How CTOs Can Mitigate the Risks of Outsourcing Software Development
Alexander Natskovich

How CTOs Can Mitigate the Risks of Outsourcing Software Development

Aug 17, 2021
6 min read

Productivity experts and internet business gurus love to wax poetic about the benefits of outsourcing. But in the technology space, the decision to outsource software development is a complex and important fork in the road for many CTOs.

Managing software development projects requires looking at the big picture and finding the most effective methods for hitting the right goals at the right time, all within the budgetary constraints. Outsourcing tedious and cumbersome tasks so your in-house team can focus on more crucial areas sounds like a dream. But a lot of CTOs have concerns that keep them from taking the leap.

If you’re considering outsourcing your software development, it’s important to look at the pros and cons before hiring an external team. Many factors determine whether it will actually benefit your product — or just cause you more headaches and hiccups.

A lot of what will and won’t work depends on your company size. Smaller companies and startups might not have the budget to hire an experienced and reliable team, unlike larger companies.

We want to address some of the biggest concerns you might have as a CTO, why those concerns are legitimate, and how to mitigate them if you do decide to outsource.

Concern #1: External Vendor Risks

Every project comes with risks, but those risks may seem to balloon when you take on people who aren’t under your immediate purview.

Outsourcing exposes you to third party vendor risks in compliance, security, and privacy, which some stakeholders and investors may view negatively. These risks could have major impacts on your organization, especially if you’re dealing with a key piece of intellectual property.

The way we do business is evolving, but you can’t eliminate these risks altogether. You can, however, mitigate them by the way you structure your team and your process. And for the stakeholders, you can demonstrate the value of your structure and show that it works well.

How To Mitigate Risks

Mitigating these external risks relies solely on the structure of your team and your process. The method you choose will depend on your needs and the dynamics within your company.

For example, if you have a critical piece of intellectual property you’re worried about protecting, you can structure your team to include a knowledge holder inside your organization. The intellectual property remains in-house, and the outsource team can work on more non-critical, innovation-type work.

Another option you can consider is adding a key personnel clause in your contracts. This allows you to potentially retain key outsourced workers you’re interested in.

If you’re dealing with sensitive or regulated data (such as data requiring HIPAA compliance, for example), look for a vendor who can provide service compliance with a particular regulatory framework (say, by signing a BAA). Alternatively, you could organize the process so that the third party vendor never accesses the sensitive information, either by segregating production and development or by having a solid data scrubbing process. In some cases, the vendor themselves can guide you on how to mitigate that particular risk.

No matter how you navigate these risks, it’s important to be as transparent as possible with your investors and stakeholders. Not only will it show them you’ve done your homework, but it will also give them peace of mind knowing that you’re being proactive to protect the company’s assets.

Concern #2: Poor Experiences With Outsourcing Companies

Many of our clients have told us they’ve never had a positive experience with an outsourcing company. And many are wary of trying again. CEOs of enterprise-level companies worry about losing millions of dollars, and founders of startups fear risks to their intellectual property or compromises to their roadmap or time-to-market.

These are legitimate concerns. When you’re putting your trust, time and money into software outsourcing, you want to make sure you’re investing wisely. You want to know you’ll hit your desired outcomes. And you want confidence that your outsourced team will do what they say they’ll do.

So how do you make sure you’re making a good outsourcing decision? The key is due diligence.

How To Find the Right Outsourcing Company

In choosing the right outsourcing company for you, nothing replaces good old due diligence. Due diligence exposes potential issues with an outsourcing company ahead of time, giving you the freedom to bow out of any unproductive relationship before you sign a contract.

First, create a structured process for your due diligence. Then, tell your vendor what that process is. It could include conducting background checks, interviewing past clients, or sending the outsourced team your process to make sure it’s something they can do.

This helps both you and the vendor make sure you’re a good fit for each other.

If everything looks good, then conduct a short-term trial run for several weeks or months. This will give you insight into how working with the team will go in the long term. Give them a small but impactful project, one that will actually deliver some value to your company. Ideally, this project should touch most if not all of the elements of your software development lifecycle.

Lastly, be explicit with your expectations. Communicate upfront what you want from an outsourced team and make sure they know what goals you want to hit. This lets them know exactly what will be required of them and makes sure everyone has the same expectations from the start.

There’s no one-size-fits-all solution to software outsourcing concerns, but there are ways you can mitigate these risks. Thorough research, testing periods, and clear, upfront communication of what success looks like for your business will go a long way to making sure your software outsourcing experience is both helpful and profitable.


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