Anti-outsourcing: a new model for building offshore development teams

Outsourcing software development is notoriously riddled with various blindspots and risks. Whilst it may be a solution readily available to most CTOs, it is usually one approached with caution given the long term implications and possible pitfalls of collaborating with and relying on a traditional IT outsourcing provider.

The risks and drawbacks associated with partnering with most outsourcing firms vary in severity and largely stem from a lack of adequate integration of the outsourced team. Possible downsides include everything from: a loss of control over the execution and quality of IT functions; a knowledge gap in business and product understanding of the outsourced team as well as a reduction in their morale and retention, and an overall reduction in organisational learning for both the outsourced provider’s talent as well as the client itself.

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Before deciding to outsource a part of your product or codebase to a 3rd party provider, it would be wise to better understand how incentive structures are aligned, or perhaps misaligned. Understanding the driver behind an outsourcing firm’s business model and culture is key to navigating pitfalls in the future. For example, the majority of IT outsourcing businesses are inherently margin compressed — their value proposition is often a race to the bottom on price.

Naturally, this has a negative effect on the quality of the staff being outsourced. Furthermore, outsourcing firms are incentivised to add extra ‘resources’ to their payroll. They do this in order to extract more outsourcing fees from their clients, the focus being on the number of resources deployed rather than the quality and calibre of that talent.

Whilst some companies that engage IT outsourcing providers insist on interviewing the talent that is contracted to them, a lower barrier to entry is often applied due to the underlying need to rapidly grow headcount, often at relatively short notice. Even in the instance that a candidate performs adequately in a technical assessment, they often fall short in their product-focused abilities due to the gated organisational structure of working for most traditional outsourcing firms.

This should perhaps not come as a surprise. Being part of a siloed organisational chart that insulates its product development team from its users, means that such outsourced talent is significantly less user-centred than their more product-focused in-house counterparts.

The workflow norm for most outsourcing providers is that outsourced resources have tasks assigned to them by a local project manager who communicates product features and roadmap with the product owner on the client’s behalf. This means that outsourced talent rarely has a holistic view of the client’s end product or business model. This can lead to a negative ripple effect on the quality of the product being developed with UX oversights and shortcomings, ultimately hampering 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)

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To add to the downward product quality pressures, a trend has emerged in the last decade — the most skilled technical talent is migrating away from working for outsourcing companies to join companies working on their own product or service. This trend has been especially prevalent across most of Central & Eastern Europe, given the greater influx of product companies in the region in recent years and the better pay being offered. This means that the marginal quality of the technical talent at the majority of traditional IT outsourcing companies has started to decrease. Not only does this talent lack the necessary product and user-centric skills, but they are, on average, less technically skilled than their predecessors.

Uncompetitive pay aside, being placed in an outsourced function, when not managed appropriately, has the potential to reduce employee morale and retention. The technical talent that works for such organisations are often, reluctantly, circulated from project to project. Not only does this risk product and documentation inconsistencies from arising, but it also limits the resource from diving deeper on a project and developing their technical skills. Coupled with the siloed org chart, outsourced technical talent rarely get to see the fruit of their labour at the user level. This has a huge impact on the morale of most outsourced employees, often resulting in accelerated talent attrition and subsequent loss of project IP.

Siloed teams at traditional IT outsourcing firms

Fully-integrated team augmentation @ Carbon

A final, but by no means exhaustive, possible drawback of collaborating with a traditional outsourcing company is its potential to reduce overall organisational learning. Given the above mentioned siloed working structure, effective two-way real-time feedback loops between in-house and outsourced teams are often impaired; especially with more less notable day-to-day discoveries which aren’t always documented.

Over time, these minor interactions can grow to leave a void of critical knowledge gaps between the outsourcing provider and the in-house team. This can ultimately leave the company in a vulnerable and uncompetitive position in the long run, whilst simultaneously locking them in with the outsourcing provider given the high switching costs and restrictive barriers to exit of typical outsourcing engagements.

The emergence of a new model…

Whilst traditional outsourcing has long dominated the market since the early ‘90s with Accenture’s, Capgemini’s and Cognizant’s rise to prominence and the building/establishment of offshore software development centres across Eastern Europe and India, new models have since emerged. These models, in turn, have successfully addressed many of the problems associated with engaging a traditional IT outsourcing provider.

The key to the success of these new models can be largely attributed to one major factor —team integration. A holistic integration of the internal and external teams’ counterparts provides a more tailored fit between the provider and the client, allowing for smoother development processes and for knowledge to flow more freely between the organisations.

By augmenting teams in a more encompassing manner, these new models ensure that the offshore teams act as a direct extension of those more permanent in-house teams, whilst providing the flexibility of an elastic staffing solution. Carbon, as an example of such a model, provides short and long term product & engineering team augmentation services from its semi-distributed Hubs in Central & 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)

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Whilst these new models still act as an outsourced extension to a company’s in-house team, the manner in which they collaborate with each other is very different. In such engagements, the outsourced team reports directly to the in-house product owners, and is not siloed or kept at arms length from the product, the business or its users. This naturally aids in clear communication and enhances the ‘product-ness’, enhancing the overall user experience of the product and service being developed, all whilst nurturing on-going organisational learning. Carbon’s outsourced engineering teams act as an arm to in-house teams, and are part of regular stand-ups and product development meetings.

Comparison of traditional outsourcing firms to the Carbon model.

Another notable benefit of a more holistic integration between external and internal teams is the positive ripple effect it has on company culture. This is usually achieved by more thorough culture fit screening of talent prior to engagement, but is also fostered on an on-going basis as a result of the closer channels of collaboration. Nurturing a similar company culture has the added benefit of a strong employer brand, lower employee attrition and encouraging overall workplace productivity.

Whilst traditional outsourcing providers aren’t going away anytime soon, with the sector growing at a CAGR of ~11% (2023–2028), agile pioneers within space are finding new and innovative ways to provide a better overall service that addresses not just the simple need for extra resources, but does so with quality, user-centred talent that’s retained for the long haul.

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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