivity.
The future of outsourcing
Although traditional outsourcing providers are not disappearing anytime soon, with the sector growing at a CAGR of approximately 11 percent (2023–2028), agile pioneers in the space are finding innovative ways to deliver a stronger overall service that addresses not only the need for additional resources but does so with higher quality, user-centered talent that stays for the long term.
Carbon is the go-to staffing specialist for Eastern European and North African technical talent. Trusted by the biggest names in technology and venture capital, Carbon’s hyperlocal expertise makes entering new talent markets for value-seeking global companies possible.
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