In-House vs Outsourcing – Everything You Need to Know

inhouse vs outsourcing

Outsourcing has remained one of the most debatable topics for the last two decades. Companies around the globe are using this business strategy to grow their business by reducing operating costs & increasing the quality of services. 

But while some entrepreneurs are applauding the benefits of outsourcing, a few others had terrible experiences with their offshore partners. This mixture of reviews from the entrepreneurs often leads to confusion.

Also, what’s unavoidable at this point is how the COVID-19 pandemic has affected businesses. This crisis has altogether forced businesses to make a significant change in their business strategies. 

The pandemic has highlighted the importance of finding innovative ways to sustain the business. Companies have to rely on global service delivery models to operate at a low cost. Besides, the dependency on SSCs or Shared Service Centers accelerated like anything during this phase. Talent across the world is prioritized and relied upon like never before. Overall, a complete digital transformation has been witnessed to get a competitive edge in the businesses since the pandemic. 

Organizations are adopting both modern and traditional methods to retain the best talent – both in-house and outsourced. These methods include developing a solid work culture for the employees, improving innovation opportunities, and maintaining a flexible work culture. 

So, should you consider developing in-house or outsource software development?

Let’s dig deep into the pros and cons of outsourcing to find out the answer. But to get a quick overview, let’s first understand the difference between the two.

In-House vs Outsourcing (Pros and Cons)

In-House vs Outsourcing

In-house development or insourcing means building software within your organization. It includes the utilization of full-time local programmers available on-site, with a regular or fixed salary and other employment benefits. Developing software in-house also requires setting up an office or infrastructure with all the facilities (hardware and software).

Whereas, outsourcing refers to the process of hiring an organization or specific skills set to fulfill your software requirements. In this case, your software team will be working remotely or from an offshore location (country). While outsourcing, you can hire offshore staff on either an hourly basis, fixed salary, or based on the project requirements.

Now, if you have a clear understanding of both the terms, let’s continue with the in-house vs outsourcing comparison by taking a look at their pros and cons.

Pros and Cons of Outsourcing

Thinking about outsourcing software requirements? Well, it’s a crucial decision to make, especially when you are an early startup working on a shoestring budget!

So, in order to clear out your confusion, let’s list down the pros of hiring offshore staff that every startup should know:

1. It’s Cost-Effective

According to the 2021 Global Shared Services and Outsourcing Survey Report, the cost can be reduced by adopting new work cultures like hybrid and remote. 

Work Culture and Workplace Strategies are Changing 

In the wake of the pandemic, most businesses were bound to adopt new work strategies. For instance, the hybrid culture is entirely followed by them all. As per this culture, employees are required to be in the office for two to three days a week. Other days, the remote work culture would follow. However, many organizations are still preferring to work from home to maintain the safety of the employees while saving a lot of organizational costs. 

In both the scenarios – the hybrid and the remote work culture – the organization is bound to save a lot of costs. And, the benefits of these work cultures don’t just limit to the costs alone. It even is responsible for increasing productivity to a new level. As a result, some organizations are comfortable adopting these new cultures based on alone how productive employees have been from home.  

What is more exciting to see is how these workplaces will impact the future work culture, though. 

Also, another factor that highly impacts the cost after a pandemic is to pick your outsourcing location intelligently. For instance, according to the different statistics, the average salary of a developer in western countries is between $100 – $150/hour. 

Whereas in Asian countries like India, the average hourly wage of a programmer ranges from $20 – $40/hour. It clearly signifies that outsourcing in India can help you develop your product in one-fourth of what it will cost in the USA.

By combining the cost of infrastructure, hiring expenses, and developers’ hourly rates, you can reduce your development cost by up to 60% by outsourcing. Hence, outsourcing saves your time and a huge capital that you can utilize on other essential matters to grow your business.

It is one of the biggest factors to consider in the comparison of developing in-house vs. outsourcing.

Hire Offshore Developers

Just to give you a heads up, here is the list of resources that you might need to build a software, website, or mobile app.

In the case of outsourcing, you can either hire these resources separately or open up an offshore development center and make it an extension of your in-house team or company.

2. Short-Term Commitments

It is the most underrated benefit of outsourcing. The ability to bring an expert on board, without long-term commitments is a great advantage.

As mentioned earlier, outsourcing allows you to hire developers based on three engagement models:

Multiple Engagement Models

  • Hourly Model
  • Time and Materials Model
  • Dedicated Team Model

Therefore, hiring developers on the hourly model can help you avoid any long-term commitments and pay only for the work done. Whereas, hiring an in-house team is a long-term commitment that is bound to a fixed monthly salary and other employee benefits.

Let’s understand it with the help of an example. Sometimes a need may arise to add a specific skill set in between your project. Considering you are aware that you need this resource for just two months, there’s no point to hire a new professional coder to your in-house team permanently.

Instead, just get in touch with an offshore company that provides IT staff augmentation services to hire developers with specific skills set, and complete your project without spending a huge amount.

3. Core Competency

“Do what you do best and outsource the rest” – Peter Drucker

When you follow this approach, you are actually accelerating the growth of your business. Especially in established companies, introducing a team of dedicated offshore developers reduces the burden on your in-house team, hence, increasing the overall work productivity.

So, why not choose to outsource in the early stage and focus on your core business functions?

New Strategic Objectives and Capabilities are Being Adopted

Businesses since pandemic have shifted the focus to standardization and process efficiency as their prime strategic objective. Besides, they even prioritized reducing costs and driving business value to sustain in the business. The focus was to build the ability to drive insights and, in return, deliver high value to the customers. For that, they majorly relied on analytics reporting and digital capabilities. Ultimately, businesses that adopted the right policy during this phase could enhance their customer experience while others were still struggling to survive. 

Digital Transformation 

As per a survey done and as stated in the 2021 Global Shared Services and Outsourcing Survey Report

“72% of those have already successfully implemented RPA, 55% have single-instance ERP, and 53% have adopted cloud solutions. Process and technical complexity were cited by 43% of the respondents as the biggest challenge to automation while single instance ERP and global standardized processes were identified in the top three as key enablers for these organizations to achieve their objectives.”

That means it is critical for businesses to adapt to modern technologies to stay ahead of the competition in the industry. So, technologies like RPA, AI, chatbots have to be integrated into the business to strengthen your presence in the market further. Automation is a must-have, and you must make it an inherent part of your business to increase productivity and satisfy customers. 

4. Risk Mitigation

A lot of people forget to mention this benefit of outsourcing. In case they do, no one pays attention. However, it is one of the most significant advantages of hiring dedicated offshore developers. Getting confused? Wait!

Let’s get things clear by first listing down the types of risks involved in the software development project:

  • Schedule Risks 
  • Budget Risks
  • Operational Risks
  • Technical Risks
  • External Risks

Outsourcing is always bound by a legal contract. Not only it includes the scope of work, NDA (Non-Disclosure Agreement), but also some other important aspects like payment clause, time clause, performance clause, confidentiality clause, exit clause, etc.

Recommended Read – Legal Precautions in IT Outsourcing for Startups

Moreover, outsourcing is not just about handing over your responsibilities to another company, instead, it is more about collaboration and sharing. Hence, both companies share the benefits and risks involved in the process by default.

Cons of Outsourcing

Well, like every other strategy outsourcing does have cons. So, without further ado, let’s discuss them. Here are some common IT outsourcing Challenges:

1. Lack of Control

It is the most reported concern, where companies lose the traction of the project. This may happen due to the lack of project understanding by the offshore team. In the comparison of in-house vs outsourcing, this particular point will always be in favor of the former.

While you can always guide your offshore engineers, if your team is not a good listener and competitive, there’s a chance that you will lose control of the project, leading you towards a failed outsourcing relationship.

But you can avoid this issue by documenting all your requirements, creating milestones, and project charter. This way you can keep track of the work. In case things go wrong, it will help you to easily find out the whereabouts of the same.

2. Communication & Quality Concerns

No matter what the deal, it is always recommended to keep a single point of contact for all your communications. Communicating with an on-site team is far easier than the offshore team.

In the case of offshore development, communication becomes a bit complicated. The issues may arise if your team is located in an entirely different timezone, doesn’t have a reliable internet connection, and hasn’t finalized the preferred medium of communication. Plus, quality is another concern. If you are not getting the expected quality, then what’s the benefit of outsourcing. 

But again, it’s easy to avoid these issues by collaborating with a reliable outsourcing partner and finalizing the right communication channels and time for meetings.

Pros and Cons of Developing In-House

Pros and Cons of Developing In-House

Let’s keep it short and simple. Between in-house vs outsourcing development, working with a remote team will always be beneficial. But why do entrepreneurs opt for in-house development? Let’s find out;

Pros of In-House Development

1. Cultural Fit

Hiring a team of local engineers means working with people that share the same culture and beliefs. It helps the employees to integrate with the company efficiently, allowing them to add more value to their work.

2. On-Site Availability

Being able to connect with each other helps to work effectively and reduce any misunderstandings. As all the team is working together within the same office and time zone, it’s easy to get the changes done more quickly.

Cons of In-House Development

Building an in-house team is certainly beneficial. But it’s not susceptible to risks. In fact, there are more disadvantages to hiring local developers in comparison to outsourcing. Let’s take a look at them one by one!

1. High Cost

The cost to hire developers in-house is significantly higher than offshore developers. It’s simply because this cost is inclusive of the infrastructure, overhead salaries, other employee benefits, training costs, etc.

Insourcing vs Outsourcing Cost

2. Lack of Talent

The IT industry is evolving rapidly, which is a good thing. But not every developer is passionate about upgrading their skills with the trends. The result is a shortage of talent with a specific skill set. So, the only option you have is to pay a significantly higher amount to bring in the required talent.

3. Low Retention Rates

Due to the higher demand and luring packages offered by other companies, programmers in the western and European countries keep switching jobs more frequently. Thus, there’s always a risk that your lead developer may switch jobs during the crucial phase of the project.

Conclusion

The benefits of working with an offshore team make outsourcing worth giving a try. Who knows, while working with offshore developers, you may find long-term players that will be focused on the success of your business.

Hiring a local professional developer may seem awesome in the first place. However, some real issues exist while doing so. From recruiting the right talent to explaining your needs & getting the best out of the developer takes a lot of time and effort. This may distract your focus from core business functions, leading to a lot of confusion and the project losing its flavor.

A general recommendation is to evaluate the overall situation via SWOT analysis;

  • Strength
  • Weakness
  • Opportunities
  • Threats

Getting a better perspective is possible only by conducting a self-evaluation of the situation. Outsourcing takes away a lot of the planning & execution part from your workload, thereby freeing your efforts to focus on tasks that demand your attention!

Did the SWOT analysis give you a signal for outsourcing? If you are planning to develop your software offshore, then you should drop us your requirements at [email protected] 

Or get in touch with our team to get help in strategizing your project in the best possible way!

 

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