In-house vs Outsourcing: When Each Option Works Best? - Edvantis

In-house vs Outsourcing: When Each Option Works Best?

People make ideas happen. Whether you want to develop a brand new software product or just tweak an existing one, you need to find the right team. Generally, there are three ways you can go: build an in-house team, outsource the development to a third-party vendor, or combine both options in a distributed team. 

The choice depends on a wide range of financial, operational, and project-related factors. So there is no one-fits-all option. Before making an informed decision, you need to consider the pros and cons of outsourcing software development and building it in-house. That’s what we’ll focus on in this post. 

In-House Development: Why It Works 

Managing the development team directly gives you more control over operations. You get to hire people with specific skills, personalities, and working styles so that they fit harmoniously together. You distribute tasks, plan workload, and monitor productivity. Your employees support the company culture, and every action is guided by a common goal. The synergy of such a kind sounds great but you need much financial and time resources to attain it. 

Benefits of In-House Software Development

  • Quick iterations: In-house product development allows you to build and break things fast. So, you don’t just predict what works and what doesn’t, but actually put ideas on the table and test them out. That way, you can quickly validate assumptions, experiment with different approaches, and shift development plans, based on the market demand. 
  • Deep product knowledge: An in-house development project is typically a long-term collaboration, so every team member develops vast knowledge of products’ technical intricacies, paired with a high-level understanding of the business objectives. Also, the onboarding process of new employees is easier because the remaining team can support them via knowledge sharing.
  • Simplified security and compliance: Customer data stays within your security perimeter. Respectively, there’s a lower risk of accidental leaks and disclosures. In-house development also minimizes regulatory pressure, since you don’t have to worry about partitioning sensitive customer data from the one that can be moved across the border.
  • Operational ease. Implementing consistent work standards and practices inside your organization is easier than doing so when you’re working with an outside vendor. 
  • Team cohesion: Everyone in the team is on the same page tech and process-wise, knows each other’s work styles, and collaborates well. The result is improved communication and increased productivity. 

The Shortcomings of In-House Software Development

  • Access to talent: The IT industry is dealing with an ongoing skills gap. According to the McKinsey survey, 87% of companies faced talent shortages in 2020 or expect to experience them within the next several years. When assembling in-house teams, the skill gap becomes even more evident as you face geographical limitations. People with suitable skills should either live in your area (and be available for hiring), relocate, or work remotely. 
  • Homogeneous thinking: The tradeoff of working on the same stuff day in day out is reduced creativity and innovative thinking. Most teams prefer to maintain the status quo or merely miss creative solutions amidst the routine. An outside party can offer fresh ideas, help drive innovation, and fill in the gaps of the missing expertise. From this perspective, outsourcing may introduce diverse teams, and this could be a winning move. McKinsey states that top-quartile companies with ethnic and cultural diversity outperformed businesses with less diverse teams by 36% in profitability. 
  • Lower agility: It can be difficult to take advantage of trends and scale your business. In-house staff may require additional training or simply don’t have the capacity to handle the extra workload. On average, companies spend 55% of IT budgets and people’s efforts on maintaining existing business operations. Incremental business changes get only 26% of financial resources, while innovation — 19%. 
  • Longer time-to-market: The development pace slows down because everybody is busy with maintenance. Attracting new people to the company takes time. With the rapid pace of digitization and accelerated adoption of emerging technologies, it is even harder to find people who possess in-demand skill sets (e.g. data science, machine learning, or API programming).
  • 2020’s remote work challenges: In the last year, the ways in which in-house teams collaborated changed dramatically, as everyone had to pivot to remote work. Companies had to adapt their operational processes to the new working style. This led to a widening acceptance of outsourcing product development and an increased interest in it. It turned out when working remotely, communication is generally not an issue as long as your team is trained (although there is an adjustment period you need to be ready for). 

What is Outsourcing

IT Outsourcing refers to the process of working with external service providers to obtain application development services and infrastructure solutions that meet your business goals. 

Outsourcing is a great option if you need to gain the “extra working hands” without going through the lengthy hiring process. With an IT outsourcing partner, you can obtain the needed talent to close your capacity gaps sans the recruiting, training, and administrative support costs. 

To make outsourcing more structured and efficient, vendors set up different service models. Choosing the optimal one is the key to a successful collaboration with a selected vendor. This way, you get a clearly defined scope, terms of engagement, and financial commitments.

At Edvantis, we propose the following service models: 

  • IT Advisory & consulting— receive expert guidance for adopting new technologies or executing digital transformation initiatives. 
  • Managed project— end-to-end IT outsourcing. Receive an end product built according to your specifications.
  • Staff augmentation— hire extra people with missing skill sets to work alongside your in-house team.
  • Managed team— extend your operations with a team, rather than several specialists, assembled and coached for performance by Edvantis. 

Benefits of Outsourcing

  • Access to talent: 28% of business leaders view outsourcing as an opportunity to get access to the missing human capital. By accessing such a talent pool, you can hire people with a wide variety of skills and levels of expertise. When you outsource, you have a much easier time finding the right candidates for your project, whether you need senior experts or niche specialists. Why? You’re not restricted by location.
  • Lower operational costs. TCO of in-house teams is higher when comparing them to outsourced ones due to overhead costs. Software outsourcing vendors provide a better price-to-value ratio as they absorb some of those. So it follows that for 70% of business leaders one of their key objectives of outsourcing is to reduce costs.
  • Focus on core business: By transferring certain project aspects to an outsourcing partner, you get more resources freed up for other business processes. Such flexibility is the reason why 40% of businesses outsource, as per the Deloitte 2020 survey
  • Extensive expertise and innovation: Technical expertise provided by your vendor may fit you better than what your local talent market offers. Outsourcing partners can advise you on all aspects of your product strategy, including planning, choosing a tech stack, and outlining architecture. They can share their domain knowledge, give second opinions on your product vision, and validate your assumptions. 
  • Faster time-to-market: Outsourcing software development helps you bridge the skill gap, hire ready-to-perform teams, or even delegate the whole project development. By gaining access to extra talent, you can speed up release time. 

Shortcomings of Outsourcing

  • Low operational readiness: Outsourcing does not mean that as soon as you hire vendors, you pass the whole development process to them and forget about it. Just as your outsourcing partner is responsible for delivery, you have to play your part too. The level of your engagement depends on the service model, but it’s never zero. Prior to outsourcing, you have to at least define your capacity needs and formalize your product vision and objectives. Then, throughout the development process, you need to make sure that you communicate your requirements clearly, provide timely feedback, and proactively manage the team at different stages of the SDLC
  • Delivery risks: Any type of project could go off track, exceed the budget, fail to adjust to changes. This may happen due to a weak vendor’s delivery culture or lack of stakeholder engagement. Such outsourcing risk can be overcome by establishing the practice of risk management both on your and the vendor’s side. We talked at length about identifying and managing IT outsourcing risks in our previous post.  Discovery phase, conducted by your vendor before development begins, can help you avoid some delivery risks. This pre-engagement stage provides you with a space to evaluate your product concept, determine the necessary scope of work, team composition, and technology stack. 
  • Communication and visibility gaps: Outsourcing may seem unreliable because you don’t have full managerial control over people working remotely. Ultimately, there is a question: can you ensure a strong alignment between your in-house and outsourced teams? Yes, with proper organizational facets in place. A mature vendor will help ensure a strong alignment between distributed teams by mirroring your SDLC, being active with knowledge sharing, and proactive in their reporting and day-to-day communication.

Conclusion

Ultimately, because of all in-house vs outsourcing pros and cons, the choice of development model is contextual and dependent on your timelines, operational readiness, and current priorities. There is no single solution that will meet the needs of every business. Knowing what you aspire to accomplish by developing a product will enable you to make an informed decision. That way you can assess who can potentially provide better resources and capabilities: your future in-house team or outsourcing vendor. 

Not sure which service model is best for you? New to IT outsourcing? At Edvantis, we provide workshops for first-time outsourcing buyers and proactive pre-engagement support for every new project. Contact us

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