This is the process of hiring an IT outsourcing company

12 min read
November 14, 2022

Outsourcing might be the trend right now, but it seems many companies have not yet perfected it.

The proof is in the numbers. According to the Barometer of Global Outsourcing report by Dun & Bradstreet, 25% of all outsourcing projects fail within two years.

Almost half of them fail within five.

Those are pretty high failure rates.

Given how risky outsourcing is, it’s no surprise.

Miscommunication, cultural mismatch, and time zone differences are just some of the many obstacles that can ruin the relationship between the client and the outsourced provider of a service.

The good news is that you can minimize these risks if you’re diligent in selecting and hiring your outsourcing agency.

Here are the steps you can take.

Create a project scope statement

Before reaching out to an outsourcing company, it’s crucial that you have a clear idea of the project’s scope first.

This is where a scope statement comes in.

The scope statement defines all the project’s requirements, including deliverables, deadlines, costs, and goals.

This will also help you establish the roles and responsibilities needed in the outsourcing team that you’ll hire.

The idea is that once you hand your project over to a third party, they should be able to execute it with minimal supervision.

An outsourced project without a scope statement is off to a bad start, as the lack of clear directions can significantly delay your project.

The Most Common Reasons Why Software Development Projects Are Not Finished On Time

Source: 99 Firms

You also risk adding further costs to your project.

Without a clear guide, there’s a good chance that team members will get caught up doing unnecessary tasks that don’t contribute to your app’s success at all.

More importantly, a scope statement defines the exact skills your project needs so that you can hire appropriately.

So, given its importance, what should a scope statement include?

Start with the project goals. This is crucial as it sets the direction of your app. Here, you should list the strategy, timeline, deliverables, and KPIs the team should hit.

scope statement infographic 1

Source: DECODE 

Next, we come to the core of the scope statement—the list of tasks and milestones needed to complete the project.

Here, it’s useful to use a work breakdown structure to organize your project, starting from your stated deliverables and narrowing it down to individual tasks.

Here’s a template you can use:

work breakdown structure template

Source: Wrike

Now, you also need to state the constraints of the project. These are the limitations or boundaries that the outsourced team must work within.

For instance, you might need the project done in six months (time constraint), or you’re only working on a set budget (money constraint).

Your app might also be in a niche with a high cybersecurity attack rate (risk constraints).

It’s important to specify all the constraints and state them clearly. This helps you find the right team that can work under these restrictions.

Lastly, it would be best if you also defined the exclusions of the project. These are the tasks that are not included in the project.

It’s crucial to be transparent with these to avoid redundant work.

Decide where to outsource

Once your project scope is laid out, it’s time to start your search for an outsourcing company.

First, you need to decide where to outsource.

You have three choices here—onshoring, nearshoring, and offshoring. Each method has pros and cons you need to be aware of.

In onshoring, you hire an outsourcing agency from the same country as yours, but not necessarily the same city.

A tech company from San Francisco hiring a software development agency from New York is a great example.


Source: DECODE

The main reason for onshoring is the ease of transition. There are zero language or cultural gaps involved. Time zone differences are also minimal.

This means that you can work on the project right away without any big adjustments.

However, onshoring limits you to the talent pool in your country. Thus, you might not get the best or cheapest developers.

Next, let’s explore offshoring. This is the approach where you hire a company from across the globe.


Source: DECODE

Offshoring opens you to a global talent pool, meaning you can hire skilled yet cost-efficient developers.

However, it’s also the most challenging. Time zone differences, language barriers, and cultural mismatch can hinder smooth project collaboration.

In this case, a good compromise is nearshoring. This is where you outsource work to a neighboring country with minimal time zone differences (around three hours at most).

A German company hiring the DECODE team in Croatia is a great example of a nearshoring setup.


Source: DECODE

Nearshoring gives you the best of both worlds. You get access to great, inexpensive talent, as with offshoring. At the same time, language and time zone challenges are minimized.

These are the same reasons that make DECODE a great nearshore pick. We’re located in Southeastern Europe, a region known for good developers who charge reasonable prices.

In addition, we’re strategically placed near major European cities.

For more reasons why you should pick DECODE and Croatia for app development outsourcing, check out our article here.

Find IT outsourcing companies

Once you’ve decided on the country or region you’ll outsource, your next step is finding potential agencies there.

Here are some great places to start.

how to find an outsourcing company

Source: Freshcode

The simplest would be to hop on Google and do a simple search. Typing in “best mobile app agency in India” will get you a good list of potential candidates.

Linkedin and Upwork are also good sources. The advantage of these platforms is that you can contact the founders and ask them questions directly.

You can also try B2B portals like Clutch for more in-depth research.

The nice thing about these platforms is that they often include relevant client information, such as the average hourly rate or project sizes they’ve worked on.

This can help you gauge their capabilities and total price.

DECODE reviews screenshot 1

Source: Clutch

However, nothing beats the power of referrals in finding the best agencies to partner with.

Knowing that someone had a great experience with an outsourcing company gives you confidence that you’ll get it as well.

To do this, you can contact several companies in your industry and ask them for recommendations.

Another alternative is to go on relevant Facebook groups and ask the members there. Chances are, you’ll get a handful of responses.

At this stage, just list down every potential agency you’ll find. Don’t worry—you’ll trim them down in the next step.

Create a shortlist of IT outsourcing companies

Once you have a sizable list, it’s time to narrow it down to ideally two to three candidates.

To do so, it helps to have criteria for judging. Here are some we recommend.

outsourcing criteria

Source: DECODE

Hands down, the top two you should look at are expertise and experience. These are the bare minimum.

After all, how can they pull off your project if they don’t have the skills and past successes as proof?

It’s important to check their portfolio and case studies. The latter is preferable, as it can show you how the agency tackles a problem.

For instance, here’s our case study of the smart lighting project with Kien.

case study of the smart lighting project with Kien 1

Source: DECODE

Next, look at their reviews. This will tell you how easy (or difficult) they are to work with.

Most agencies will have reviews and testimonials on their website, which is a good place to start.

Just make sure it’s from someone reputable or verifiable. It’s also wise to check unbiased third-party review sites like Clutch or GoodFirms.

third party review site

Source: Bizzon

Next are the technologies and methodologies they use, including anything related to security. Make sure it matches your project requirements.

For instance, if you’re working on a fintech app, you’d want to partner with an agency with cybersecurity specialization and ISO/IEC 27001 certification.

Also, don’t forget to look at their pricing model. Ideally, they should adopt the time and materials approach instead of offering a fixed price.

This is where the agency bills you for the actual hours of work done. That approach is fairer to both the client and the agency, and better reflects the team’s efforts.

pricing model

Source: DECODE

Lastly, look at your initial communication with them. This is a preview of how well they can collaborate with you during a project.

Was it smooth sailing when you first contacted them? Did they answer all your questions fully? Do they speak the same language as you?

At this point, it’s useful to be objective with your evaluation. A good approach is to put a grade from 1-10 for each criterion listed above, then add all of them for an overall score.

Then, add the top three candidates to your shortlist.

Interview the selected IT outsourcing companies

When you’ve created your shortlist, it’s time to thoroughly interview the remaining candidates.

This allows you to discuss your project details (preferably under an NDA, as DECODE does) and gauge if the agency can tackle it successfully.

Aside from this, you can also take this opportunity to ask questions about your potential outsourcing arrangement. Here are some you can start with.

Will the team be dedicated or shared?

A shared team means the developers are working on multiple projects. This is usually the cheaper option, but the drawback is that you’re not the priority.

dev team

Source: Altamira

For smaller projects or tasks, this is fine. But if you’re working on a complex project such as an app, a dedicated team is almost a must.

How often will I get project updates?

Communication is key, so this is a good question to ask right off the bat.

Some clients like to leave developers to their own devices, while others are more hands-on and want constant updates. A good team will adapt to your preferences.

For instance, DECODE uses the Agile approach that ensures regular review and feedback sessions with clients.

How Agile works 1

Source: Asana

If you like to touch base with your developers throughout the project, it’s best to look for an agency with a methodology that facilitates this.

What makes your agency different from other outsourcing options?

This is perhaps the million-dollar question – and the answer here could make or break your decision to hire an outsourcing firm.

Just make sure that you verify any of their answers during the interview. If they claim they have worked on X successful projects, contact those clients and validate them yourself.

Start onboarding the chosen company

Congratulations! At this point, you’ve finally picked a company. Hopefully, if you followed the steps outlined in this article, you’ve made the right decision.

However, the process doesn’t end there.

The next order of business is to onboard the agency. The goal is to give them everything they need to commence with your project, such as documents and access to your files.

Remember the scope statement document you did in the first step? Now would be the time to share it with your outsourced team.

However, allow your dedicated team to discuss any issues with the scope. For instance, if the project has tight deadlines, it would be wise to compromise and adjust accordingly.

Remember, short deadlines can lead to overwork and lower productivity.

short deadlines can lead to overwork and lower productivity

Source: Existek

Now’s also a good time to discuss how you’ll communicate with the team. Agree on the platforms that you’ll use and for what purpose.

For instance, you can agree that files should be uploaded to Google Drive and never sent directly via Slack, for the sake of transparency.

Finally, getting to know your outsourced team better is also a good idea. Even if they’re a third-party provider, you should treat them as part of the company.

This has several benefits, including:

getting to know your outsourcing team benefits

Source: Better Business Bureau | Medium

Onboarding is a critical part of outsourcing that shouldn’t be ignored. If not done properly, it could lessen the effectiveness of even the best development team.

Finalize all agreements

The final step of hiring an outsourcing company is to sign key legal documents.

Contracts and agreements are vital because they protect you and the team in case of disagreements or conflicts.

Start with the non-disclosure agreement or NDA, which legally forbids the client and third-party developers from leaking sensitive project information to the public.

This is vital for protecting trade secrets, intellectual property, and other assets that constitute a competitive edge.

Another key document you need is a statement of work, which contains more details regarding the work agreement.

This can include payment details, success metrics, scheduling, roles and responsibilities, and end-of-project protocols.

Once everyone has read and signed these documents, send everyone involved a copy for reference.

And that’s it!

After you’ve done these steps, you should have an outsourced team that can work independently on your project.

Hiring may seem easy, as this article shows. But in reality, it’s not. You’re likely to encounter mistakes that could derail your efforts.

To help you watch out for them, we’ve prepared an article for you. Check it out here—the top mistakes to avoid while hiring a dedicated development team.

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Written by

Marko Strizic

Co-founder and CEO

Marko started DECODE with co-founders Peter and Mario, and a decade later, leads the company as CEO. His role is now almost entirely centred around business strategy, though his extensive background in software engineering makes sure he sees the future of the company from every angle. A graduate of the University of Zagreb’s Faculty of Electrical Engineering and Computing, he’s fascinated by the architecture of mobile apps and reactive programming, and a strong believer in life-long learning. Always ready for action. Or an impromptu skiing trip.

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