In–House vs Outsourcing Software Development

In–House vs Outsourcing Software Development

The In–House vs Outsourcing Debate

To outsource or not to outsource — that is the question.

After that one, others follow. Which model is cheaper? Which is more beneficial? What can I, as a business owner, do to make my enterprise flourish? Does the key to success lie in building a stable inhouse team that reflects your mission, or should you delegate as many tasks as you can to another company? With so many questions clouding our vision, it’s best to gain some clarity first before coming to any decision.

But are these the right questions to ask in the first place? 

After all, there are hardly any universal answers.

Different business models require different approaches. What could help thrive one, might destroy another. That’s why instead of trying to pick the best model, it’s better to understand how they work and what their strengths are.

Thus our final question should be — when should you consider software outsourcing?

Factors to Consider

Due to the pandemic, progressing globalization and ever–evolving technology, the differences between inhouse and outsourcing strategy are not as prominent as they used to be. The main argument against outsourcing was the occasional inability to achieve transparency, which in turn reduces performance. The pandemic has proven otherwise: it’s possible to effectively manage your team when everyone is forced to work from home. In some cases, it resulted in a productivity raise up to 77%, as reported by CoSo Cloud. It was also noted by various leaders: 70% of them stated that their team’s performance was the same or better in the Global Work–from–Home Experience 2020 Survey.

Graph illustrating survey results of how leaders judge remote work in terms of effectiveness.

Working from home has been a raising trend even before the pandemic. Between 2005–2017 years, the number of people working remotely in the United States has increased by 159% and this trend is expected to continue. 

Due to that, the market for collaboration technology has matured rapidly. The distance between team members is no longer an issue, allowing people to connect and work together with the right infrastructure, which also makes project management easier. 

The matter is further complicated by different outsourcing models, which make hybrid collaborations possible and give you a lot of flexibility in terms of recruitment and development processes. You don’t have to settle for one or the other — you can combine the two and create your unique strategy that will suit your business needs best.

General Comparison

Before we contemplate different scenarios, we can roughly compare the two most common models of inhouse development and outsourcing development. Keep in mind that both of those models can be altered to a certain extent.

Inhouse

Inhouse software development requires creating and managing your own team. It’s your responsibility to find good candidates, but you might be restricted by what your labor market has to offer. There’s also a chance you’ll have to fight over the best candidates with other employers. Thus the recruitment process might take a longer time — especially when offboarding comes into play — and you might be forced to make some compromises. 

You’ll be responsible for providing necessary software and hardware, as well as an office space that complies with certain standards and regulations. Another good thing to consider is work culture, which is often undervalued, but which is important if you want to create a team that will believe in your mission and stay for more than a year.

You’ll also have to offer benefits to all your employees, including but not limited to healthcare, insurance, retirements benefits and paid leave. Nowadays it’s common to offer additional things like gym memberships, professional development or flexible working hours.

At MPC, one of our benefits is the MPCharity program, which allows employees to propose a cause to support and/or raise money for. So far, we have financially supported the Centre for Monitoring Racist and Xenophobic Behaviour during Pride Month, Abortion Dream Team during the Abortion Crisis in Poland, we have also supported local orphanages by donating our computers when the Pandemic forced schools to close, among other things.

Once your inhouse team is completed, it’s up to you to employ effective management and to call all the shots, even if it’s to delegate it to someone else, a Project Manager or a Scrum Master. That high level of control comes with a cost — it’ll be harder to bring any changes to your team mid project (if, for example, some role will turn out to be unnecessary). It will also take time for your team to get to know each other well enough to start working like a well oiled machine.

Outsourcing

Outsourcing software development comes without all the worries surrounding recruitment, management and both software and hardware infrastructure. These three things are covered by your chosen vendor, who will recommend the best people for the project, provide all the resources needed and handle the management, in part or even wholly, depending on your preference. This means that you’ll be free to focus on your core tasks, as long as your business partner provides you with a necessary level of transparency and frequent reports.

And if it turns out that your partner wasn’t the best choice for you, you can easily find another when your contract ends. This also gives you flexibility when it comes to scaling your team; big project or small project, you don’t have to worry about having to fire anyone from your inhouse team (which also makes the scaling process faster). You can juggle between short term contracts with various technology experts from all over the world, who apart from their knowledge bring new perspectives and fresh ideas as well, which might ramp up optimization and streamline your processes.

Table comparison of in-house vs outsourcing software development models.

When To Outsource?

From this point onward, we will focus on several different business scenarios that might benefit from acquiring services from an outsourcing software development company.

1. When You Need To Lower The Costs

The numbers say it all: 70% of companies outsourced to save money in 2020, which is a 11% raise from a 2016 survey results. How does it happen?

With outsourcing, a CEO can take advantage of lower income economies to hire experts for less than in their home country, while being sure that they’re properly compensated and not exploited. Moreover, the only responsibility lies in covering their salary: hardware and software infrastructure, insurance, paid leave and any employee benefits are taken care of by the business owner of the IT outsourcing company.

Also, there are no predetermined laws when it comes to taxes in outsourcing. Therefore, each arrangement has to be considered individually, depending on where your potential business partner is located at. Also, the type of services you’re requiring is also important, since different types come with different legal regulations. This can lower the costs of the whole arrangement even more.

2.  When You Need Temporal Team Members

If the problem you’re facing can’t be resolved by your current inhouse team or you need more specialists onboard for short–term projects, you can hire new staff members via staff augmentation, an outsourcing model that allows you to quickly grow your team. This way, you can completely bypass the hiring process, gain access to IT specialists that can fill any knowledge gaps, and you don’t have to worry about what to do with an extra employee you no longer need when the project is over and done with. 

Not only you can acquire a skill set you’ve been missing all this time, but resources and infrastructure as well. An outsourcing company might not only have access to them, they also know how to manage them properly. This can save you both time and money in the long run. 

3.  When You Need The Expertise

While building your inhouse team, you are restricted by what your local market has to offer in terms of human resources. When pressed, you might have to hire someone of little talent or who needs additional training, which may not be a problem at all if you want to have a loyal team with deep understanding of your product, but when you need things done fast and well, it might be an issue.

One of the biggest benefits of hiring outside contractors is that you get a hold of world–renowned experts in their fields. While the first wave of outsourcing has been all about saving money, the second wave’s main benefit is access to knowledge wealth. And with the emerging “tech talent goldmine” in the Eastern Europe, outsourcing means creating software of the highest quality.

If you ever find yourself wondering whether your new project, which is outside of your usual scope, would be possible for you to do, gaining temporal help from professionals who have already worked on similar projects would be of tremendous advantage. You can access their technical knowledge as well as domain expertise to not make the same mistakes as others might have done. It will also prepare you better for future, similar endeavors. And this way, it’s easier to gain a foothold in the new markets.

And if you don’t want to let go of your outsourcing partner too fast, you can always establish a long–term relationship that will benefit the both of you. At MPC, we have a history of creating strong business partnerships that span across years. Placester, a SaaS website builder for real estate, has been working with us for three years now and we don’t see an end to our collaboration any time soon. 

4.  When You Need To Delegate

Each company should focus on its own core business functions to maximize its potential and efficiency. But it’s easy to neglect them while buried under day–to–day tasks and being busy with putting out fires that keep on appearing at most inopportune of moments. It’s especially common for startup business owners to think they have to do everything on their own, which results in neglecting their core tasks and strengths. Allie Siarto, a co–founder of Loudpixel, advises to consider outsourcing at least bookkeeping and legal advice to free up your time. Other sectors that are good to outsource are: customer service, customer support and social media marketing. 

What you shouldn’t do carelessly is to delegate your core tasks. Not only will your business’ success depend on another company, your inhouse team might experience a drop of morale. If your employees think that they’re easily replaceable or that working on their tasks is pointless, their productivity levels and overall work satisfaction might be lowered drastically, increasing the turnover rate. That’s why outsourcing core tasks should be done carefully and only in certain circumstances: for example, when your outsourcing partner has been working with you for a while now and you have an established, transparent business relationship.

5.  When You Need Quick Results

Outsourcing can significantly speed up your development process. Your employees can focus on their own responsibilities, while your service provider takes excellent care of the chosen project, utilising their knowledge and abilities to deliver within set timeframes. And with the access to a global talent pool thanks to your outsourcing contractors, you gain expertise that minimizes the time wasted on additional training or on fixing mistakes that stem from the lack of experience.

Especially if you’re considering an offshore type of outsourcing, you may be able to get things done faster due to possible time zone differences. Your project will be developed during your holidays or even while you sleep, so if you request corrections in the evening, you can expect results in the morning.

If you’re doubtful of that, let’s take a closer look at the pricing models. With two most common pricing methods, Time & Material and Fixed Price, you can choose to either pay for the exact time and resources spent on the project (to which you can demand access) or for the estimated value of the project itself. This means that you know exactly what you’re paying for and that the value is placed on the quality and overall performance, not the time spent idly at the office. 

When Not To Outsource?

Definitely not when everyone around you does it and you want to follow the trend, without taking into consideration all the variables surrounding your business. Your circumstances might be different enough to warrant a different approach — for example, it might be better to commission a freelancer instead for a simple, one–time project. 

If your business has a unique development process that is specific to your company, bringing other people into it might not be a smooth procedure. Having to explain the flow and to educate another team on it might take up some time, and still there’ll be no guarantee that no questions will be asked midway through the project and that no problems will appear that come from the inexperience. If that’s the case, molding and growing your own team might be more profitable in the long run.  

You also shouldn’t make any decisions too fast, even when pressed for time. It’s necessary to research all the potential business partners first to ensure that you’re dealing with professionals with relevant skills suitable for your project. Communicate your needs clearly and ask questions so that all parties are on the same page.

Key Takeaways

Outsourcing can be a good business decision in the following circumstances:

  • When you’re looking for opportunities to lower the budget,
  • When you need to temporarily grow your IT team,
  • When you could use skills of a true professional,
  • When you have tasks not related to your core business that take up your time,
  • When you have neither resources nor will to handle human resources processes,
  • When you’re under pressure to deliver things fast.

Conclusion

Flexibility in the world that keeps spinning dizzyingly fast, especially in the ever–growing IT sector, is most crucial. It’s even more important than to keep clinging to a strategy that has already plateaued. That is, it’s essential to constantly analyze your circumstances and to appropriately react in response than to search for a universal answer.

The bottom line is, neither the insourcing nor the outsourcing business strategies are inherently good or bad. When employed at the right moment, they can both bring lots of benefits. And it’s up to a business owner to decide whether the right moment has come — and to use what the world has to offer to their advantage.

Hopefully, at this point we can agree to end the inhouse vs outsourcing debate with a tie.

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