Software is the core of any business! Whether an enterprise or a startup, no business can prosper without software. And software development can go two ways - in house development or software outsourcing! We, in this article, compare in house vs outsourcing and detail out when to choose what.
Software development outsourcing is a global term and in the last few years, businesses are more inclined towards outsourcing their IT requirements. The factors that lead to this decision are high price-quality ratio, less hiring hassles, faster time to market, etc.
The other way out is in house software development. Gathering an in house team needs a lot of time commitment and patience. There are risks involved in both approaches. Let us first try and understand what in-house development and software outsourcing is. Then we will compare both in house vs outsourcing and find out the pros and cons of each approach.
In-house software development means leveraging company resources to develop or implement software according to the company-specific requirements. This involves the long process of the job posting, interviews and hiring suitable candidates.
In this approach, you need to invest money and time in assembling all the different people or roles that are involved in creating a solid base for developing good software.
Read more to know “How to hire and build a software development team!”
When developing software in-house, software development needs to be the company’s core competency. They need to have enough resources and infrastructure to support the software development on their own.
In simple words, outsourcing is task delegation. So, Software outsourcing is basically an arrangement made by a business to hire a third party software contractor to do the software related work instead of doing it in-house.
In this approach, the initial time and cost savings come from not hiring in-house employees and not investing in infrastructure.
This is generally done by companies whose core competency is not IT or when their IT department’s plate is full with other core processes. We have been listed as one of the “Top software development outsourcing companies” on Top Software Development Companies.
Now that we have a brief idea of Outsourcing vs in-house software development, let’s take a look at the pros and cons of both the approaches.
A better understanding of the corporate culture and business.
Complete dedication towards the project
No cultural differences
No language barriers
Maintenance, modernization, and support- all internal
Increase in cost (Salaries, perks, raises, insurance, travel expenses, etc)
Lack of skills
Quitting, which means starting the whole process over
No employee hiring hassles
Access to global skills
Flexibility in business processes
Faster time to market
Increased Focus on Core Business
Better Risk Management
Partial loss of control
Cultural and time differences
Communication and management
Confidentiality of information
For enterprises and start-ups with an Internal IT team, there is nothing like In-house development. It’s easier and much more manageable. If you need a change in requirements or an update, you can walk a few blocks and ask for them over a cup of coffee. That’s awesome.
But before you share coffees, keep in mind, the process of in-house software development is lengthy.
Step 1 - Suppose you are working for an eCommerce company. Your boss tells you that the company requires inventory management software to streamline inventory processes. You take the request and reach out to the business analysts.
Step 2 - The business analyst draws up a business requirement document and informs you what kind of resources are required.
Step 3 -You now know what the software is and what it does, so, the next step is assembling an IT team - Developers, designers, project managers, and testers. So, you reach out to the recruitment team.
Step 4 - Job postings, interviews and hiring - a good few months passes by!
Step 5 - Once you assemble a team, the development starts and now you can order the coffee ;)
But with in-house development, the IT team you assemble will all develop the company projects, dedicatedly, directing all efforts towards the success of the company. There will be no distractions with other projects.
All your company resources are restricted to your own self and no external organization gets access to them.
As the team you hire are locals, they will be well aware of the company culture and work the same hours as everyone else in the company. This will result in better collaboration.
In hours when the software needs support, your team will be readily available to solve any and every bug that arises as soon as possible.
Well, all good then! Dedicated services, no communication barriers, regular availability - life’s great with in-house software development then. Hold on!
The hassles of hiring a whole team need to be discussed. Proper screening, validating, back and forth interviewing, etc comes into play here. Also, the skills that you require might not match with the candidates applying. Although for this case you can hire an international PEO that handles the recruiting and hiring process. But then there’s also training them, managing the project and the huge risk of the employees leaving in-between projects.
And now on to the key factor for almost all businesses - the cost! Because, I have never heard anyone say, whatever the cost might be ..we don’t care. When you hire in-house employees, the costs you incur are :
[c] Perks and other expenses
[e] Office space
[f] IT architecture etc. etc.
The salary of an average web developer in the USA is around $88,000.
Moral - An in-house team hiring and maintenance is costly.
Outsourcing in today’s time where everyone has an insatiable desire for innovation means huge opportunity in terms of gaining competitive advantage. You get access to globally skilled developers and the good news is you can pick and choose and hire anyone that you want.
The process of outsourcing also has hassles: Initially, it’s a lot of due diligence. You need to understand the company, their culture, their experiences, ask for referrals, etc. Along with that, constant communication and management are crucial for project success.
But, once you find the ideal software company, your cost and time both fall drastically if compared to in-house development.
The cost reduces as there is a considerable difference in wages in developed and developing countries. And also, a hefty amount of money in the form of employee salary and benefits gets saved.
Outsourcing also means faster time to market as you can dictate the timelines in accordance with your schedule and your software company will have dedicated developers at your service accordingly.
But yeah, software outsourcing can also result in a huge headache if the software company is wrongly chosen or is unfit to develop according to the exact requirements. A huge risk is potential information loss as your idea will be shared with a few vendors. Create an NDA and make sure your vendors sign it to avoid potential information loss.
Read more: Risks of software outsourcing
Also, it’s a huge debate regarding price-quality in software outsourcing. Don’t jump to hire the person who quotes the least price! Ensuring quality will require taking into consideration more factors than only the cost. With the right attitude, not only will you save money but will also find a great quality software solution.
Communication is another debatable topic when it comes to outsourcing. But standing in the 21st century where almost 9/10 individuals own a smartphone, there are ample ways to cross these communication barriers.
Video calling, email updates, video demos, instant messages, etc. are all bringing the outsourcing firm and the software vendor much closer in terms of collaboration.
Then why outsource? A large majority of business owners are hesitant when it comes to bespoke software development. The main reason for it is the price. Also, as discussed, capacity issues still remain one of the biggest challenges along with hiring talent for in-house development and outsourcing seems like a quick fix.
According to a report on State of software development, enterprises and startups were asked: “Have you ever outsourced software development fully or partly?”
Out of the people who outsourced, 57.33% outsourced development to a Software development company!
Read more: Why do companies outsource?
Now we know what in-house development and outsourcing are and their pros and cons. So, coming to In house vs outsourcing, the omnipresent question is: when does it actually make sense to outsource software development and when to hire in house software developers?
Both are time-consuming. Both require due-diligence. If you don’t hire a competent developer, your project will suffer, Similarly, if you don’t hire a competent software outsourcing company, your project will suffer!
Consider three things when you need to make a decision regarding outsourcing vs in-house :
 Project scope
Let me explain with an example: Suppose you decide to develop a taxi-sharing app and your whole focus and business revolve around that. That becomes your core business activity. You know that you have some time before you launch and you also have some money to support the development. Going for an in-house team is the best in this case.
This development will be continuous and every aspect of your business will revolve around this. Is it a specialized service you need to handle full-time. So, hire an in-house team!
Now, say you need an inventory / warehouse management software that will help automate the business processes. But, your business doesn’t revolve around this and once you have the software you don’t need daily maintenance. Also, you need this software fast and don’t want to spend too much on it. You are better off outsourcing this to some capable software outsourcing company.
If you’re wondering how to find a good outsourcing company, check our blog here.
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Summarizing the article, outsource activities that are not the core element of your business. When properly utilized, outsourcing can help streamline your business operations more strategically and help you gain a competitive advantage.