SDO (Software Development Outsourcing)

Software development outsourcing SDO is an HR model of hiring a third-party team of developers for software development projects to enhance project efficiency, productivity, and reduce development cost and delivery time. SDO definition ^[1] explicitly implies that any client that uses software development outsourcing can achieve a business competitive edge in the market by enhancing efficiency and reducing development cost.   

History of SDO (Software Development Outsourcing)

The SDO meaning and definition have evolved through the decades starting from the last few decades of the twentieth century. There is no agreed date on the launch of SDO services, but the concept of software development outsourcing is closely associated with modern IT outsourcing, which started in the 70s and 80s of the 20^th century ^[2]. The scope of SDO grew significantly after major companies like GE, IBM, Oracle, and others started outsourcing their IT and software development in the 90s to India and other destinations. With the emergence of the dotcom boom in the late 90s, software development outsourcing also grew significantly, which persists in the global marketplace even today ^[3].

The global market size of the total outsourcing service reached $45.6 billion in 2000. The size of the outsourcing services in 2014 reached $104.6 billion and is the highest amount in the outsourcing history ^[4]. The present market outsourcing market size is $92.5 billion, out of that over 64% of the share accounts for software development outsourcing [5]. The global market value of IT outsourcing will continue growing substantially in the coming years at the rate of 5% CAGR during 2020 and 2024 ^[6].

How Does the SDO Model Work?

The definition of SDO clearly defines what is SDO; let’s talk about how does it work? Software development outsourcing can be divided into different sub-categories in terms of locations as listed below .

• Offshore software development
• Onshore software development
• Nearshore software development 

Software development outsourcing or SDO means the development of software through any one type of above-mentioned outsourcing. Choose any of the above-mentioned outsourcing models, and then hire a team of professional developers with the help of the following listed models.

• Project-based hiring of a remote team
• Staff augmentation of your existing team
• Outstaffing a dedicated team of developers
• Fully managed team for a development project
• Establish a remote software development center 

A professional-grade SDO company is highly recommended for implementing the software development outsourcing SDO model effectively and efficiently. The process of managing a software project as well as a development team for all types of above-mentioned hiring models is different.

Global Size of SDO Industry

How big is the software development outsourcing industry worldwide? According to Statista information, the total market size of the outsourcing industry is about $92.5 billion in 2019 with about 64% share accounting for software development ^[4][5]. The SDO industry has become one of the top trends in the software development outsourcing nearshore and other formats of outsourcing worldwide.

As far as the revenue of the software industry is concerned, it is expected to reach $554.9 billion in 2020 with a growth of over 7.1% CAGR during 2020 and 2025. The enterprise software segment will lead all other domains with an estimated volume of $220.1 billion globally ^[7]. The software development outsourcing to emerging outsourcing destinations will help enterprises to improve software development capacity significantly ^[8].

Famous Global Companies That Use SDO Successfully

A large number of software development outsourcing companies are emerging in the global marketplace along with a large number of existing software companies offering software development outsourcing services . The main reason for this unprecedented popularity of software development outsourcing companies is the increasing demand for software outsourcing originated from many small, medium, and large-sized organizations worldwide. Among such companies that have adopted the use of SDO services effectively and successfully are listed below.

• Adidas Inc
• eBay Corporation
• Xerox Corporation
• International Business Machine IBM
• Toyota Corporation
• Expedia Inc
• Verizon Media
• Epion Healthcare
• Deloitte Digital
• DHL Corporation
• ClassPass Inc
• City Index
• Rossmann Repair Group Inc
• LuxMed Systems
• Zefr Inc
• Kodak Corporation
• And many others

Software development outsourcing benefits such as reduced development cost, access to a skilled workforce, project productivity, and faster time-to-market attract thousands of companies operating in healthcare, entertainment, technology, automobile, media, retail, industrial automation, and other sectors globally.

Software Development Outsourcing Benefits and Issues

The latest forecast predicts that more than 1 million jobs related to information and computer technology will go unfilled due to the acute shortage of tech-talent in the USA only ^[9]. The cost of hiring software developers and engineers locally is increasing significantly. Qualified and skilled software professionals demand very lofty salaries, which is a big challenge for enterprises not only in the USA but also in Western European countries like the UK, France, Switzerland, and others. To cope with those challenges, enterprises choose for software development outsourcing SDO models.  

SDO offers numerous benefits to the companies in overcoming the prevailing business challenges and creating better business opportunities. Along with numerous benefits, there are certain software development outsourcing issues too. Let’s have a look at the benefits and issues of SDO models.

Benefits

• Reduced development cost
• Access to the global pool of tech-talent without any geographical limitations
• Longer work hours due to spread time-zones
• SDO offers better productivity
• Better software development quality
• Faster delivery of projects
• Access to a highly skilled and qualified workforce
• Flexible options for team development
• Easy to scale software development team
• Multi-culture and language diversity
• No upfront cost for establishing development infrastructure
• Fully managed and hassle-free services
• Better focus on core business ideas and innovation
• Efficient use of Agile or Kanban methodologies

Issues

• Lesser control over the software development teams as compared to an on-premises team
• Lesser face to face interaction that may lead to communication gaps
• Chances of miscommunication and conflicts in the teams
• There is a chance of increased-risk in  project success 

Cost of Software Development Outsourcing

The average cost of software development outsourcing in different countries varies based on numerous factors such as:

• Size Economy
• Demand/Supply for tech-talent
• SDO market size
• Living cost
• Type of economy
• Labor laws and social security
• And others

Based on these factors, the average cost of software development outsourcing SDO in different countries is mentioned in the table.

If you compare the average cost of software development outsourcing in different countries with SDO Ukraine, you will find Ukraine as one of the best offshore software development outsourcing destinations worldwide. Offshore Ukraine offers:

• Highly competitive price
• Access to a large pool of skilled and qualified tech-talent
• High-quality software development
• Convenient location
• Overlapping work hours
• Flexible working habits
• Common culture and values
• Proficiency in the English language  

See Also

• OSD Acronym
• T&M Acronym

References

1. https://www.webopedia.com/TERM/I/IT_outsourcing.html

2. https://scm.ncsu.edu/scm-articles/article/a-brief-history-of-outsourcing

3. https://www.computerweekly.com/feature/CW50-A-history-of-IT-outsourcing

4. https://www.statista.com/statistics/189788/global-outsourcing-market-size/

5. https://www.statista.com/statistics/662991/worldwide-cio-survey-outsourced-it-functions/

6. https://www.marketwatch.com/press-release/it-outsourcing-market-2020-global-industry-size-future-trends-growth-key-factors-demand-business-share-sales-income-manufacture-players-application-scope-and-opportunities-analysis-by-outlook-2024-2020-03-30

7. https://www.statista.com/outlook/620000/100/software/worldwide

8.  https://www.techrepublic.com/article/cio-jury-83-of-cios-struggle-to-find-tech-talent/

9.  https://www.payscale.com/research/US/Job=Software_Engineer/Salary

10.  https://www.payscale.com/research/UK/Job=Software_Developer/Salary

11.  https://www.payscale.com/research/DE/Job=Software_Developer/Salary

12.  https://www.payscale.com/research/PL/Job=Software_Developer/Salary

13.  https://www.payscale.com/research/UA/Job=Software_Developer/Salary

Written by:

Anastasia Stefanuk

Market Researcher