We were lucky enough to shoot a few interviews before the Covid-19 pandemic. The first interview was dedicated to hiring a remote team in Ukraine. Our second guest, Andy Morrey, a Managing Director at Magma Trading, told us about the…
In-house vs Outsourcing Software Development: The Right Choice for My Project
In-house development vs outsourcing is a dilemma every company grapples with. This can be a hard call to make, especially if you haven’t tried software outsourcing yet. Still, the business community is abuzz with talks of the latter, since software development outsourcing is vital to keep abreast of the evolving market demands.
Anyway, to make the right decision, you have to explore both inside and out. And that is why we’re all here. Keep reading to bet on the right horse and find out more about in house vs outsourcing showdown.
What Is In House Development?
Let’s start our in-house vs outsourcing comparison with the in-house development definition.
In-house software development is the business practice when software development is done entirely by the outsource software development company that will also use it. Logically, the company delegates this task to the experts it has on hand internally.
In this case, businesses don’t get any external help. Keeping it in-house is no different from the traditional recruitment process. You’ll need to go through the process of hiring, interviewing, and onboarding to set up your internal IT team.
The concept in-house development inherits is fairly simple, but the success or failure of its application relies solely on you.
To give you an in-house development example, Amazon, Salesforce, and Paypal have formed their teams of in-house developers to build and further enhance the product. This grants them complete control of the project, albeit at a higher cost.
3 Advantages and Disadvantages of Inhouse Development
Pros of in house development
- The Level of Customization
The level of customization and business compatibility is probably the main reason why companies opt for inhouse developed software. While an off-shelf solution may target most of your business’s needs, its efficiency is different from in-house development.
- Better control and coordination
By covering your exact requirements, you can encompass every facet of your business with no extras. Thus, in house development provides you greater control, since you have more insights into the daily progress. Also, you stay on the same wavelength with your employees and can react instantly in case of any stumbling blocks.
- On-site availability
In house software development also means that you can collaborate with your team seamlessly. You can reach out to the developers whenever you need them and expect an instant response.
Cons of in house projects
- High costs of building an in-house team
You won’t get away with hiring one software engineer for your in house development. Based on the project complexity, you may need at least 3 experts to get started, not to mention additional specialists like Project Managers. Also, you will have to spring for personnel management, office space, and other administrative costs.
- It is a lengthy process
Establishing an internal team and onboarding can’t be done overnight. According to Glassdoor, companies spend about 30 days to land the right candidate and this number will likely increase. Moreover, team members also need some warm-up time to navigate the waters with each other.
The local talent pool does not compare favorably with the global reach. So apart from the time sink and hefty amounts, you’ll have a hard time hiring all the talent you need for your projects.
What Resources Do I Need For Inhouse Software Development?
In-house development is a catchall task that requires thorough planning and preparation. To successfully develop your software within your organization, you’ll have to be endowed with the following elements:
- Need for scaling
Not all businesses are ready to extend their influence. Some companies prefer to maintain their current reach, others are just not ready to scope their services at the moment.
- Business office
Unless you’re an advocate of all-remote, your in-house development wouldn’t be able to survive without a dedicated office space. It’s important for face-to-face interactions and higher accountability.
- Hardware and software
To create something in the software line, your company has to be equipped with modern hardware. Also, you must be savvy in the software licenses to turn your business ideas into reality (and not to get a potential lawsuit).
- Recruitment capability
In house development also involves determining short and long-term talent needs, accumulating internal talent, and brainstorming hiring strategies. Therefore, your team won’t be complete without a hiring department or external recruitment agency.
- Full-time workload
To hire a specialist for a permanent job position, you need to have a workload comparable to full-time. Otherwise, your company will fritter away resources and money.
- Accounting department
You must be aware of your company’s financial status to make informed business decisions and simply maintain the payroll function.
- Competitive benefits package
Common fringe benefits like health insurance, tuition assistance, or corporate events help companies recruit, motivate, and retain high-quality developers. Unless your company has something to offer, it’ll be difficult to attract A-list developers.
- Substantial financial resources
Finally, you should be able to cover recurrent and future expenses linked with inhouse developed software. Expenditure items might include (but are not limited to) payrolls, rental charges, Internet bills, recruitment services, and others.
Why Do Software Development Inhouse?
So apart from the obvious benefits, what’s in in-house development for you and when do you need this option?
- When you’re building a company culture
Cultural fit also belongs to this point. Permanent team members take heed of the specific business needs. It means they have the motivation to drive value and integrate with your company’s culture. Also, if you own a startup, it’s easier to establish a stable workflow and build corporate ethics.
Recommended reading: How To Hire Developers For Startup?
- When your projects have to be flexible
When you have an internal team of IT specialists, it’s always faster to make feature modifications and discuss their technical background. And since your personnel is available at the same time as you, they can quickly resolve issues or fix the bugs if needed.
- When you want profound expertise in your company’s profile
A thorough idea of a company’s mission, ethics, position on the market, and even mentality has a beneficial effect on performance. Developers who possess corporate knowledge won’t have any problems complying with the requirements in the shortest time possible.
Now let’s go over to the second option in the in-house vs outsourcing choice.
What Is Software Outsourcing?
Software outsourcing takes place when companies choose to farm out the development of custom software products to a third-party vendor. In this case, businesses delegate the responsibility for all or a part of software development tasks to a service provider.
Software outsourcing can be further divided into nearshoring, onshoring, and offshoring.
3 Pros And Cons Of Outsourcing
Main advantages of software outsourcing
- Cost reduction
This is the most obvious and visible benefit of why companies opt for outsourced development. Eastern Europe and Asia are especially popular due to a vast candidate base, low taxes, and government support of the tech sphere.
- Talent pool
According to numerous reports, the USA and other countries are facing a growing skills gap that results in the shortage of skilled candidates to fill an ever-increasing number of high-skilled jobs. The market of outsourcing software development provides a diverse base of developers that can respond to unique needs.
- Faster project delivery
Thanks to a global workforce, outsourcing development allows companies to reduce the time spent on recruiting. As a result, you get decreased time to market and lower expenses, since you don’t have to take on the administrative costs.
Main disadvantages of software outsourcing
- Security risks
Sharing critical business data may sometimes inherently raise some risks. To avoid that, choose a vendor with sufficiently robust security practices and document security requirements in an NDA.
- Communication gap
Different time zones, cultural incompatibility, and basic English skills may also impede effective collaboration. Make sure you negotiate communication practices beforehand and decide on the convenient communication tool.
- Limited control
Since you’re not physically present during the development process, you may lack control of how the tasks are being monitored and performed. This mishap is easily mitigated with team management tools and stable communication.
Outsourcing Process: Parties Responsibilities
Still, the best part of software development outsourcing is balancing the risks and sharing responsibility for ensuring the product functions. It also means that you can assign the duties as per your needs.
Every vendor brings to the table their own terms. Thus, some outsourcing agencies prefer using a Project Manager as a communicator between a client and their teams. Others allow you to take the reins or choose between the two options.
Therefore, you need to know exactly what functions to outsource and base your choice on this factor. The vendor’s area of responsibility may include:
- Working space for the team
- Hardware and licensing
- Benefits packages for the employees ( again, this boon is essential for employee retention and reducing talent turnover)
- Team management
Why Companies Use Outsourcing Instead Of In-house Development?
In the in-house vs outsourcing battle, an increasing number of businesses prefer engaging a fully outsourced team instead of growing their internal workforce. The most popular reasons for that include:
- Ready-to-go teams that include everyone you may need for the project. Thus, you can jump-start the development process instead of spending time on team bonding.
- An effective hiring process that allows for improved focus on core business activities. Since you’re delegating the bulk of the work and passing on supporting processes, you can prioritize value-added tasks.
- You get a pre-vetted team with prior software development experience in a similar niche. It also means that outsourcing provides an increased reach, thus granting you access to capabilities otherwise not reachable.
- Fast and intelligent hiring process. One of the vendors’ biggest value propositions is the ability to locate the expertise you need within the shortest time.
- Outsourcing can easily be used when you need to hand over one or more phases of a project, or to hire someone on a short-term basis. Choosing in-house development is cost-prohibitive in the short run.
What Is More Expensive, Outsourcing Or In-house Development?
If we move away from general benefits and look from the profit perspective, we’ll shed even more light on the question of in-house vs outsourcing.
The first and foremost goal of outsourced software development is to drive down the operational costs for your business. But how much does in-house software development cost?
That’s an interesting question with no clear-cut answer. However, as numbers demonstrate in-house development is still higher-priced compared to outsourcing. The main reasons for that are long-term expenses that include office rent, taxes, software, hardware, overhead costs, and more.
On the contrary, if you find an outsourcing vendor based in a strategic location with wide hiring opportunities, it’ll lower the costs of software development. Also, the main increases such as hardware, office rent, and development services will be included in the bill.
Not to mention a big block of time you’ll save, since the vendor shoulders all organizational questions.
Now that we’ve answered the main question in the ‘in house vs outsourcing’ dilemma, let’s dwell on the comparison between them both.
In-house vs Outsourcing: 9 Criteria To Compare and Choose
As this eternal question cannot be addressed in the binary manner, we have distilled 9 comparison criteria. Those will touchstone in-house development vs outsourcing so you can make the right choice.
- Technological potential
When managing an in-house project, you have a well-established team of professionals, each having their range of responsibilities. Although it’s not essentially a bad thing, you’ll have some difficulties with introducing new technologies.
You’ll have to invest in both infrastructure and training to keep up with the market needs.
On the other hand, outsourcing eliminates the need for investment and a new surge of skills. The resources employed by outsourcing vendors are well educated in the respective business areas.
Also, technical providers have the ability to tap into any tech expertise fast and at your will. Furthermore, if you need an expert opinion on any question, outsourcing allows you to consult a specialized professional.
So that’s one point for managed services in the in house vs outsourcing match game.
Before in-house employees can be all-stars at trailblazing technologies, you need to provide training programs and education for them. And even if your new hires are established specialists, they will likely experience a learning curve over time anyway. Therefore, you’ll likely face hefty training expenses in the near future.
If you opt for in-house development, your company won’t have to cover organizational and training costs. If you choose to outsource, training is the vendor’s own look-out.
- Recruiting speed
Can you have both quality talent and fast hiring? You probably can’t if we’re referencing in-house development. Unless you’re uber lucky, the internal recruitment process can take up an astounding three months. And even if you manage to find the right workforce, it’ll take time to synchronize and optimize their process.
Outsourcing companies, on the contrary, provide ready-to-go teams to quickly ramp up your development capacity. Thus, your project can hit the ground any day you need. If you need custom hiring, the vendor can land the right candidate or a whole team of specialists in two to six weeks.
An internal team of developers is typically a settled unit that is less susceptible to changes. Hence, you can’t dismiss or call for new hires at times of seasonal or cyclical demand.
At the same time, outsourcing allows you to fine-tune the service consumption to the business needs and support your organization through the foreseeable growth stages. It’s easier to adapt to changes in internal operations and advancements. Besides, you convert fixed labor costs into variable costs, meaning you only pay for the services you require.
Workload is another deciding factor in the in house vs outsourcing decision. As a business owner, you may have a fluctuating workload, meaning your internal personnel balances peak times and off-hours. To run the business efficiently, a company should match employees with work demands. But you can only hire permanent specialists on a full-time basis, right?
An outsourcing agency, on the other hand, can help you source both full-time and part-time workers to help with mountains of work or assist with particular tasks. Thus, you meet the needs of the current without the financial commitments of having new full-time hires. Also, you can build up or down your team whenever your company needs that.
When keeping it inhouse, the same working hours and shared office space contribute to a comfortable and clear communication process. Direct conversations also help avoid misunderstanding and reduce the turnaround time.
Software outsourcing also allows for direct communication via communication tools, except it isn’t face-to-face interaction. You can also articulate your business and technical objectives or provide feedback by making the Project manager a point of contact. Vendors usually offer both communication options.
- Language of communication
In-house software development presupposes that both you and your team speak the same language and share a common mentality. Surely, it can promote a more harmonious working environment, but it doesn’t guarantee the success of your project.
Outsourced teams that are located in another country won’t have English as their native language. To avoid verbal misunderstanding, make sure to choose the vendor that has English proficiency tests in place.
- Corporate culture
Strong organizational culture defines your company’s internal and external identity. It has a positive impact on employees and creates an atmosphere of positivity that is hard to ignore.
However, if your primary goal is to build a digital product, an outsourced team with its own culture might add a nice diversity.
- Cash flow
Outsourcing turns out to be more cost-effective than building and maintaining an in-house development team. When delegating technical tasks, overhead, hiring, and employee costs are no nevermind of yours. You will also benefit from ramping the workforce up or down efficiently and at a lower cost.
On the other hand, if you decide to expand the internal personnel, it’s your company that is shouldering all expenses.
The Final Word
Choosing between in-house vs outsourcing is a perpetual doubt since both solutions offer their strong points. When in-house development is well-known for face-to-face communication, shared culture, and complete control, outsourced development offers unrivaled cost reduction and global tech talent. By carefully evaluating their pros and cons, we’re confident that you’ll take the right path.
Are you looking for an experienced IT outsourcing provider? Drop us a line to build a technical solution that supports your business needs.