Business & Finance

In-house Development vs. Outsourcing: Benefits and Drawbacks

By Mariam Grigoryan

Posted on February 20, 2021

In-house Development vs Outsourcing- Benefits and Drawbacks

Have you ever wondered who wins the game in this rapidly-evolving environment we are part of today? What are the Goldilocks’ conditions for prosperity and life-sustaining operation? The answer is simple: being digital.

In other words, being able to indulge your customers and clients with impeccable digital experience and new fascinating products and services.

Whether you are a small business with an innovative idea or a large enterprise longing for digital transformation, software development is a core part of your business. And the main task here is to decide upon in-house development or outsourcing to a software company.

Is building a team of in-house developers worth it? Or should I outsource to an IT company? Isn’t it too risky?

Such questions may be a real pain in the neck sometimes! Please, join in, we are going to describe the main pros and cons of both options, and then, maybe, your choice will not be that tough.

In-House Development

At a first glance, in-house development seems to be a rather time- and cost-consuming task: building a team of skilled and committed professionals together with providing proper resources to make everything work ask for a fair amount of time, effort, and a clear long-term strategy.

However, this is a good option for companies related to IT, for example, since a full-time in-house team is believed to be less expensive in the long run. More benefits and drawbacks are below.

5 Benefits of In-House Development:

1. Increased control over the project

Being able to monitor the day-to-day progress of the project, conduct a meeting with the development team at any favorable opportunity, as well as to eliminate any possible stumbling blocks is a truly alluring prospect for some business owners.

2. Cultural compatibility

Deciding on an in-house group of IT professionals means building a team with more or less the same cultural background, which ensures narrower face-to-face communication, faster and easier unification, as well as results in a shared vision of the project and faster reaction time in implementing changes.

3. Deep involvement

An in-house team is more likely to be 100% dedicated to the project than any other team as there is no need to worry about other clients’ deadlines.

4. In-project expertise

By giving their full time to the project, in-house developers soon become high-level experts in a certain area, which ensures more efficient operation and bug fixing, as well as unlimited post-delivery support and maintenance.

5. Enhanced security

By building an in-house team, you avoid the risk of data leakage to a third party and save all the information gained and know-hows employed within the boundaries of your company.

Important comment: here we have to point out that all this works only if your company possesses rich time, budget, and management resources, and enough post-delivery work or other projects pending to keep the in-house team busy. Let’s consider some of the other possible cons.

3 Drawbacks of In-House Development:

1. Slow launch

Unfortunately, with an in-house development team, it takes an uncertain amount of time before reaching high productivity levels. Firstly, it usually takes 30 to 40 days to hire a professional. Moreover, you have to actually know how to hire people to make a well-coordinated team out of them. Then, you have to give them time to get familiar with each other’s working styles to become more efficient as a team.

2. A limited number of competencies

Naturally, it is impossible to know the required skill set for all the projects. You may need additional expertise as the story unfolds. So, you will probably have to spend money again to hire another IT professional or to conduct training for your existing employees, thus slowing down the product development a little bit more.

3. High expenses and risk of staff dismissal

In addition to the above-mentioned expense items, investments at the initial stage, as well as downtime expenses should be included. Not mentioning the financial provision of an in-house team, itself. All this is accompanied by the risk of staff leaving in the middle of the project development.

To sum up, with in-house development your company not only gets the chance to maintain the product independently but also acquires a greater ability to establish a culture around your business, which is actually a viable feature in the era of customer-centricity.

Still, more and more companies are looking to cover complex development needs through outsourcing. The key driver here is optimization: instead of spending huge sums of money to grow the required skills in-house, companies can get those right away and at a considerable price.

Outsourcing Development

According to a Statista report, the worldwide ITO (information technology outsourcing) contract value equaled $66.5 billion in 2020. Besides, companies are willing to pay more for digital services: according to an IT services global spending forecast, spending on IT services in 2021 is expected to amount to over one trillion US dollars worldwide, which is 6% more as compared with 2020.

Outsourcing is typically a perfect fit for small businesses and startups, as well as non-IT enterprises where time and budget don’t opt for establishing an IT department. Let’s see how they can benefit from outsourcing to a software development company.

5 Benefits of Outsourcing Development:

1. Comprehensive expertise

This is one of the most coveted advantages of outsourcing to a software development company. A powerhouse team of IT professionals is not restrained by a geographical location and usually includes top talents from across the globe.

2. Fast launch and time to market

By avoiding all major hiring and teambuilding tasks through outsourcing, you save yourself time, money and neurons, and deliver products faster to the customer.

3. Reduced cost and management efforts

Outsourcing development is cheaper due to the absence of recruitment, training, and interviewing expenses. This frees up time and imagination to focus on higher-level business activities. Besides, it is important to mention that there is no extended commitment as the team is outsourced for a specific project. It’s up to you whether to stay with them longer or find another team.

4. Automation

Upon hiring a reputed tech firm, you may count on well-established development processes and ample application development experience. Many of those processes are streamlined and refined accordingly. Generally, a software development company knows how to cope with a great variety of development challenges, and has access to the knowledge accumulated by the members of their team, so the development process with an outsourced company is usually faster and easier.

5. Flexibility

With outsourcing, you get the ability to easily scale a development team up and down depending on your needs. The vendor does not change the total cost at that.

When choosing outsourcing development, you get access to an open talent pool along with the ability to search for a company that covers your project needs in the best way possible. However, there are some cons as well.

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4 Drawbacks of Outsourcing Development:

1. Less control over the project

When outsourcing project development, the process is usually not so transparent as with in-house development, which may raise doubts about the team performance.

2. Possible misunderstanding

Although geographical and language barriers are now believed to be a thing of the past, there still may arouse some misunderstanding when signing the project specifications. Varying time zones, cultural differences, as well as insufficient English skills may cause trouble to effective collaboration.

3. Security risks

The human factor is always here, communication channels may possibly be insecure, and a confidentiality breach may occur. Lack of direct control over the development process makes the situation more complicated.

4. Cost overrun risks

It is rather rare nowadays that a project is completed within the set budget. Software development companies say it is hard to predict problems that are beyond the realm of planning. Among the main reasons for budget overrun are underfinancing, improper planning, unfeasible cost estimates, underestimating project complexity, and schedule overrun.

However sad this may sound, cost overrun is possible with in-house development as well. Besides, some companies do not accept any waste of money by their client under any circumstances and introduce budget guarantee solutions into their development process.

To summarize, outsourcing development has certain drawbacks, yet they are easily eliminated by choosing a reliable and respected company. The main advice here is to not fall for a low price as this usually turns out to be a very short-term saving. Instead, focus on getting value-for-money: choosing a more established vendor, you may pay more (this is still less than with in-house development), but you get long-term savings due to a higher quality of the company’s work.

Making A Choice

By now, you may be already determined about how to develop your products and services – on-site or offshore.

Yet, in some cases, a desire to swim with the big fish in today’s evolving environment makes you look for extraordinary solutions to address your business needs in the best way possible. A hybrid approach can turn out to be a perfect fit at that!

You may develop an MVP or any other kick-off project or service with an outsourced team, while gradually growing your own IT department. Or, in case you already have an IT department, you can try new models other than full outsourcing, like staff augmentation with the help of an outsourced team.

With the hybrid approach, you can easily ensure:

impeccable project organization, including efficient planning, in-depth analysis, and task delegation;
as well as cost optimization, since you can decide which specialists can be outsourced, and which ones are needed on-site.