Outsourcing of Software Development What, How and When?

Outsourcing development can be a compelling solution for businesses lacking the necessary resources and expertise to build a product, but it requires thorough evaluation and planning. In this article, Mariam Rustamyan, Business Analyst at CactusSoft, dives into the details of what, how, and when your business should outsource development services. Let’s be ready to understand the complexity of this crucial decision-making process.

Digitalization is the title of the 21st century. It’s brought business success and new levels of revenue, but the benefits of existing solutions are not always satisfactory. Even though the market is flooded with different tools, a lot of companies want to get the most and choose to have their tailored solutions. Companies must decide between in-house and external contracting development to get the most out of their products.

Let’s explore the most common models that can be found on the market

Development outsourcing definition

Wikipedia tells us, “Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, and sometimes involves transferring employees and assets from one firm to another”.

Software development outsourcing is a more specific term and refers to the practice of hiring an external company or individual to develop specific software. And by software, I mean anything from a landing page to a mobile application or platform, including complex solutions for production, CRM & ERP Systems, and so on and so far.

Models of Outsourcing

Now that we are clear about the meaning let’s dive deeper and discuss the models. There are three:

  • Development team extension, also known as staff augmentation, extended team or out staffing.
  • Managed team.
  • Custom software development, also called custom solutions or dedicated team outsourcing.

Development team extension (staff augmentation, extended team, or out staffing)

This model is ideal when you must expand your internal core engineering team and time plays against you. The solution can be found by quickly adding outside developers or technical experts through a collaborating company.

The Development Team Extension has benefits: control over the development process, a sense of what’s going on and tracking progress. It’s flexible and easy to scale. However, it needs more effort in onboarding and effective manager-team communication.

If you are curious about such collaboration examples and its benefits you can check the cases of Prompto and AvioBook.

Managed team

Hiring managed teams is also a type of outsourcing, in which a self-sufficient engineering team is integrated into the supply process. It is often used for short-term projects with specific objectives and comes with a dedicated project manager to manage budgets and timelines. The team is hired to complete a specific project as soon as it is delivered the contract ends. Your involvement usually remains low, as you can focus on milestones and business reports. The size and composition of the team depend on the project requirements.

Managed teams have obvious benefits like fast hiring and onboarding because hiring a whole team is much quicker than going through the hiring process for each candidate. On the other hand, these experienced team members who usually work well together can speed up the team’s performance.

This model of outsourcing was implemented with our client PBPlus.

Custom Software Development Outsourcing

Custom Software Development offers a full external team to work on your project. This team includes professionals in various roles needed to successfully complete a project. These can include UX/UI designers, Business Analysts, DevOps engineers, Quality Assurance Specialists, developers, project managers, and architects. This model provides a business-wide solution instead of working project-by-project with an extended or managed team.

Companies looking to fully dedicate themselves to their core business and partner with outside forces for solution creation can highly benefit from this model. It is commonly used for digital transformation in companies, the development of total products with potential future support needed and aimed to increase the company´s market coverage.

Custom development includes a full cycle of design and development. It begins with the business analysis phase, which typically involves analyzing the market, competitors, customers, and validating ideas. The subsequent step is selecting the appropriate technology stack and creating a high-level solution architecture. The independent partner then augments the team with the needed profiles, provides a workspace and tools, and ensures the team is trained and solely dedicated to your project. A dedicated project manager (PM) manages the project and is responsible for keeping you informed of the development’s status.

Two good examples, among others, of Custom Software Development practices are the projects with Umbi and Xandres.

When should you outsource development?

Consider the following business needs:

  • Lack of internal resources or scale-up
  • Difficulty finding the right talent
  • Lack of specific expertise
  • No previous in-house development experience
  • It is not one of your core business directions
  • Desire to optimize costs.

These models of collaboration between companies allow for fast team upscaling, increase your talent pool, bring niche expertise, create infrastructure and processes quickly, reduce overhead costs, and can be a strategic decision to help share or decrease risk.

Advantages of Outsourcing:

1. Managing Budgets More Easily: Hiring an external workforce can help you move costs from capital expenses (CapEx) to operational expenses (OpEx). This gives you more options when managing your finances and enables you to adopt new technologies quickly.

2. Cost Savings: Outsourcing helps you to save on overhead costs. Additionally, contracting specialists are often less costly than those you could hire locally.

3. Keeping Focused on Core Activities: Developing software through a partner enables you to highlight the crucial aspects of your business and hand over responsibility for delivering the product to your partner.

4. Access to Professional Expertise: Onboarding externally gives you access to professional expertise, enabling you to quickly fill in any gaps in knowledge.

5. Faster Delivery: An outsourcing team is already established and can work immediately, allowing for faster delivery of the product.

6. Flexible Resources: Working with a trusted external company means that it is easy to scale up or down without costing you more than necessary.


Deciding to outsource development is often challenging, with many factors to consider, including finding a reliable and trustworthy partner. At CactusSoft, we are committed to catering to our customer’s needs better and have several working models that can be of assistance.

Also, we can say that Outsourcing is evolving to a new level. Increasingly, it can bring diverse skills and experiences to the table. This is valuable in today’s world, where internal teams can lack variety. It is important to recognize and embrace different perspectives to be effective in an ever-expanding world.

In more upcoming articles, we will be continuing the conversation regarding this topic to provide you with the knowledge and tools to optimize development outsourcing.

Meanwhile, if you already feel that this model fits your current needs, don’t waste time, and contact us ?

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