What is IT Outsourcing (ITO)?
The world of outsourcing has a variety of terminology and one term that is not broadly understood is ITO or IT outsourcing.
When it comes to outsourcing one term that is widely known is BPO, Business Process Outsourcing.
- BPO is the outsourcing of an essential function, this could be an entire department such as HR or a specific function that is performed e.g. payroll. Often BPO is associated with call centres, customer service and back-office tasks.
In a similar fashion,
- ITO describes IT outsourcing of some or all of an IT function such as software development, hosting, applications or infrastructure to a third party supplier.
IT Outsourcing (ITO) Models
There are also a variety of terms used to describe various IT outsouring models:
- onshore — The supplier is based in the same region/country/timezone as the client. For example, a UK client dealing with a UK supplier.
- hybrid — The majority of the supplier team is based offshore but a small number of supplier staff are located in the client region, possibly the same office for ease of communication and access. For example, a UK client with a few UK based supplier staff and the main team based in India.
- nearshore — The supplier team is based in a near geographic region to the client, so time zone differences are small and travel times small. For example, a UK client dealing with a European supplier.
- offshore — The supplier is in a different time zone a significant distance from the client. benefits are often cost and team availability. For example, a UK client dealing with an Indian supplier.
IT Outsourcing (ITO) Charging Models
As with any business, there are also a variety of charging models and contract types, including:
- Fixed price — Predetermined fixed amount to deliver the work regardless of manpower effort actually used or costs of any services or materials. Requires a precise definition of the requirements upfront. If the client does not have a suitably detailed set of documented requirements or there are areas of high risk the supplier could do an initial piece of work to document the requirements and understand the level of risk before providing a quotation for the main project.
- Time and Materials — Sometimes referred to as cost-plus. The supplier records the amount of effort spent on the project (typically through timesheets), and tracks all expenses incurred for materials and services and then invoice the client at the rate that was agreed at the start of the project. Any risks that result in time overrun or extra effort are passed to the client. Does not need all requirements to be defined at the start of the project, and most suitable for agile methodology projects.
- Augmentation — The client wants a set number of staff for typically a long period of time to perform tasks. Tasks and work don’t have to be defined at the start of the engagement, typically the types of work and task are known so that appropriately skilled staff can be provided by the supplier.
Why outsource software development and IT projects?
There a variety of reasons that IT outsourcing is used:
- cost — using resources from another geography may have benefits of lower direct cost
- management — no management effort to hire, recruit, retain, pay staff and ongoing management is provided from the supplier
- short term project — the ability to add extra staff for a specific project reduces costs and impact on a business, and there is no issue at the end of the project with having to reallocate staff.
- specialist skills — it may be that a new product or project requires specialist staff for a specific time or task which would not warrant employing them on a full-time basis.
- staff augmentation — if there is a need to scale quickly or add a new department for a new activity, eg adding a support or maintenance team for a finished project then.
- clarity of costs — by having an external supplier do a specific task it is a lot easier to track costs, and hence manage your profits, especially if work is being done for a client.
How to Find an IT Outsourcing (ITO) Supplier
There a variety of ways to find an ITO supplier.
- Recommendation — from a colleague or friend
- Manually searching the internet — use a search engine then create a list of possible suppliers.
- Use a specialist directory — by using a business directory that is specialised in a niche sector you can ensure you are only looking at shorter lists of possible suppliers and search for specific criteria. A good place to start is https://outsource.dev