Outsourcing IT services is commonplace. In fact, today, outsourcing has evolved and become more of a growth strategy that allows companies to reach into new talent pools while growing their teams. The rise of remote work made outsourcing far more tenable for many companies. The cost of outsourced IT is not the only reason why companies look to this strategy as a way to grow their companies.
According to information from Zippia, 29% of businesses or companies with less than 50 employees outsource work compared to 66% of businesses that have more than 50 employees. At the same time, the most common outsourced tasks include accounting or IT services.
Originally, companies outsourced their information technology needs for two main reasons: to save time and to save money. Outsourcing this integral part of an organization helped to minimize expenses, such as distribution and general costs, which were sometimes up to 5x the expense of IT itself. Today, outsourcing has changed and become a growth strategy that allows companies access to new talent pools. Thanks also in part to the rise of remote work and improved communication tools, companies are far more inclined to build remote tech teams that help them through the next state of development.
Outsourcing IT functions does not mean a company forgets about spending on their in-house software engineers. Yet, lots of potential savings are waiting for you when you outsource some of your IT operations. So, this post will share several ways for how IT outsourcing saves time and money for companies evaluating its use.
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What Is Outsourcing?
To begin with, outsourcing is a bit self-explanatory. You “out-source” a product or service from an outside source. That’s it. Outsourcing is now becoming a common practice which you can see from many different sectors. This activity is needed the most for specific reasons like a lack of in-house talent, or to save time and money.
You might see some companies outsourcing almost all roles in their organization. That may sound extreme, but it might just be the best move if they don’t have the resources. Therefore, outsourcing is the way to go if you need something to get done on demand and save money in the process.
Different Types of Outsourcing
Not all outsourcing initiatives are the same. They are usually performed for specific purposes, which may include:
- Project Software Outsourcing – This first one means that you hire a company to run a complete software development project for you. Companies might go for this if they want an external company r partner to complete the work entirely from start to finish rather than doing it in-house.
- Recruitment Outsourcing – This is a common practice in the outsourcing market because recruiting might be difficult to perform if done in-house because of lack of resources or bandwidth. So, in this type of outsourcing, you hire someone to do all the recruitment roles for you which may result in benefits like saving money, finding high-performers for your team, and scaling at a more consistent rate.
- Business Process Outsourcing – This is a corporate activity in which one corporation employs another firm to conduct a process role that the recruiting organization needs for its own business to function effectively. Over the past several years, companies in other sectors have embraced this practice.
IT Outsourcing Cost Savings: How This Strategy Saves Time and Money
The reasons for outsourcing are many and thanks to cloud computing, remote work, and the rise of remote team and better communication tools, the outsourcing industry is likely to expand and become more nuanced with time. For example, Forbes suggests that outsourcing spending can reach up to $731 billion in 2023.
Next, the following information is a compilation of the best possible ways for how outsourcing your IT functions will save you a lot of time and money in the process. According to data, the top reason for outsourcing is cost reduction and the second is flexibility.
Cost Saving on Training
The first and obvious reason for outsourcing your IT is to save money that otherwise might be spent on training or recruiting people. In outsourcing IT talent and roles, you don’t have to worry about allocating a budget just to develop an in-house software developer, for example. Instead, a readily available IT specialist to do everything for you is just a phone call or email away.
What does this look like in action and figures?
Research conducted by MIT proved that around 300 U.S. businesses from 1999 to 2003 experienced a rise in the company’s IT outsourcing budget of $96.14 million, and it was consistent with an average reduction in preparation and recruitment expenses of $121.14 million in other areas.
Time Savings on Recruitment
The ability to tap into a wide pool of highly qualified software engineers and developers is a benefit of having an outsourced IT partner. When looking to find talent, it takes hard work and time to source the right fit, vet them thoroughly, interview them and then onboard them.
Using external outsourcing gives companies an edge when looking to cut costs on recruiting times and specifically in time-to-fill.
It takes a single recruiter anywhere from 50-80 days or 2-3 months to source, interview and hire one developer. That efficiency drops when we add more than one hire or even a team of five.
The optimal time it should take to hire a software engineer takes around 30-45 days or 1-2 months. Any process that takes longer risks losing A-level candidates to another company.
IT partners provide an edge to reach this optimal time with their average closing form start to finish within 33 days. With multiple sourcing and recruiting channels ready to go, as well as existing talent pools, they are able to speed up the process and reduce the time-to-hire for partner companies, helping them focus more on interviewing and onboarding than on finding and vetting candidates.
Saves Money on Talent
In developing nations, it is sometimes challenging to find unique, qualified staff due to shortages or very high costs. Because of this, outsourcing jobs in developed countries come in handy because of lower costs, fluent English capabilities, and candidates who are great at what they do.
Recruiting IT workers or tech professionals like software developers or engineers can be costly. For example, a junior developer from the United States costs more than a software engineer in Latin America or Eastern countries. As developers gain more education and expertise, their costs are also increasing, making them quite expensive for small businesses on a tight budget.
More hands usually mean more efficiency.
When recruiting in-house and in the middle of a growth spur, finances and cash flows play a big role in decision making and especially in hiring. At any particular point in time you might only be able to finance a couple of employees in-house, but what about outsourcing tasks?
Big tech companies and most of SME’s are known to have built their companies leveraging a mix of in-house and outsourced staff. Choosing to focus on their core business, in developing that, and delegating other non-mission-critical functions to other people.
In a nutshell, outsourcing increases efficiency by helping a company focus on the essential, on it’s secret sauce, and reduces the operational costs by leveraging wage arbitrage of outsourcing.
On the flip side, you also have the fact that through this same wage arbitrage a company can find itself being able to employ two remote engineers where they could’ve only hired one in-house – increasing efficiency through a larger team.
Savings on Labor Costs
Among the top four nations for outsourcing labor, we see how nations compare to each other in labor cost savings compared to those in the U.S. The main reason behind this is the cost of living and varying economies of different countries. Companies outsourced to the nation will reduce their labor costs somewhere from 60 percent to 90 percent, while at the same time supplying their outsourced labor market with a fair, livable income.
Of these nations Mexico stands out as the up-and-coming challenger, with their talent pool becoming very popular during 2020, where an increase in remote positions offered by US and Global companies increased by 400%. As of 2023, our data from our tech salaries report suggested that 26.7% of working tech professionals are already working for U.S. companies.
Outsourcing Continues to Evolve and Expand as Tech Demands Change
Clearly, outsourcing IT positions like software developers in a company saves time and money, especially in recruitment, talent, and other key areas of a business. While the benefits are numerous, many companies are still skeptical about outsourcing (or don’t know where to start), so they unfortunately miss out on hiring in new talent pools and on potential savings.
Engaging in IT outsourcing might be confusing at first. Therefore, understanding the basics of it is important before diving in. Our recommendation after being in the industry over 6 years is:
- Identify your reasons for why you’re outsourcing
- Identify different ways to outsource – BOT, Staffing, Direct Hire Recruiting
- Get informed on different IT destinations, compare rates.
- Identify and evaluate potential IT partners
- Create and implement a hiring strategy and roadmap
- Engage in remote engineer management
Outsourcing Cost Savings Plus Elite Talent
There are many ways that IT outsourcing reduces costs, but it’s more than just about costs. You can get the best of both worlds by looking into exciting talent pools. In Mexico, for example, the concept of outsourcing has joined forces with the nearshoring movement and increased the number of U.S. companies looking to places like Mexico for top-tier talent. IT Outsourcing has cost savings but if you look in the right market, it also offers quality talent.
If you’re interested in starting a conversation about how to tap into the Latin America, talk to us today