Gartner Research

Software Development Outsourcing and Offshoring Risks and Rewards

Published: 21 February 2006

ID: G00203178

Analyst(s): Stuart Selip


Today, focusing on core competencies rewards organizations with profitability and marketplace differentiation. When software development is not deemed core, it is often outsourced, while critical but costly efforts may be distributed to offshore captives. Rewards, including cost savings, agility, decreased time to market, and domain expertise, may accrue, but only with effective outsourcing and offshoring execution. Otherwise, actualized risks wipe out potential rewards. In this overview, Burton Group Senior Analyst Stuart Selip discusses the risks and rewards, and the do's and don'ts, of offshore software development.

Table Of Contents



  • IT Offshoring Is a Part of the Trend to Globalization
  • What Are the Rewards of Outsourcing and Offshoring?
    • Cost Savings
    • Agility—Flexible Scaling to Suit Development Demand
    • Proximity to International Business Locations
    • Locale-Specific Software Adaptation
  • What Are the Risks of Offshoring and Outsourcing?
    • Risks Stem from Distributed Development Challenges
    • Risk: Loss of Intellectual Property
    • Risk: Late to Market
    • Risk: Wrong or Missing Functionality
    • Risk: Low-Quality Software Is Expensive, Now and Forever
    • Risk: High Turnover Means Lost Experience and Knowledge
    • Risk: “Lou Dobbs” Effect
  • What Are the Risks of Not Participating in Offshoring and Outsourcing?
    • Risk: Slow Response to Changing Market Demand for SDT
    • Risk: Opportunity Cost in High-Priced Domestic Markets
  • Recommendations
    • Have a Global Strategy for Outsourcing, Nearshoring, and Offshoring
    • Assess Organizational Readiness for Offshore Outsourcing
    • Use Governance for Outsourcing, Nearshoring, and Offshoring
    • Manage Nearshoring and Offshoring Vendors Using Common Sense and Service Level Agreements
    • Manage Long-Distance Project Teams with Collaboration Strategies
    • Manage SDLC Processes with Transparency
    • Manage Security Proactively

The Details

  • Definitions and Impact of Outsourcing and Offshoring
    • Defining Outsourcing, Nearshoring, and Offshoring
    • IT Is Following the Globalization Trend
    • “Prediction Is Difficult, Especially About the Future”—Yogi Berra
  • The Outsourcing, Nearshoring, and Offshoring Landscape
    • Cost
    • Culture
    • In-Country Infrastructure
    • Outsourcer Process Maturity
    • Size of Outsourcer
    • Service Level Agreements
    • Staffing Models for SDT
    • Work Permits
  • Collaboration and Transparency
    • Cautionary Tale
    • Collaboration
    • Transparency



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