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Software Outsourcing - MIS BBA 3rd sem

Bachelors of Business Administration (Tribhuvan Vishwavidalaya)

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REPORT ON SOFTWARE OUTSOURCING

Submitted by
Name
Exam Roll no. xxxxxxx

Submitted to
Department of BBA
XXXX College
College location

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CANDIDATE’S DECLARATION

This is to certify that I have completed the summer project report entitled REPORT ON
SOFTWARE OUTSOURCING, in partial fulfillment of the requirement for the degree
of Bachelor of Business Administration and submitted to the department of BBA,
XXXX Campus. This is my original work and I have not submitted it elsewhere. The
work has not been submitted to any other Institution for any other degree in this
university or any other University of Nepal or abroad. I also cited the reference about the
texts, figures and tables from where they have been taken.

Date:
Name: XXXX

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ABSTRACT

Information technology has become one of the fastest-growing, fastest-changing markets

in the world. The high demand on software applications and services is forcing more
companies to turn towards outsourcing of software to meet their customer needs.
Software outsourcing is defined as contracting out software services, operations, products
or development of applications.
The project describes the various types, advantages, disadvantages and applications of
software outsourcing. This report presents an overview of software outsourcing. In
particular, I attempted to isolate some of the motivating factors for software outsourcing,
examined the issues and concerns which arise from software outsourcing and discuss
their implications. Management aspects of these issues are addressed. Further, the impact
of software outsourcing to business is discussed. I concluded by drawing attention to the
factors which influence the software outsourcing.

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ACKNOWLEDGEMENT

This report has been prepared to fulfill the partial requirement for the MIS project of
BBA 3rd semester of XXXX Campus. This project consumed huge amount of work,
research and dedication. Still, implementation would not have been possible if I did
not have a support of many individuals and organizations. Therefore, I would like to
extend my sincere thanks to all of them.
Prima facie, I would like to express my profound gratitude to my supervisor Mr.
Teacher for his invaluable support. I am extremely thankful and indebted to him for
sharing expertise, guidance and encouragement extended to me.
I am equally indebted to faculty member of XXXXX Campus for their kind co-
operation and encouragement which help me in completion of this project.
My thanks and appreciations also go to my family and friends, and their
encouragement, attention and support for report writing.
Lastly, I would like to extend my sincere gratitude to all those who have contributed
with their abilities directly and indirectly for the completion of this project report.

Your Name

TABLE OF CONTENT

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REPORT ON SOFTWARE OUTSOURCING...............................................................i

CANDIDATE’S DECLARATION................................................................................ii

ABSTRACT..................................................................................................................iii

ACKNOWLEDGEMENT............................................................................................iv

TABLE OF CONTENTS...............................................................................................v

LIST OF FIGURES.......................................................................................................vi

LIST OF ABBREVIATIONS.......................................................................................vii

Chapter 1: Introduction..................................................................................................1

1.1 Definition of Software Outsourcing................................................................1

1.2 History of Software Outsourcing....................................................................1

1.3 Models of software outsourcing......................................................................2

1.4 Advantages of software outsourcing...............................................................4

1.5 Disadvantages of software outsourcing..........................................................6

1.6 Implication of Software Outsourcing..............................................................7

1.7 Factors Motivating Software Outsourcing......................................................8

1.8 Conclusion.......................................................................................................8

REFERENCES.............................................................................................................10

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LIST OF FIGURES

Figure 1. Models of Software Outsourcing....................................................................2

Figure 2. Advantages of outsourcing.............................................................................4
Figure 3. Disadvantages of Software Outsourcing........................................................6

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LIST OF ABBREVIATIONS

QA Quality Assurances
BPO Business Process Outsourcing

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Chapter 1: Introduction

1.1 Definition of Software Outsourcing

Outsourcing is a business practice in which services or job functions are farmed out to a
third party. Software outsourcing is a practice in which a company delegate’s software
development functions to a third-party vendor. The qualified software outsourcing vendor
carries out the programming services and related functions by using the in-house talents
and resources.
According to [ CITATION Den06 \l 1033 ], “The process of retaining resources external
to the procuring organization to conduct software development and related activities is
called software outsourcing.” In its simplest definition, software development
outsourcing is to bring a project or tasks from inside the company to outside of the
company and be delivered by a third party which is usually called an IT partner. In other
terms, this means that a business is hiring an external software development company, or
agency, to carry out a software development project, instead of doing it in-house.
Outsourcing is the common practice of contracting out business functions and processes
to third-party providers. Business process outsourcing (BPO) is an overarching term for
the outsourcing of a specific business process task, such as payroll. The benefits of
outsourcing can be substantial from cost savings and efficiency gains to greater
competitive advantage. Both well-established companies and startups reveal that
outsourcing is beneficial for them. In information technology, an outsourcing initiative
with a technology provider can involve a range of operations, from the entirety of the IT
function to discrete, easily defined components, such as disaster recovery, network
services, software development or QA testing.

1.2 History of Software Outsourcing

It was in the 1980s that IT outsourcing officially began. The credit for this goes to
Eastman Kodak as in the year 1989 Eastman Kodak approached IBM to set up a data
center. Kodak asked IBM to design and build a data center for Kodak which was to be
managed by IBM itself. Kodak was in the business of photography and building a data
center was not in their area of core competency. So, it made perfect business sense.
During the process, Kodak is said to have shifted many staff members to IBM’s campus

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so that the process is smoothly executed. This was seen as a turning point in corporate
circles as till then it was unbelievable that a company would ask another business
organization to manage its own services. The general trend was for business units to have
home grown talent to manage their own needs, so you can very well understand that this
singular event changed the dynamics of the whole software development outsourcing
process.
This event had a cascading effect on other businesses. When someone as big as Kodak
does something like this, it is bound to make others take notice. As a result many more
companies started following the same path and it was only a matter of time for IBM to
become the dominant IT service provider, which it did in the late 80’s and 90’s.

1.3 Models of software outsourcing

Outsourcing is considered the development of strategic partnerships. Most of the time,
the non-core functions, which are the functions that do not give the company a strategic
advantage or make it unique, can be outsourced to software outsourcing companies.
These include customer services, financial services, and software development.

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Figure 1. Models of Software Outsourcing.

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 Staff Augmentation:
With most of the management and staffing rights lay in the client’s hands, staff
augmentation is a method of outsourcing where the outsourcing company works together
with the client to improve productivity by utilizing the client’s current resources along
with appropriate outsourced services and contract employees, supported by the
outsourcing company, to produce the best and high-quality end results.

 Project-based model:
The outsourcing company is given full responsibility for the project from start to end, as
long as the goals and requirements are set. They can also aid in figuring out the right
technologies and expectation you should have for your software development.

 Dedicated team:
A model of outsourcing where the outsourcing company takes care of most of the
processes, including staffing, filing customs, scaling, controlling quality, managing team,
etc. This model of outsourcing utilizes the strength of the outsourcing company to the
utmost and confirms that the client does not have to worry about anything from start to
finish.

 Onshore Software Outsourcing:

Onshore companies work with teams that reside in the same home country as the client
partner; while there is typically little to no language barrier with the external team, onshore
software development companies are also the priciest of the available options.

 Offshore Software Outsourcing :

Offshore companies work with teams in other countries. This is the most affordable option
because offshore software development companies operate virtually and remotely.

 Nearshore Software Outsourcing

Nearshore firms work with teams in similar time zones. Nearshore software development
companies sit in the middle between the onshore and offshore options. They are cost-
effective since they delegate operations to teams abroad.

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1.4 Advantages of software outsourcing

Figure 2. Advantages of outsourcing.

 Costs:
One of the biggest benefits of outsourcing is probably costs. This does not mean under
paying people or rushing work. The difference in salaries across the globe is the sole
reason why outsourcing can save millions, or billions of dollars.

 Flexibility:
When outsourcing, company don’t have to spend time to recruit, train, and house
employees for projects. Businesses also don’t have to worry about scaling employees in
case labor size changes project-to-project. One of the best things about outsourcing
software is to find talent that fit perfectly for the position, but without investing into a
permanent position.

 Speed:

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Outsourcing your IT projects can reduce time-to-market greatly. This can be done even
faster by multi-sourcing, where project is split into separate processes and use multiple
third parties to oversee specialized tasks.

 Skills and experience:

Outsourcing companies are specialized in a certain area and they make sure that the
results are up to good quality, since their reputation relies on the success of their projects.
Software outsourcing developers also have more experience with dealing with a variety
of projects, which leads to flexibility in their knowledge and they can adapt to different
tasks easier.

 Responsibilities:
Most IT outsourcing companies have years of experience of working on different IT
projects, developing different software, and they are committed to providing the best IT
solutions for businesses of all scale. This can take some weight off businesses chest
knowing that someone capable is handling problems.

 Improved Compliance:
By outsourcing software development, business gain access to international talents
without the legal compliance that most companies must go through from hiring
employees. Outsourcing company can take care of all the legal paperwork and customs so
business can focus on other things that matter.

1.5 Disadvantages of software outsourcing

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Figure 3. Disadvantages of Software Outsourcing.

 Cross-cultural issues:
Whether it is time-zone, language barrier, or cultural difference, it is understandable that
offshoring your business will create certain issues, especially the geographical distance
for best communication. This problem worsens if the main business is also located in a
non-English speaking country, as finding an outsourcing company that can communicate
in another language other than English is tougher. Good thing is, most professional
outsourcing companies are fluent in English, and are flexible with time-zone
requirements.

 Security:
Exchanging information creates the risks of security and authenticity. Outsourcing in
itself is already a risky step, as it means to hand over control to another company.

A good indicator of an outsourcing company with good security is their working

standards, such as ISO 27001 for information security. It is also vital to check what part
of the business the certification covers and who did the accreditation for best result.

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 Miscommunication:
Due to the constant exchange in communication and potential barriers such as language
and geography, loss of information is expected when you outsource your projects. This
can be reduced greatly however, by double or triple checking all the information and
processes. It is also the outsourcing company’s responsibility to make sure that their
product is up to expectation and of the highest quality. Both sides have to act immediately
if something seems off or abnormal.

 Legal problems:
Laws are different depending on the country where the company resides. Company need
to make sure to understand the country laws for offshoring to, and vice versa. There are
also international trading laws that one has to take note of and the time it takes to resolve
any dispute between the two companies will be much longer compared to national cases.
To have a smooth operation, businesses need to make sure the teams aware about the
difference in legal system and devise a management plan to deal with it; having an in-
house legal team is a big plus.

1.6 Implication of Software Outsourcing

The unprecedented economic recession in 2020 caused by the spread of coronavirus has
stimulated businesses to seek new tech talents outside their countries. Not only
companies continue outsourcing software development function to optimize costs but
also to grow through the recession. Many businesses embrace outsourcing because it
helps them work with vetted specialists for a perfect quality-cost ratio.
The downfall is leaving a footprint on many small and middle-sized businesses across all
industries. Curiously, those companies that have undergone digitizing report lighter
impact from an economic recession. So do the tech education, pharmaceutics, and
medicare are gaining momentum and even growing their businesses by outsourcing
software development. Meanwhile, tech travel and many other businesses choose to work
in a safe mode.

1.7 Factors Motivating Software Outsourcing

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 To Reduce Cost:
More often than not, outsourcing means saving money. This is often due to lower labor
costs, cheaper infrastructure, or an advantageous tax system in the outsourcing location.

 To Access Skills That Are Unavailable Locally:

Resources that are scarce at home can sometimes be found in abundance elsewhere,
meaning business can easily reach them through outsourcing.

 To Better Use Internal Resources:

By delegating some of business processes to a third party, it’ll give in-house employees
the opportunity to focus on more meaningful tasks.

 To Accelerate Business Processes:

When business stops wasting time on mundane, time-consuming processes, it’ll be able
to move forward with its core offering a lot faster.

 To Share Risks:
When delegated a part of non-focus functionality by outsourcing it to a third-party
vendor, it give away the responsibility and related risks.

1.8 Conclusion
Putting company’s operations away from the original country is made possible due to the
ability to perform information-based activities anywhere in the world instantaneously.
Even global manufacturing has made a big jump during the last decade and information
can be shared and transferred at the speed of light. Outsourcing is considered the
development of strategic partnerships. Most of the time, the non-core functions, which
are the functions that do not give the company a strategic advantage or make it unique,
can be outsourced to software outsourcing companies. These include customer services,
financial services, and software development. Outsourcing have become a global strategy
and helped businesses advance further and faster in their industry.
From the study, modern outsourcing comes in all shapes trying to meet the needs of
businesses all around the world. Modern outsourcing is a set of flexible approaches that
allow even a short-term collaboration between businesses in different locations. The

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worldwide shutdown in 2020 has proven that not only we can put entire companies on
remote but also, we can easily handle work with teams located in different countries and
all this is possible only thanks to the achievements of modern outsourcing.

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REFERENCES

Gibbs, D. (2006). Project Management with the IBM Rational Unified Process: Lessons
From The Trenches. Introduction to Outsourcing at Major Software Development
Project

Ali-Babar M., Verner, J. and Nguyen P. (2007). The Journal of Systems and Software.
Establishing and Maintaining Trust in Software Outsourcing Relationships: An
Empirical Investigation. 80 (9), 1438–1449.

Ali-Babar M., Niazi M. (2008). Process Improvement and Practice Journal. De-
motivators for Software Process Improvement: An Empirical Investigation
Software. (249–264).

Bradstreet D. And Bradstreets D. (2007): "Barometer of Global Outsourcing", Dun &

Bradstreet.

Brown S.W. and Swartz T.A. (1989): "A Gap Analysis of Professional Software
Service Quality", Journal of Marketing, (53:2), 92-98.

Burke K. (2010): "The Impact of Internet and ICT Use among SMË Agribusiness
Growers and Producers", Journal of Small Business and Entrepreneurship,
23(2), 173-194.

Busi M, and McIvor R. (2014): ‘‘Setting the outsourcing research agenda: the top-10
most urgent outsourcing areas’’, Strategic Outsourcing: An International J.,
1(3): 185-197.

Carmel E. (2003): "Taxonomy of New Software Exporting Nations", The Electronic

Journal on Information Systems in Developing Countries, 13.

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Carmel E. and Agarwal R. (2002): "The Maturation of Offshore Outsourcing of

Information Technology Work", MIS Quarterly Executive, 1(2), 65-77.

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