Software development outsourcing has come a long way since companies started sending work to low-cost locations in the 1980s. While cost reduction remains a primary driver of outsourcing, the practice of sending software development work to third party firms has evolved into something more strategic. Third parties help companies extend their technological capabilities and get their products to market much more quickly. Technology played a major role in corporate decision-making in 2015, and it will continue to drive outsourcing strategies in 2016 and beyond. This year, the changing IT landscape will require fresh software solutions as well as best-in-class infrastructure. 

Let’s take a look at other changes and trends the industry can expect in 2016:

1. Industry growth.

By 2016, the global application development economy is expected to reach $143 billion. Outsourced app development is the most profitable route to market for companies, according to a Developer Economics study from 2013. The study reported that that there will be almost 5 million developers in the world by 2016, with the Asia Pacific region leading in terms of the total number of developers. Meanwhile, North America and Europe lead the world with the largest population of iOS developers. 

2. Analytics-driven agile software development.

Agile development allows companies and service providers to create software in smaller pieces and implement them individually, which eliminates the need to wait many years for a fully functional product. Agile development means faster speed to market and responsive products. However, agile development can be more expensive than traditional development, and there are quality and productivity issues when this model is scaled across the organization. This is why many clients now want tools to measure team performance and monitor improvements, if any, when switching to agile development. In 2016, analytics tools that measure performance and risk and allow managers to determine the quality of software products will be in demand among companies that have adopted or are considering agile development. Third party software developers are expected to improve their development solutions with a focus on analytics that justifies investment in the agile model.

3. Demand for better big data solutions.

Analysts predicted that big data and analytics will inform every aspect of the organization in 2015. Next year, chief information officers will demand better, more effective analytics solutions that speed up the conversion of information into useful insights. CIOs will demand real-time analytics tools that highlight opportunities and help executives mitigate risks. For example, quick and valuable insights derived from data allow CIOs to be proactive in terms of identifying risks that can damage the brand and implementing solutions. The main focus is on real-time support for overall corporate goals instead of support solely for IT decisions. Third party developers that create and deliver tailored analytics tools will be the most sought after.

4. Outcome-based outsourcing.

In 2016, businesses will continue to shift their focus from volume to value by adopting outcome-based software development outsourcing models. Instead of focusing on the resources needed to produce and deliver software, clients will place emphasis on how software products improve business value. Again, software analytics tools will establish performance baselines and monitor the performance of each outsourcing contract. Many key software developers already offer value-centric solutions, and larger enterprises are expected to renew their partnerships with these providers. 

Outsourcing firms that deliver tailored services, customer-centric solutions and faster response times are always more successful. Major IT and software development providers already get value right, but 2016 will see more small and midsize outsourcing firms focusing on results-driven outcomes to win more deals and achieve long-term competitive edge. Buyers will continue to seek better value for money in terms of current and future outsourcing engagements.

5. Application portfolio analytics

Application portfolio management will shift increasingly towards portfolio analysis is 2016 due to the demand for real-time visibility and risk mitigation. CIOs are now responsible for real-time technical analysis and assessments of applications instead of merely managing contracts in a large portfolio. Some financial institutions use portfolio analysis to tag risk and identify inconsistent operational costs. This approach has led to improved performance and lowered costs. Software analytics also improve transparency and help executives make better business decisions. Companies will seek partnerships with software development firms that make it easy for CIOs to assess application costs and risks through best-in-class analytics.

6. Rise of complex applications development outsourcing in the healthcare sector.

The healthcare sector is no stranger to outsourcing, having sent 
IT support and administrative work to external firms for many years. In 2016, Black Book Market Research predicts that changes like ICD-10, electronic health records (EHR), big data and rising patient demands will push healthcare CIOs to focus on major technology restructuring. Outdated solutions will be the death of underperforming health institutions, according to the study, so there will be increased demand for new applications. Of those surveyed, more than 70 percent of large hospitals (more than 300 beds) and more than 80 percent of smaller hospitals (less than 300 beds) were looking for outside partners to supply applications development (mobile solutions, predictive analytics, big data support) and complex infrastructure services. Healthcare IT outsourcing next year is seen as a cost-control strategy and a way to access required software and expertise. 

7. Increased IT spending and regional providers.

According to a recent Forrester study, IT spending in the US, UK, Scandinavia, India and China will be at the high end in 2015 and 2016, with demand for analytics and cloud applications expected to be strongest. For new projects, spending will be highest for customer-centric technology and solutions. New providers will continue to challenge key players in traditional outsourcing hubs. New providers will distinguish themselves by specializing in niche areas and becoming more available. 

8. The rise of real-time and self-service.

Real-time is expected to be one of the first drivers of improved productivity in the United States. Software developers predict that 2016 will see the rise of real-time everything, from analytics to business processes. Driven by technology, this trend involves changing not just the business but also relationships with customers, suppliers and industry participants. Companies are also expected to make data and processes self-service for their employees to improve productivity while managing scale.

9. Adaptive security solutions.

A rapidly changing digital business environment with more cloud-based services means increased complexities and more potential security threats. Traditional rule-based security is not enough to counter these threats, so companies are turning to software development providers that create sophisticated detection and response solutions on top of more traditional measures. In 2016, user behavior analytics and application self-protection that supports adaptive security will be in demand.

10. Cloud services spur competition.

Buyers in 2016 will continue to adopt cloud solutions as a cost-effective alternative to traditional outsourced services, but the move will be slow due to data security and privacy issues. Providers that prioritize reliable and secure solutions will come out on top.

11. Continued rise of robotic process automation.

After high-profile businesses like Google and Facebook made big investments in artificial intelligence and robotics, other companies are following suit. In 2016, the use of robotic process automation will rise and mature as more companies integrate RPA into other technologies. Third party software developers that can create these sophisticated applications will be in demand this year and beyond.

12. Mobile app development leverages cloud services.

According to a Gartner study, 40 percent of mobile app development projects will use cloud back-end services by 2016. These services include data storage, social network integration and user management. Cloud back-end services for mobile will become a crucial part of the app development process, requiring additional security and governance to avoid compromising sensitive corporate data. Mobile apps and software development projects outsourced to third parties will be subject to the same oversight and management as those built by in-house IT teams.

Getting Started on Software Development Outsourcing in the Philippines

Learn more about outsourced staff leasing and the Philippines as an outsourcing destination. 

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