If you are planning to outsource and are confused about how much the bill would come, this Outsourcing Costs Guide is for you. It is a complete guide that will explain everything that you might want to know about the cost of outsourcing.
Whether you are an entrepreneur, a digital agency, or an enterprise planning for digital transformation, you must have found yourself on this crossroads. A crossroad that leads you to either of the two- hiring an in-house development team or taking your operations global through outsourcing.
Turning back the pages of time to the 20th century, companies were busy raising funds to build in-house teams so that they could stay competitive in the world where tech was ever-evolving. But the 1980s saw a shift in this old-school ideology. Businesses realized the existence of a vast talent pool across the seas. Outsourcing software development gained dominance and became the go-to solution for businesses.
But now, the tides are turning once again. While many companies are still relying on the outsourcing methodologies, there are those that are once again turning towards hiring in-house development teams. So, how do you decide which approach to follow?
The pros and cons of outsourcing and in-house development will help clear things out and enable you to make a decision. So, without further ado, let’s get started on- in-house development vs outsourcing: pros and cons.
In-House Development: The Old-School Approach
Getting a team together, brainstorming around the idea in the conference room, and sitting together to get the project completed in the required time. This, according to many organizations, is the old-school or the ‘real way’ of getting projects managed.
Pros of In-House Development
They are the people working beside you in your establishment. No matter what the issue, you can just rush to them and get things sorted in real-time. Working under the same roof, they have a greater understanding of what you want in the software development project. Some other pros of employing an in-house development team are:
Fits Your Corporate Culture
One of the biggest issues among companies planning to outsource is that they do not find outsourcing partners who would understand their corporate culture. In-house teams, on the other hand, fit the company’s corporate culture. They know exactly what the company wants to deliver or solve through the product being developed. They also align with your company’s goal while developing the product.
Real-Time Inputs From Team
In case there is a critical project or a task needs some changes, you can sit with the in-house developers and offer their real-time inputs. Moreover, you can also get real-time status of the project’s progress and make changes in the meantime if and as required.
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The best way to communicate your ideas to your development teams is through face-to-face communication. There are minimum chances of misunderstanding and the results come out to be more effective and as expected.
Cons of In-House Development
Every coin has its flip side. With close communication and better cultural fit, there come some unavoidable cons as well. You require the overhead cost of setting up the required space and IT equipment for employing the team. And that’s not all, some of the cons are:
Greater Cost To Company
For companies that are running on a tighter budget, hiring and setting up a team of developers could cause a fund crunch. Hiring The cost of expanding the space, putting up the techs, installing hardware and software could burn a hole in the company’s pocket. You might also have to include other expenses of hiring like sick leaves, training, employee benefits, etc.
Limited Skill & Tech Stack
Another big reason why companies suffer from setting up an in-house development team is that they might just not be up to the mark when it comes to the latest techs. You employ them and in case a new tech comes up, you either need to train them or let your competitors make better use of the technology.
Higher Developer Turnover
It is human of developers to look out for better opportunities and make the best of the developer crunch the market is facing. The market is looking out for talent and developers would seize any opportunity that comes knocking on their door. The employee turnover in the developer community is thus, pretty high. Companies might have to chip in extra funds to retain the developers whom they have trained.
Outsourcing Development: The Modern Approach
As businesses expanded and new technologies surfaced the digital ocean, companies, that were particularly facing budget crunch, time crunch, or skill crunch, had to find a more effective approach. This gave birth to the modern and agile approach to getting websites, products, and apps developed, called outsourcing. Knowing the pros and cons of outsourcing will give you a clearer idea.
Pros of Outsourced Development
As per a report on Statista, the global IT outsourcing market is forecasted to reach a whopping 96.7 billion dollar by the year 2021. Many companies are now leveraging the huge potential that outsourcing software development to India, China, the Philippines, Ukraine, etc. Here are some pros that are compelling companies to start outsourcing:
Cost Savings From Employee Hiring & Retention
The biggest cost for in-house development comes while headhunting and then when trying to retain the talent they’ve found. When outsourcing software development, you can easily find a good vendor on different listing sites like GoodFirms, Clutch, etc. You can find the outsourcing web development partners in India, get your project done, and rehire them if you like their work.
Reduced Stress On The Core Resources
Your core resources and managers might be overwhelmed with hundreds of tasks on their plate, a sign that says you need to outsource. Outsourcing cleans out the work from their hand so that they can focus on the core competencies and work towards bettering the company’s main offerings.
Endless Pool Of Tech Talent:
Whether you are planning to hire developers or remote teams for a particular project, the technology stack that you can find outside is endless. You are not limited by technology or geographical boundaries. Tech experts from around the globe are there to work for you. No matter what technology stack suits your organization, you can find it from the vast talent pool.
Commitment On Performance
While in-housing binds you in a commitment with the employee and you cannot just hire or fire them as per the requirement or performance. But when it comes to outsourcing, there is the added benefit of rehiring only if the project delivers desired results. Committing or not committing to the software outsourcing company is totally on your discretion.
Quicker Delivery to Market
Got a project that requires new staff or tech-stack? You no longer have to spend manhours in finding the right developers and then training them for the required tech. Simply find the remote developers or get your project managed from start to end for quicker delivery to the market.
Cons of Outsourced Development
Like in-house development, outsourcing mobile app development or web development to outsourcing companies has its flip side too. With great set of advantages, comes some disadvantages and cons as well. Here are some of the cons of outsourcing:
Finding the Right Vendor
When hiring a member for your in-house team can take rounds of face-to-face interviews and meetings to finalize, hiring someone you haven’t met even once is not an easy task. You might be deceived by the fake promises or achievements of the company and find yourself with a below-average product post-development.
Risks To Intellectual Property
There is a great risk to our intellectual property in outsourcing, especially to countries like China, which are infamous for piracy. There are many tips to protect your intellectual property when outsourcing but the risk is still something that discourages many.
Challenges Of Communication
Another big roadblock in outsourcing software development to India is a communication gap or language barrier. Communication with the hired developers through the time gap can be challenging too. Both the companies and the outsourcing teams need to come up with communication channels and collaboration tools.
In A Nutshell...
|Factors||In-House Development||Outsourcing Development|
|Cost||Higher because of hiring and retention of the developers||Lower because of large talent & rate difference in countries|
|Time To Market||Slower As Hiring Experts Requires Time||Agile & Quick|
|Technology Expertise||Limited||Unmatched & Endless Talent|
|Flexibility||Not much flexibility||Extreme flexibility & adaptive approach|
|Security of IP||Highly Secure||Threat to intellectual property|
|Communication||Face-to-face & clear communication with real-time inputs||Difficult to manage due to language gap & time zone difference|
|Cultural Differences||Fits company’s corporate culture||Not necessarily a cultural fit|
What Is The Best Approach?
So, now that we have read through the pros and cons of outsourcing as well as in-house development, which method of development should you adopt? Should it be outsourcing or hiring an in-house team?
Well, there is no black or white when the question of outsourcing or hire pops up. You need to get the best of both worlds to stay competitive. Get an in-house team for your core competencies and outsource when expert assistance is required in any specific technology or project domain.
Segregate your tasks and keep your in-house teams focused on the main tasks of expanding and strengthening the company’s position and joining hands with outsourcing teams for your specific project or technology requirements.
Originally Published On: 31st May 2019; Updated On: 20th August 2019