In-House vs Outsourcing: Pros and Cons

In-House vs Outsourcing: Pros and Cons

Posted On September 22, 2022

Most companies rely on technology to produce enterprise-level software, simplify their systems, host their databases, and store data – here the technology is being leveraged to maximise the efficiency and profitability of business operations.

During the business growth phase, every business owner faces the difficult question of how to leverage IT servicesefficiently. That includes considering whether they should be engaging an in-house or outsourcing team to optimise its processes and performance.

Some organisations prefer their tech assets, licenses and developers to come from separate entities that are cost-effective while keeping pace with their competitors, while others prefer to be more involved and engage an in-house tech team.

There are opportunities and obstacles in both approaches, so this article will discuss these approaches in detail, describing thedifferences between in-house and outsourcingdevelopment, and outline the advantages anddisadvantages so you can make the best choice for your business.

In-House vs Outsourcing

While both outsourcing and in-house software developers will design, develop and deploy applications for your business, their position within the company, approach toward the business model, and commitment to business objectives are considerably different.

The difference between outsourcing and in-house

In-house software development involves the use of an internal team, constructed among the company’s employees, to create your software. Alternatively, outsourcing involves working with an external third-party provider to tackle a specific tech task within a certain time frame.

Pros and Cons of Outsourcing

Advantages of outsourcing

  • 1. Cost-effective. Possibly the most well-known reason to consider outsourcing isthe access to cheaper labour. Offshore software development centres are typically located in countries with lower wages and offer a more competitive currency exchange rate. Essentially, these development centres can provide an abundance of technology specialists where fixed labour costs are converted into variable costs, meaning you only pay for the services you require.
  • 2. Wider access to expertise. When it comes to attracting talent, outsourcing removes the geographical boundaries from the available talent pool. Instead of having to compromise and choose talent that lives nearby, outsourcing allows businesses to access the best developers across the globe. A tech provider will generally have the resources prepared to build a tech team instantaneously. As most tech providers have developers on stand-by, this avoids the time-consuming task of assembling a team of tech professionals.
  • 3. Shared project risk. Through working with an outsourcing partner, some of the risks associated with your projects, such as lack of scalability or underestimating timeframes, can be mitigated. A good software development service will take the time to examine your project specifications and identify any potential issues you may have missed. Here, the experience and expertise of the external tech provider may go well beyond what you might realistically expect to achieve in-house.
  • 4. Increase efficiency. Outsourcingallows you to bring in an expert, without the long-term commitment. You can hire an experienced tech team with the specific skill set you need for a couple of weeks, as opposed to the months it often takes to hire in-house talent. Furthermore, by going through an external vendor, in-house employees have more time to focus on strategic initiatives. Additionally, having different time zones may allow your business to subscribe to the ‘follow the sun’ working model, in which the offshore team completes your work overnight and returns the result the next morning. This round-the-clock model speeds up product development and essentially allows your business to operate 24/7.

Disadvantages of outsourcing

  • 1. Security risk. Whenoutsourcingto an external provider, you completely or partially expose your business assets to an outsider. This increases your business’s vulnerability to security and privacy breaches. If you choose a deceitful tech provider or fail to negotiate appropriate protections for your business’s intellectual property, you are in danger of falling victim to industrial espionage or security deficiencies which can easily be exploited by hackers.
  • 2. Lack of control. Outsourcing means giving up control of certain aspects of your operations and workflow. While this can free up your time so you can focus on other business activities, it does run the risk of compromised quality control. A good software development service will ensure that project management tools are in place for both parties to provide regular updates and feedback.
  • 3. Communication barriers. When outsourcing it’s important to consider how language, cultural and geographical barriers may affect communication with your external development team. Theabsence of facial expressions, gestures, and tone of voice on digital platforms, can hinder effective communication. Words in emails and instant messages are left vicariously open to misunderstanding – especially when there are language and cultural differences at play. Cultural nuances can impact communication, understanding, workflow and productivity, so it is essential that there is cultural compatibility between you and the team.

Pros and Cons of Developing In-House

Advantages of developing in-house

  • 1. Understanding of organisational culture. Developers who are already full-time employees may be more motivated to deliver successful products and services for your organisation because they are personally invested in the success of the company that employs them. They understand the underlying principles of a project and deeply understand the nuances of how your organisation runs.
  • 2. Ease of communication. Conversations with developers can be more effective in person because instant feedback can be translated through body language and facial expressions. This avoids miscommunication and misunderstandings and thus, creating more effective and efficient communication channels. Furthermore, internal teams will already be familiar with workflow processes and procedures for providing feedback and there are fewer language barriers to contend with.
  • 3. Quality assurance. With an in-house software development team, it’s easier to enforce quality assurance standards in all aspects of the development. Having internal employees involved in the quality assurance process mitigates the risks of confidentiality breaches and allows for agile development.
  • 4. More agile. In in-house development team is less disrupted by in-house changes. New features can easily be added as the product starts to evolve. Discussions about technical details and project progress are easily facilitated, which helps to resolve bugs more efficiently.

Disadvantages of developing in-house

    • 1. Higher cost. In-house software engineering can be very expensive and put a strain on your company’s budget. Not only does your company have to pay full-time salaries to the engineers, but you also have to consider overhead costs such as equipment and the software licensing packages your employees will be using. Basic software can cost hundreds of dollars and more robust packages can cost thousands.Outsourcing developers simply removes the burden of many of the above-mentioned expenses, simplifying the cash flow into either an hourly rate or a fixed project cost.
    • 2. Difficulty acquiring talent. When you hire for anin-houseposition, you are limited to thetalentthat lives within a reasonable distance from your office and within the country. This means you may struggle to find a developer with specific niche knowledge and must compromise. For existing internal developers, there may be a considerable skills gap which promises a steep learning curve and overwhelming stress.
    • 3. Low retention rate. Demand for tech talent has soared recently, especially for the top-level talent. So, you may find employees frequently leaving for better opportunities. This means delays for your projects, as well as the time and expense needed to hire new developers.

Conclusion

Is in-house development or outsourcing better?

The choice between in-house development and outsourcing developers can be a daunting task especially when the decision will directly affect your business. There are many factors you should consider before making the difficult decision, including the scope of your project, the technologies required, your budget and deadlines. Hopefully, after reading this article, you are now aware of the advantages and disadvantages of both choices.