Outsourcing is not only a cost-cutting measure. Above all, it is about ensuring production continuity and guaranteeing the delivery of results on time. This article is intended to prove the business value of outsourcing IT projects to an external supplier. We will take a deep dive into the myth of internal team productivity and cover possible risks of implementing an IT project within your organization. So, is it worth investing in an internal IT team from a business point of view? Or is it better to outsource the project to external specialists? Keep reading to find out.
Setting up, managing, and maintaining an internal team entails several more or less obvious expenses. As an employer, you have to bear in mind costs such as office maintenance and paid holiday leaves, as well as the cost of HR departments responsible for recruitment, employer branding, and induction of new hires. In fact, employee salaries account for 40% of the total costs related to having an internal team. On top of that, building a well-coordinated and fully productive one may take some time, plus it may generate substantial costs, too, especially in IT.
When managing an internal team, you are fully responsible for maintaining the production capacity. It can get challenging and demanding if we take into account issues such as:
If you go down the outsourcing path, rest assured the whole risk of delivering the product on time lies with the supplier. Hence why you may look at IT outsourcing as risk outsourcing, to begin with.
Let’s now go through some things that have a massive impact on employee productivity:
Although various sources report differently, the chances your employee will leave within a year are as high as 20% – that’s the average turnover rate in IT teams. This means that statistically, one in five IT employees changes employers each year. So, with a team of 20 people, one needs to consider time and money for the replacement of up to four employees to maintain the production flow.
Rotation in the IT industry is a major setback for projects and reduces the capacity to achieve goals. Employees leaving their jobs may leave your team being unable to meet project deadlines or the quality of the work to drop significantly. That may lead to several negative consequences, as when the company is not able to deliver products on time, sales teams will not achieve the targets set.
Let’s not forget that hiring a new employee for a project is a time-consuming, long and costly process. Our data shows that filling a position takes from 2 to 4 months unless you have people on the “bench” who can immediately fill the role with adequate competencies.
Interestingly, the COVID-19 pandemic contributed to a trend called The Great Resignation. The latest data from the U.S. Bureau of Labor Statistics show that in September 2021, 4.4 million Americans left their jobs, and the number of job vacancies reached 10.4 million. This record-high number of quitting is related to, inter alia, the transition to a new model of work and the discovery of greater professional opportunities for the employees. During the pandemic, many people found time to rethink their future careers. Moreover, they discovered the advantages of remote work and flexible working time, which was the main reason behind looking for a new job (as indicated by the respondents in Bankrate’s August 2021 survey). A comparable situation can be observed in the European Union and Poland, too.
In most IT companies, employees finishing one project may find themselves having to wait before the next one commences. That is when they end up on the so-called “bench”. New staff often get there too if the projects for which they were hired were delayed. It’s not ideal, but unfortunately, it may be hard to avoid this at certain times.
This kind of practice can be compared to a team in a football match. In the case of IT, the starting line-up is the team working on customer projects, while the bench consists of employees who are not currently assigned to any project. The obvious advantage of the bench is that if an employee falls ill or leaves the company, the person on the bench will be able to replace them quickly.
However, just like on the pitch, not every striker will be a good goalkeeper. So in IT, not every programmer will be a good tester, and the other way around. Hence, in order to make really good use of the bench, it should include employees with various skill sets, allowing them to fill any gaps. That has proven to be effective but also a very expensive solution as the company has to keep employees who are not actively working on commercial projects. Obviously, they carry out some tasks during that time, but the truth is they do not bring real profits to the company.
The bench has both its supporters and opponents. Technical managers are rarely fans of this solution, as it affects the financial results of their departments. On the other hand, those who are not directly burdened by its costs, i.e. sales and product departments, love it (for whom it is primarily a guarantee of a quicker start of projects). Hence, it is absolutely crucial to look at things from the final impact on the business point of view. At times it may turn out that it is worth incurring in bench costs in order to achieve greater smoothness in project execution.
As an employer, you have to bear in mind that the newly-hired person will not be able to start working at full capacity right away. Think induction, formalities, training, and other mandatory tasks that cannot be skipped. Plus, it takes time to become familiar with the code, new tools and technologies, as well as the nuts and bolts of the project. It’s also the time to get to know the team members, understand their roles in the project, and ask any questions one may have.
It is estimated that the implementation period may last from 2 to even 8 weeks, and during that time, the new employee’s productivity is only at the level of 50%. Apart from that, introducing a new person to the project can delay the team’s work by one whole sprint.
When hiring employees under an employment contract, you are obliged to provide them with:
There are also:
As a result, 6 to 7 weeks per year are unproductive ones, which account for 1/6 of the total theoretical working time.
When cooperating with an external company, you can get more things accomplished, as you don’t waste time on warm-ups, onboarding, hiring new people, or waiting for people to finish their current projects. You are not tied down to your in-house developers since you can rely on your outsourcing team.
Still not sure if outsourcing is right for you? Here’s what will help you decide if this is something that could work for your business.
We have prepared a list of questions to ask yourself before starting cooperation with an outsourcing company.
So, as you can see, managing an in-house team requires good planning and analyzing various circumstances, including rotation, sick leaves, and holidays, which may be missed at first glance. All the factors we’ve covered here, such as rotation, bench, team formation, and work-life balance, may heavily contribute to your team’s inability to be 100% productive over the year. Plenty of events that cannot be avoided may occur and, what is even worse – things cannot be planned ahead accordingly.
Suppose you manage a large company and, for instance, at the same time experience high turnover. In that case, many employees “sit on the bench,” forming a team takes a long time, and some of the staff are on vacation – then these four elements can cause several problems in the company. The projects will not go as they should, the business will not grow at the right pace, and the number of customers will not be as expected.
IT outsourcing solutions come to the rescue, relieving you of any unforeseen events that could affect your productivity, and ensuring that you do not need to worry about any risks associated with failing to complete a project on time.