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Software Development Outsourcing Will Reach the Tipping Point

By Mike O'Malley, SVP of Strategy, SenecaGlobal

IT talent shortages, new privacy regulations and talks of a looming recession are creating a sense of uncertainty for midmarket technology companies. As a result, businesses that never considered outsourcing some or all of their software development efforts are doing so now to support their go-to-market strategies. Software development outsourcing is an emerging hot trend because it enables companies to speed product innovation and cut costs, especially in uncertain times. We predict 2023 will be the tipping point when this trend takes root.

Not You're Grandfather's Outsourcing

The term "outsourcing" once meant tapping into cheap labor in developing countries to handle low-value IT projects and back-office services. Traditionally, companies outsourced simple projects because they were concerned that the outsourcing vendors may not have the expertise to execute complex software development projects. But as the global economy has become more cohesive and the quality of outside tech services has progressed, outsourcing can now be part of a strategic path to innovation.

Need for Regulatory Expertise: Solved

Today's innovation outsourcing has much less to do with saving money with cheap labor and much more to do with finding specialized skills and on-demand technology expertise to keep initiatives on track. For example, many midmarket companies are looking for software engineers who also understand macro issues, such as impending regulations like the bipartisan-supported American Data Privacy and Protection Act (ADPPA), which will significantly affect how companies collect and use data.

Typically, only large companies have the resources needed to assemble - and retain - teams of privacy engineers, security engineers and developers that are also up to speed on current and proposed data privacy laws. Even if they could find these "unicorns," hiring someone with this specialized skill set is not practical for most mid-market-sized companies. Instead, if they can outsource these specialized tech needs, they can compete on a much more level playing field.

IT Talent Shortage: Solved

To control operating expenses, many companies announced hiring freezes and layoffs. Fewer resources can affect go-to-market plans, so some companies are authorizing the hiring of outsourced sprint teams to fill the gap and keep release schedules on track. Outsourced sprint teams offer the flexibility and skill sets needed at a predefined expense. As release goals are met, the team can continue as needed.

Recession is the Best Time for Innovation

The International Monetary Fund (IMF) predicts global inflation will peak at 9.5% before dropping to 4.1% by 2024. According to many experts, there will be a worldwide recession in 2023. When a financial crisis hits, some believe that companies will struggle, projects will get cut and innovation will dwindle.

However, recessions often present opportunities for innovators to discover new approaches to problems. Some of the best innovations germinate in mid-sized companies, especially during an economic downturn.

Nonetheless, midsize companies still must find resources to contend with economic uncertainty, talent shortages and complex regulatory requirements, which can be challenging. We see a trend where companies are turning to third-party services for software development projects that were once only accomplished in-house. In 2023, as tech-driven businesses look to save costs and stay lean, we predict this trend will continue regardless of global inflation and market volatility.

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ABOUT THE AUTHOR

Mike is the SVP of strategy at SenecaGlobal, a leading software development as a service company specializing in digital transformation. He has been in product development for 20+ years leading development, product management, marketing, and M&A in the tech space. Throughout his career, Mike has combined deep engineering knowledge with business acumen to help companies figure out what creates success in the market for a product or solution. Then he builds and coaches teams to make it happen again and again. Mike holds a Bachelor of Science and a Master of Science degree in electrical engineering and a Master of Business Administration from the University of Illinois.