Delta India Outsourced
Outsourcing of software development allows a business to focus on its core competency and take advantage of vendors' technical expertise, economies of scale and scope, and their ability to smooth labor demand fluctuations across several clients. However, contracting a software project to an outside developer is often quite challenging because of information asymmetry and incentive divergence. A typical software development contract must deal with a variety of interrelated issues such as the quality of the developed system, the timeliness of delivery, the effort and cost associated with the project, the contract payment, and the postdelivery software support. This paper presents a contract-theoretic model that incorporates these factors to analyze how software outsourcing contracts can be designed. We find that despite their relative inefficiency, fixed-price contracts are often appropriate for simple software projects that require short development time. Time-and-materials contracts work well for more complex projects when the auditing process is efficient and effective. We also examine a type of performance-based contract called quality-level agreement and find that the first-best solution can be reached with such a contract.
Finally, we consider profit-sharing contracts that are useful in situations where the developer has more bargaining power.
Software and Manufacturing Services
Information technology has become one of the fastest-growing, fastest-changingmarkets in the world. The high demand on software applications and servicesis forcing more companies to turn to outsourcing to meet their customerneeds. We define software outsourcing as contracting out software services,operations, products or development of applications. This paper presents an overview of outsourcing in software development.In particular, we attempt to isolate some of the motivating factors for ..
Software Outsourcing
Opportunities
It’s prime time for software development outsourcing. Despite the unforseen business disruption, software application development remains the most frequently outsourced function among IT’s dozen sectors
Cost
Application developers, especially those with the most sought-after skills, tend to be expensive. As IT executives look to reduce costs for such skilled roles, introducing more competitively priced outsourced teams into the internal resourcing mix saves money.
Demand
The number of software developers and the specific skills needed varies significantly as initiatives kick off or scale up. Using outsourced development groups helps manage fluctuating demand.
Skills Gaps
To keep pace with digital transformation, companies are bolstering in-house resources with skilled outsourced developers. They’re able to bring in much-needed specialized expertise at a lower cost than what’s available on the domestic market.
Mid-Market
Mid-size companies are driving software outsourcing demand, with average outsourcing rising to 11.8% from 9.1% for these firms in 2023. The main factor behind this increase is the trend to adopt leading-edge technologies such as SaaS and public cloud.
Investment
Application development, frequently IT’s largest line item, will continue to command a big share of tech budgets as the innovation agenda goes from strength to strength. Many IT organizations will look to enhance performance of internal teams through selective investment in outside resources.
