A brief explanation of why businesses choose software outsourcing
A quick introduction to outsourcing
Outsourcing is hiring external agencies to help you perform an internal task. For IT, this includes building applications, automating business process systems, or managing IT-related services.
Tech specialists are in high demand, which causes companies to seek human resources from other regions. Because of this, IT outsourcing makes up most of the global outsourcing contract value of every service.
There are many upsides to software development outsourcing
- It is manageable and scalable. You can control what you pay for and easily modify the application based on your strategy, requirements, and demands.
- Regarding price, software development outsourcing is more affordable than attaining an in-house team of 3-4 specialists for the same level of expertise. If the current outsourcing partners are a bit pricey, companies can switch to another partner with a cheaper price.
- Companies are no longer restricted to the personnel within their vicinity, as they can now reach out to overseas teams with specific skill sets to get the job done. Once companies find specialized talents, they can start the project immediately without prior training, accelerating the business solution.
- Outsourcing also cuts down resources on human resources management, as your dedicated team is under an employment contract with the vendor.
With such pros, many businesses have chosen to outsource
In 2023, software app development made up 64% of outsourced services. Comparing to in-house, Outsourcing IT is reported to help companies cut costs by 60%. Not to mention, nearly one-third of US-based companies outsource at least one tech function.
And if you are still in doubt, outsourcing is another effective way for companies to increase their revenue. In 2021, an Indian multinational eCommerce company accumulated $2 billion. And if that number is not big enough, wait until you learn about how Accenture gained more than $15 billion thanks to outsourcing!
On the other side of the world, Alibaba, the world’s biggest online marketplace, once struggled to find the proper human resources to develop their website. The company eventually decided to outsource web development instead of in-house. The result is the birth of the world’s largest online marketplace that appeals to both domestic and global audiences. Read more about the story of Alibaba, McDonalds, Unilever and many more leverage custom development to reach new heights!
GitHub CEO Chris Wanstrath met Scott Chacon at a Ruby on Rail event, and later, Chacon joined GitHub, built the backend of GitHub and worked as the outsourced consultant. Thanks to Chacon, now GitHub became a must-have for any software specialist, with over 40 million users and various applications.
? Outsourcing Software Development shouldn’t be limited to building internal tools. You can absolutely hire a team to help you develop your product at the early stage, too!
But why are some businesses still hesitate about outsourcing?
Fascinating and practical as it is, not every business is ready for outsourcing. There are specific reasons, or disadvantages, for this.
As the outsourced team carries out the development process, keeping track of what’s going on might be challenging. Eventually, they might not know whether the development process meets their standards and expectations until the monthly checks or final delivery. This is the lack of visibility.
As outsourcing involves a third party, the said party can be entrusted with the company’s sensitive information and intellectual property. This might pose privacy and security concerns, especially those that emphasize protecting their data and intellectual property. The key is to avoid outsourcing business-critical parts and ask vendors to sign NDA and security-related contracts.
This is inevitable when one hires an IT team halfway across the earth. Due to different time zones, scheduling meetings can be a challenge. Plus, a language barrier does exist, making it hard for the outsourced to understand the company’s pain spot.
The difference in working culture and poor attempts to integrate outsourced teams into the company’s process are other causes. They could lead to a lack of cohesion and misunderstanding between internal and outsourced teams, causing more inefficiencies.
Some companies might have stumbled on negative outsourcing experiences before. It consequentially results in companies hesitating or never outsourcing ever again. Although not every outsourcing business shares the same working strategy, the prejudices remain.
These companies are either tight-fisted or have a budget constraint, so they are unwilling to find the pitfalls. Yet, all these IT outsourcing risks can be managed with the right approach, as some of our tips have proven!
Switching to in-house
In-house, simplified
Not every business went for outsourcing software development. Some decided to hire a team of their own, self-manage, and operate in-house.
In-house software development grants companies’ full control over the process while keeping all the data and intellectual property secured and confidential.
Conversation is smoothier when all the team works in the same office. Employees can talk face-to-face without scheduling multiple virtual meetings in advance. Working in-house also reduces the chance of disrupted online communication (when the Internet crashes) and misunderstanding between speakers of different languages.
And since the in-house team shares the same working place, they also share the same company values, understanding of culture, and business model.
Working under one roof also means the path from idea to production is shorter, and the team is more available for technical assistance. Quality control and assurance can be monitored easily and immediately.
Much like outsource, the power of in-house team is proven
Salesforce, a first-class CRM system, selected in-house software developers as they wanted total control over product development. This case succeeded since it can track progress, resolve problems, and ensure data security (just look at how big Salesforce is).
Netflix is another example of why in-house solutions for software-related businesses are. Netflix’s platform distributes and delivers movies and shows, so full control is needed. The company has been investing in machine learning and data analysis, making it stand out from competitors.
? Having an in-house team has helped these companies become one of the leading players in the market. Yet, at some point of growth, they still required a helping hand from an outsider.
This is called the hybrid model, where the in-house team is in charge of the business-critical part and hires outsourcing for simple procedures. Seamless collaboration between 2 teams can be a winning strategy, which we will discuss further.
However, the coin always has two sides of it
First, the talent pool for tech specialists is in high demand. Your company might struggle with hiring the right person, not to mention competing with other companies as well. Can you ensure the team is fully assembled and can click into work in time for the project milestone? Do you have a backup plan in case your candidate doesn’t pass the probation period?
As the supply of tech talent is low, the wages for in-house members can be high. In the long run, it can strain the company’s resources. You must pay not only salaries, but also training, office, equipment, and benefits.
Third, the in-house team might not do well on tasks with extra technical skills the team does not possess. This eventually leads to hiring new employees, putting the budget on strain, and possibly slowing the development process.
When an individual or an expert with an exclusive skill leaves the company, the project might be put on hold until another engineer with similar qualifications is recruited.
Comparison of in-house vs outsourcing software development
To make it easier for you to decide, we have put In-house vs Outsourcing Software Development side-by-side to highlight the similarities and differences.
| In-house | Outsourcing Software Development | |
|---|---|---|
| Expertise | Narrow and exact | A wide range of expertise and levels, including niche ones |
| Availability | Limited in a region | Global pool of talents |
| Technology resources | In-house teams usually use a defined and specific tech stack. Technologies are locked-in for each project | Extensive resources to serve multiple clients so you can switch and choose the best suited one for your project |
| Flexibility | Low | High |
| Data security | High | Need management and NDA as there’s third party involvement |
| Recruitment process | Long and complicated | Handle by outsourcing partner |
| Time to hire | From 20-50 days for a position | From 1 to 4 weeks to choose a partner |
| Where to hire | To hire developers, you need to post on your local job posting sites and social media | To hire outsourcing partner, you can find them through Google Search, social media and review site such as Clutch |
| Align with business culture | High. Closer to business focus | Moderate to Low. Don’t understand the business focus |
| Management | Internally. A team with a leader and executives | You will need a representative to work with the outsourced team |
| Team scalability | Challenging with long hiring process | Instantly |
| Communication | Face-to-face | Via communication tools |
| Workflow | More direct and self-manage | Collaboration between 2 parties |
| Risks | Hiring talents Lack of wanted expertise Management bottlenecks | Being scammed by the wrong partner Misunderstand of the project scope |
| Overall time to market | Standard, longer | Faster, shorter |
| Quality of work | Guaranteed by your team. There’s still a chance of application not working effectively as expected | Guaranteed by outsourcing partners, yet the quality of work is varied |
| Cost | Defined monthly payment which can add up in the long run, depending on your team size. You need to pay for wages, bonus, tech infrastructure | Big investment at first but will ease down in the long run. You pay upfront or split into different milestones |
| Types of payment | Wages + Bonus | Fixed-price, Time & Materials, Project-based |
| Hidden cost | Budget for training and retaining employees. Budget to update new tools Time-to-hire loss Opportunity cost if money on HRM could be spend for other assets that offer better ROI | Quality assurance and testing: Don’t just rely on an outsourced team, your team should also partake in the QA process. Additional contract to avoid security concerns |
Making the decision: In-house or outsourcing
It isn’t easy for businesses to choose in-house or outsource development since there is no finite answer to that. Companies and IT leaders must consider a myriad of factors before settling down with the right choice.
Companies and businesses should opt for outsourcing software development when they:
- Need for a quick turn-around time
- Prefer utilizing existing resources over long-term investing
- Achieve specialized skills at a more affordable cost
- Need to develop highly complex products
- Need to scale the development team quickly
- Launch products quickly to the market
In-house software development is the right choice for businesses that:
- Want complete control over the development process
- Want strong data security and quality control
- Want to invest in long-term development
- Need to develop complex products and secure solutions
Both in-house vs outsourcing software development have their own associated challenges, as well as pros and cons. Businesses should take time and carefully consider before deciding between in-house and vendor development.
A better strategy: Using both worlds
If choosing in-house vs outsourcing software development is already tricky, why not use the best of both worlds? The hybrid strategy of combining the strongest points of both in-house and outsourcing.
By doing this, businesses can achieve perfect solutions, with the in-house team handling hardcore tasks and the outsourced running the others. Throughout the development stages, these two models can be arranged and mixed accordingly, allowing more room for choice and variations.
But you might wonder when to do it internally and when to ask for external help. The internal teams should do the job they excel at or have a strategic advantage. The core competencies of the business should be dealt with by the internal experts.
On the other hand, outsource only functions that your business lacks experience or flexibility. If you know how to do it, do it on your own to ensure security. If you can’t execute it, outsourcing is the top choice.
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Wrapping up
It’s true that outsourcing is being increasingly favored: the approach is cost-saving, efficient, and the result is fruitful in a short amount of time. Outsourcing introduces businesses to untapped talents beyond their vicinity, even their border.
Having your own in-house team ensures close control over projects. They might have less diversity in talents, but reliability, loyalty, and strong communication make up for it, which prove to be necessary for delivering great projects.
In the end, it’s your choice to decide if in-house or outsourcing software development is the best for your project. Just keep in mind the benefits and challenges associated with each before you make the final choice. Or you can get the best of both worlds, if you want to.
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