Mistakes Companies Make When Outsourcing Software Development

Outsourcing software development not only helps you rapidly grow your development capacity and significantly cut down the costs, but without proper handling, it can become a costly mess. The line between winning and losing is almost always drawn by a small number of mistakes, which are so obvious and predictable that companies make them again and again.

Recognizing those traps before you start negotiations or set up teams can spare you months of irritation and a large sum of money lost to inefficiency. Most companies gain such knowledge through a painful experience, whereas you can avoid it.

Choosing Based Solely on Price

The least expensive bid almost always ends up being the most costly option. Choosing an outsourcing partner solely because they quoted $25 per hour instead of $45 means you are focusing on the wrong metric. That cheaper rate often indicates inexperienced developers, high turnover, or companies that make low bids just to win contracts and then deliver inferior work.

The actual price of software development isn’t the rate per hour but the total time and revision cycles needed to have working software. A junior developer at $25/hour who requires 100 hours and produces faulty code costs more than a senior developer at $50/hour who delivers clean, working code in 40 hours. The math is simple, but companies still get trapped in this mistake frequently.

Good outsourcing partners will charge a fair price because they go to great lengths to find the right talent, keep their turnover rate low, and have efficient processes. When you come across offers that look very attractive, they are probably too good to be true. The hidden expenses show up later in missed deadlines, technical debt, and the eventual necessity to start over from scratch.

Treating Outsourced Teams Like Vendors Instead of Partners

This error is more of a relationship killer in outsourcing than the rest combined. In such cases, companies establish a ‘them vs. us’ mentality where they keep the outsourced team at a distance by limiting them to only a few details and seeing them as order-takers rather than collaborators. The result, developers simply following instructions without thinking about whether it’s the right solution.

In order to be successful in outsourcing, you have to literally bring the outside team into your thinking. They should have a deep understanding of your business model, your users, your competition, and your product vision. Without this information, they won’t be able to make good decisions in case of ambiguous requirements or the presence of unexpected technical challenges.

The leading companies make an effort to make the outsourced developers feel like a part of their culture right at the beginning. They involve them in general meetings, product discussions, and strategy sessions. They communicate through the same tools, use the same project management software, and follow the same code review procedures. The only distinction is the location of people.

Skimping on Documentation and Knowledge Transfer

Companies are always caught off guard by how much time and effort good onboarding actually takes. In their desire to get things done as quickly as possible, they just grant an outsourced team access to the codebase, maybe have a quick overview call, and then expect them to figure everything out. However, they are the ones who are surprised when the team is constantly asking questions or making assumptions that end up breaking existing functionality.

 Knowledge transfer is far from a single event; it is a deep, lasting investment that constantly bears fruit. You must have detailed documentation ranging from architecture decisions, coding standards, deployment processes, to business logic. Also, you should record walkthroughs of major system components. Additionally, it is imperative to provide clear success criteria for various kinds of tasks to be able to measure their effectiveness. The hours you spend making documentation and doing knowledge transfers are like a seed planted which will yield a multiplied harvest throughout the lifetime of the relationship. Making clear documentation with every hour spent saves a lot of time clarifying feedback. Documenting every architecture decision will save developers from making changes that contradict the main design principles.

Many companies have started using platforms that specifically handle this knowledge transfer systematically. Whether you’re working through an offshoring platform or directly with a development shop, establishing robust documentation standards from day one prevents the communication breakdowns that derail projects.

Failing to Establish Clear Communication Rhythms

Communication constitutes the entire nature of outsourced relationships. Effective communication results in success while poor communication results in outsourcing failures. However, companies often mishandle communication with their outsourcing partners and don’t even treat it as a priority. They don’t fix regular check, in schedules, don’t specify how long it will be before one gets a reply, and don’t even create clear escalation paths for when problems arise. Such vagueness causes both parties to get irritated and it eventually results in misunderstandings worsening over time.

In order to have successful outsourcing, communication has to be intentionally planned and structured. Having a daily standup at the same time helps to keep everyone in the loop. Holding a weekly demo provides the incentive for concrete progress. Async update in Slack or a project management tool could be used if you want to provide visibility without meetings being totally mandatory. Code review helps to keep up the quality standard.

The discussion about time zones is important and deserves to be looked at separately. Instead of considering the difference in time between their countries as a barrier, clever companies create schedules that take into account the time difference. They use the time that they have together for collaborative work and live discussions. At the time when the teams are working separately, they do the development work and communicate via asynchronous messages. Achieving near, continuous development cycles is actually possible if you have a good structure in place.

Not Investing in the Relationship Long-Term

Many companies treat outsourcing as a series of standalone projects rather than developing continuing partnerships. They may call in a team to work on a specific feature, then vanish for several months before coming back with another project. This situation wrecks the institutional knowledge that makes outsourced teams valuable.

Actually, outsourcing becomes more powerful when external developers become very familiar with your codebase over time, grasp your business domain, and understand your team’s working style. A team that has collaborated with you for six months will be far more productive than a new team, even if the new team has more impressive credentials on paper.

Besides, long-term relationships lead to better economic terms. When development partners see that they will have a continuing collaboration with teams, they invest more in those teams. They are more willing to give their best developers, keep the team stable, and be flexible during difficult times. However, these advantages only come when both parties are focused on the relationship beyond the individual projects.

Neglecting Security and IP Protection

Companies sometimes become obsessed with development speed and forget about fundamental security measures. For instance, they give extensive access to production systems without implementing adequate safeguards. They are also lax in defining IP ownership arrangements in their contracts. Besides that, they neglect to put in place even the most basic security measures for code repositories and communication channels. Such negligence can lead to significant losses. For example, if an outsourced team’s compromised credentials lead to a security breach, the costs may run into millions.

On the other hand, unclear IP ownership can hamper fundraising or acquisition efforts. Moreover, the absence of proper access controls may result in inadvertent or deliberate harm to critical systems. It is neither difficult nor complicated to adopt good security practices; however, they demand some upfront consideration. Contracts must unambiguously define IP ownership and confidentiality obligations. Access rights should be granted on the basis of least privilege and accompanied by adequate monitoring. Code repositories ought to be protected by two-factor authentication and maintain audit logs. Most importantly, sensitive information should always be transmitted over encrypted channels.

Getting the Fundamentals Right

It’s not mysterious how to successfully outsource software development. In fact, it’s the same basics that make collaboration in any team successful. Clear communication, mutual respect, proper onboarding, and long-term thinking are the ingredients that create success. Skimping on these basics to save time or money in the short term will inevitably cost more later on.

The companies that are good at outsourcing consider it a strategic capability that is worth investing in, rather than just a way to cut costs. They take lessons from their failures, improve their processes, and establish partnerships that get more valuable over time. Outsourcing can be a significant advantage that leads to quicker development, getting the skills you need, and capital efficiency better than the competitors who are doing everything in-house, if it is done right.