Best Practices

In-house development vs Outsourced development: How to choose

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Here’s the not-so-easy question that troubles almost every tech startup founder: “should I choose in-house development or outsourced development?”

That’s because there isn’t a definite answer to the question, despite the fact that IT outsourcing is projected to grow by $98 billion by 2024. 

It’s undeniable that more companies outsource their IT needs to countries like Ukraine, Poland, and Romania. Ukraine’s IT service market is valued at $5.7 billion in 2020, more than double what it was in 2015. 

Yet, the IT sourcing industry’s rapid growth doesn’t mean that it’s the right choice for you. There are myriads of factors to be considered before you make your choice.

Choosing one or the other will have long term repercussions on your product, organization, cost, and profitability.

In this article, I’ll show how in-house development differs from outsourcing and hopefully help you make an informed decision.

In-house development 

In-house development is where you get to build your own team from scratch. You’ll be filling up the necessary positions based on the skillsets and experience needed to build the product. Amazon and Paypal hire in-house developers, which allows them total control of the project, albeit at a higher cost.

Choosing in-house development is no different from hiring permanent staff to your organizations. You’ll need to go through the process of recruiting, interviews, and onboarding, to build your own IT team. If your startup is strictly focusing on an IT product, it may be viable to hire in-house. 

Pros of In-house Development

  • You build a team that’s aligned with your company’s culture. Successful companies are driven by a high-spirited team that embodies the company’s core values. With in-house development, you have the opportunity to pick team members that align with the startup’s culture. When a team operates in synergy, you’ll achieve better results, which is something you’ll miss when outsourcing your project.
  • Direct communication is a clear benefit of having an in-house team. An in-house team is exclusively dedicated to your company, and often, the members are working within a physical space. There are no needs for bouncing emails around to get the point across to the team. You’ll find that having face-to-face access helps speed up discussions, particularly when you’re finalizing the project’s requirements.

  • Immediate support is a privilege that comes with in-house development. When you’ve deployed a new product, some flaws inevitably crept up. With an in-house team, investigations can be executed immediately, and the fixes applied without delay. If you’re engaging an outsourced team, the response may be delayed as the team could be having their hands full at the moment. 

Cons of In-house development

  • It’s costly. Be prepared to pay for the visible and hidden cost of hiring an in-house team. According to Payscale, the average salary of an IT developer in the US costs $71,508. That’s not including the hidden cost of sick leaves, vacation, insurance, social security, recruitment, and on-boarding each member you’ve brought on board. When the team is idling between projects, you’ll still have to cover their fixed salaries. 

  • The turnover rate can be high - Getting the best talent in your company is the least problem. IT talents are in high demand, and you’ll have a tough time fending off poaching attempts by competitors and recruiters. You may end up counteroffering your developer with better benefits, which ends up ballooning the payroll. Else, you’ll lose the talents in your team.
  • Upskilling the team is your responsibility. The IT industry undergoes constant change, with the introduction of new technologies, tools, and languages. You’ll have to ensure that your team keeps up with the changes, especially if it affects your products’ growth. Investment in training and tools can significantly affect the bottom line of your business. 
in-house development

When to use in-house development?

Despite the seemingly high cost, there are sound reasons for building your in-house team. 

  • You don’t have a budget constraint - If you’re not running a bootstrapped startup and with plenty of capital at your disposal, hiring an in-house team will give you all the benefits and minimal cons. 
  • You need to be in full control - You can’t afford the risks of problems popping up, and you have no control in mitigation. With your own team, you make the calls on every decision that affects the product’s development. Any problems are addressed immediately. 


Outsourced Development

As the name implies, outsourced development involves delegating the process of building a product to an external agency. It is usually done through a contractual agreement, where the requirements are conveyed to the outsourcing agency. 

Outsourced development is favored for its low-cost and scalability. It has been an ever-growing trend where IT outsourcing generated $66.5 billion in 2019 globally. Google and Slack are some of the renowned companies that outsourced their IT developments. 

Read this article to find out why companies outsource. 

Pros of Outsourcing

  • Better control over cost. - If you’re operating in a country where local talents come at a premium cost, you’ll have the advantage of outsourcing. You can engage an IT firm in countries where the salaries are considerably lower, with the same level of expertise. Eastern European countries are one of the top destinations for IT outsourcing. 
  • A large pool of talents - When you outsource, you’re no longer confined to a limited choice of candidates within your vicinity. You’ll be spoilt of options with an immense global pool of talent to choose from. It spares you the trouble of flicking through dozens of resumes just to hire the right developer.
  • No technology constraints - Some projects require diverse skill sets, and it can be difficult to find individuals who are a master of all trades. However, you can collaborate with a few IT firms proficient in different technologies needed to build the solution.

Cons of Outsourced Development

  • No full control - An outsourced team does not exclusively work for you on your project. This means that you have little control on the development, progress, and troubleshooting. Without direct access to the team, you can be oblivious to what’s happening with your project. It may take a few hours or days before your emails replied, and bug fix is not immediate. 
  • Communication barrier - If you’re outsourcing to an IT firm halfway across the earth, it will be hard to schedule a meeting due to the time zone difference. Language difference is also an issue if the team leader of the outsourced team has difficulty in understanding your concerns.
  • Trust issues - When you outsource, you’re entrusting confidential information to a 3rd party developer. You could be worried about the agency’s privacy policy and if it will also take on projects from competitors in the future. Therefore, it’s important to vet the agency’s track record and sign an NDA to protect your interest legally. 
Outsource development

When to use outsource development?

If you’re in the following situations, outsource development is the better option.

  • Budget constraint - You’re operating on a tight budget and, like many startups, couldn’t afford a permanent team. Outsourcing gives you better flexibility in cash flow. and the commitment of monthly salaries does not tie you down.
  • Lack of available talent - Somehow, you can’t find the right talent in your city. Rather than spending months on training one, you’ll be better off engaging an IT vendor to get the job done. 
  • Tight launch deadlines - If you have no prior experience in software development, you could be blindsided by common obstacles. When you have a deadline to meet, you can’t afford delays that can be averted if you engage an experienced IT vendor. 
  • Lack of clarity - It will be a mammoth task to develop a complex IT solution even with an in-house team. There is a gap in turning business requirements into technical specifications. An outsourced vendor often has a business manager who can act as the intermediary between you and the developers. 

In-house + Outsource: Get the best of both worlds

Admittedly, choosing between in-house and outsourced development is challenging. However, you can seek the middle ground by combining both options. 

You can retain a skeletal team to take care of the project’s core dependencies while outsourcing features that demand specific skills.

Doing so allows access to a larger pool of talent without placing too many risks on the vendor. Besides, you’re able to cut down on fixed cost and has more flexibility in delegating resources. 

The key to blending in-house and outsource development is to get the right partner. Here’s how to find a software partner.


Summary

There is no answer to quell the debate of in-house vs. outsource development. What may work for one company may not work for the next. You’ll need to evaluate your requirements and resources in order to choose one. In some cases, combining both will deliver the most benefits. As I’ve mentioned, you’ll need to find the right vendor to work with. 

At Uptech, we’ve taken the burden of IT development off the shoulder of many startup founders. Talk to us to explore your options in outsource development.

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