10 Reasons Why Outsourcing Software Development Fails

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Why Outsourcing Software Development Fails

Outsourcing is considered one of the most effective ways for businesses to adapt and grow.

As the economy becomes more global and technology keeps advancing, many companies struggle to create all the software solutions they need on their own. That’s why many software agencies are choosing to outsource some of their work.

However, outsourcing is a complex decision for companies because it comes with a lot of risks.

According to Dun & Bradstreet’s Barometer of Global Outsourcing, “20 to 25% of all outsourcing relationships fail within two years, and 50% fail within five”.

In this blog post, we’ll explore 10 common reasons why outsourcing software development often fails and how to avoid them.

10 Reasons Why Outsourcing Software Development Fails

Here are the 10 most common reasons why outsourcing software development can fail that you should know about:

1. Zero Alignment With Your Outsourcing Partner

This image represents alignment issue with outsourcing partner

You might hire the best tech company in the world, but if they don’t share your goals and vision, it won’t work out.

When you bring on an outside company to help with software development, you should use the same best practices as you would when hiring a new employee.

It’s important that they understand your vision, are committed, driven, passionate, and responsible.

Your outsourcing partner should be excited to join your journey and care about your success just like a good co-founder would.

Look for someone who not only has the technical skills you need but also gets your long-term goals, shares your excitement for the project, and is eager to solve problems.

2. Choosing The Cheapest Outsourcing Provider

A recent study by Deloitte found that most of the companies choose traditional outsourcing for saving money.

However, there’s an old saying that goes, “if you pay peanuts, you get monkeys.” This means that choosing the cheapest option can actually hurt your business.

If you decide to hire the cheapest IT provider overseas, you might face problems like poor communication, cultural differences, and low-quality work.

Keep in mind that if a quote seems too good to be true, it probably is.

Choosing a partner for outsourcing software development just based on price can lead to big problems.

3. Unrealistic Expectations

Image showing unrealistic expectations example as a reason for outsourcing software development failure

Some software development companies will promise you amazing results right away and at a low price.

However, these promises are often just tricks to get you to sign a contract.

While it sounds nice to get high-quality software fast and cheap, that’s usually not realistic. Software development is a complicated process that needs time, teamwork, and resources to do it well. When expectations are set too high from the start, it can lead to frustration, missed deadlines, and a final product that doesn’t meet your needs.

It’s important to understand that quality work takes time, and any company that guarantees immediate success without discussing potential challenges is a red flag.

Instead of falling for flashy promises, focus on finding a partner who will be transparent about timelines, costs, and potential obstacles from the start.

Related Topic- How To Choose The Perfect Software Outsourcing Partner

4. Low-Quality Work

This is a big risk when you outsource work, especially if you’re sending it to another country.

When you outsource, you can’t always watch everything the agency does. They might rush through their work, and you could lose control of your project.

The worst thing that could happen is that you end up with a platform that doesn’t work at all. It might crash, or the code could be so confusing that no other developer can figure it out.

It’s really important that any company you partner with follows industry standards, especially when it comes to the quality of their code and how well they document it.

If possible, ask a tech-savvy friend to check out the company for you. You can also request references from the agency.

5. Lack of Tech Knowledge

When you’re searching for a tech partner, it’s important that they know more about technology than you do.

However, make sure you don’t give up control over the tech decisions being made. It’s a good idea to educate yourself and improve your understanding of technology so you know what you’re paying for.

I’m not saying you need to learn how to code—that’s not necessary!

But you should learn the basics so you can have informed discussions about tech.

6. Not Understanding the Project Scope

It’s really important to make sure you communicate clearly when you’re working with software development agencies.

From the very beginning, you need to have a solid understanding of the overall project, the specific requirements, and the timeline for delivery. If you don’t do this well, you risk having a product that doesn’t match your vision.

For example, the agency might start adding features without fully understanding what you really need. This can cause the project to grow out of control.

This situation is often called “Scope Creep,” and it can really mess up the development process. When there’s a gap between what you expect and what’s actually being created, that gap will only widen. As a result, you might end up delaying your launch because the product isn’t what you wanted.

To prevent this, create clear documents that outline your expectations for what should be delivered.

7. Communication Barriers

Image showing communication barriers as a reason for outsourcing software development failure

When you outsource software development to a company overseas, language barriers can be one of the hidden costs you might not expect.

Words and phrases can vary a lot from one country to another, like referring to a fizzy drink as “soda” in one country and “pop” in another.

Things like dialect, pronunciation, vocabulary, sentence structure, and accent can all create communication problems, especially between native and non-native English speakers.

When you hire a software development company that’s far away, you also need to think about two more things.

The first is the timezone.

Basically, unless you or the agency are okay with working late at night, you might be left waiting for answers.

The second is communication technology.

If you’ve used Skype, Google Hangouts, Whereby, or Facetime, you probably know these platforms aren’t always reliable.

It’s really important to quickly address any communication issues between you and the company you’re outsourcing your software development to.

8. Culture Clash

Cultural differences can greatly affect the relationship between you and a software development agency.

Keep in mind that government and religious holidays can vary from one country to another.

The way bosses and employees interact can also be very different in various places around the world.

For example, in the US or Europe, you might sit directly across from your boss during a meeting.

However, in countries like Singapore, Japan, and South Korea, it’s uncommon for a senior employee to sit next to someone who is junior or less experienced.

It’s crucial to understand these cultural differences when working with the agency to ensure good communication and cooperation.

9. No Flexibility

Having a clear plan from the beginning is really important, but it’s also essential to realize that software products are not static. They grow and develop as your business expands and as the needs of the market change.

The key to long-term success is finding a development partner who can adapt to these changes. This might mean adding more team members, changing the project’s goals, or adding new features to meet new demands.

Look for a partner who isn’t just focused on the original plan but is also willing to change and grow with your product to help it succeed. Being flexible is crucial for ongoing growth and improvement.

10. Isolating the Agency

Relationships can be delicate, and there’s often a feeling of distrust. If you don’t build trust, you’re likely to fail.

It’s important to see that you and the agency are working together as a team, and this partnership is crucial for successfully delivering the product.

Don’t think of your service provider as an outsider.

Quick Tips To Avoid Outsourcing Failures

  1. Clearly state your goals for outsourcing so everyone knows what to expect.
  2. Identify what you need both now and in the future to avoid confusion.
  3. Choose an outsourcing partner who has the right skills and matches your company’s values.
  4. Be ready for challenges by keeping your team updated and fixing any gaps in knowledge.
  5. Focus on the quality and expertise of the vendor rather than just the lowest price.
  6. Write a clear contract that explains each party’s responsibilities, working hours, and how to end the agreement if needed.
  7. Set up good communication methods and have regular meetings to discuss problems and updates.
  8. Build trust and respect with your outsourcing team to work better together.

Unsuccessful Outsourcing Stories of Big Companies

Let’s take a look at some examples of big companies that faced problems with outsourcing and see what we can learn from their experiences.

The State of Texas and IBM

The State of Texas wanted to combine its data center operations and chose IBM to help with this task. In the first two years, IBM was supposed to merge the systems of 27 state agencies into just two data centers.

Unfortunately, during those two years, IBM was only able to move the systems of five agencies. On top of that, the company failed to perform the nightly backups that were required by their contract.

As a result, the State of Texas lost $863 million on this deal. IBM also missed the deadline for finishing the project, which led to even more financial losses. Eventually, costs kept rising, and Texas had to replace IBM with Xerox and Capgemini in a deal worth $1.1 billion.

Royal Bank of Scotland and Their IT Vendor

The Royal Bank of Scotland didn’t share the name of their software outsourcing provider with the public. The bank needed to update its systems and planned one of these updates for June 2012.

Unfortunately, this update caused millions of customers to lose access to their money. Both commercial and personal customers couldn’t withdraw cash, check their balances, or make transactions.

Even the bank itself was unable to access its systems. This failed software update brought the entire banking system to a halt. Customers couldn’t make payments or receive money, which hurt local businesses a lot. However, the bank did not disclose which company was responsible for this issue.

Virgin Airlines and Navitaire

Navitaire provided services like online booking, reservations, check-ins, and boarding systems for Virgin Airlines. However, all these applications crashed twice within three months. According to their agreement, Navitaire was supposed to fix these critical system failures quickly.

But it took them nearly 24 hours to resolve the issues. During that time, all Virgin Airline flights were grounded, leaving over 50,000 passengers frustrated. This resulted in a significant financial loss for Virgin Airlines.

Main Reasons for These Failures Include:

  • Poor assessment of skills
  • Clients didn’t protect their interests well enough
  • Smaller companies can handle big challenges too
  • Weak project management and lack of transparency
  • Clients rushed into choosing vendors

Wrap Up

Outsourcing can be a great way for businesses to get ahead in today’s competitive world. By finding the right outsourcing partner who has the skills and can adapt to changes, companies can gain a strong advantage over their competitors.

However, jumping into outsourcing without clear goals can lead to problems like misunderstandings and extra work for management. To keep your project safe and successful, it’s important to think about the factors that affect outsourcing and make a smart decision.

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