When it comes to software development, there are quite a number of things that companies need to consider before starting a project. As a business leader, one of the most important decisions that you need to make is whether to hire and build your own software development team or engage an external agency to build the software for you.
Companies increasingly outsource their software development to offshore countries not only because of the existing pool of highly skilled talent for software development but also because of the low hiring costs, the access to innovative technology, among others.
In the simplest senses, in-house software development is the process of developing software using the expertise of your internal team, while outsourcing development involves working with third-party companies to assemble a team of experts based on your project needs.
Both approaches have advantages and disadvantages that need to be carefully considered. The right one depends, to a large extent, on the unique requirements of the project and the resources of your company. When a company has a clear idea and vision for a product as well as the resources available, it is important to make the right choice.
And the best way to evaluate is by comparing the pros and cons. This will help you make informed decisions that drive your business growth and productivity.
In-House Software Development
In-house software development involves setting up a team from scratch right at your own company to develop the software, using your own resources without involving outsourced employees. As a business leader, you will directly recruit, interview, and offer candidates full-time jobs to fill the positions for the appropriate tech skills and knowledge required of the job. For example, building an e-commerce web app require you to assemble a team that is highly competent in UX/UI development, front-end, back-end, cybersecurity, Machine Learning, and cloud computing
Full-time in-house software developers typically have a stable salary, insurance, benefits, pension plans, and more. While you will have direct control over the teams as they work alongside and interact with you and each on a daily basis, you also have the responsibility to ensure that the teams have all the essential resources to perform and complete their tasks efficiently. This includes creating office space and infrastructure (e.g. computer network, etc.) with all necessary hardware and software licenses.
Advantages of In-House Hiring
Retain Management
As mentioned above, by hiring in-house software developers, you have full control over the development process. This direct contact with the development team allows you to directly manage the team performing the tasks and monitoring the progress. Also, more importantly, you can intervene and troubleshoot critical issues, and adjust the development process at any time.
This level of control involves strict processes and decisions that are often necessary for companies who need to ensure that their software development meets certain standards and quality expectations.
Improving Collaboration
In-house developers work and interact face-to-face directly with each other every day. As employees of the company, they fully understand the requirements and nature of the project and are invested in its success. They usually do not have any communication barriers because they are usually from the same country (or even city), speaking the same language with the same culture.
Again, in-house team members can discuss issues face-to-face, which is especially helpful in finalizing project requirements. In-house software developers can also participate in company events and team-building activities to strengthen the team and company culture.
Intellectual Property Protection
Intellectual property (IP) grants your company the ownership of any invention, product, or service that you and your teams create. It is a valuable asset that any company or start-up must protect to increase its competitive edge in the market.
By keeping all stages of the software development project in-house, intellectual property rights can be more easily controlled and protected since no third parties are involved. However, you still need to take certain safeguards, such as enforcing intellectual property rights, patents, trademarks and copyrights for foolproof security.
Disadvantages of In-House Hiring
In-House Hiring Can Be Costly
In many cases, starting a software development project may put a strain on your company’s budget and resources. This is especially true if you’re a newly established startup with limited fundings. Not only does your company or start-up need to offer a competitive salary, but you also need to account for other costs such as employee pensions, sick leave, vacation, insurance, training, and taxes.
The recruitment process itself is also challenging. Sometimes, it will be difficult for you to find qualified software engineering experts to perform specific team functions (e.g machine learning engineers). This means that you have to employ the services by head-hunt or recruitment agency, which adds another cost to the process. Since the developers of the development team are full-time employees of the company, you still need to keep them busy and pay the same salary, even when they are between projects.
Lack of Available IT Talents
Due to the shortage of skilled software engineers, especially when it comes to advanced technologies like machine learning or big data, many companies may struggle to recruit locally because of the lack of technical talent in the local area. While you certainly have no problem finding many candidates, finding the right candidates with essential skills, experience and expertise could be complicated.
To quickly fill vacancies in the team, your companies may be inclined to hire the best candidates available, even if they do not exactly meet the needs of the project. Here, you will need to take a step further and provide these candidates with appropriate training to fully understand the grasp of the project’s requirements. They often face steep learning curves that delay the team.
Difficulties in Team Scaling
Usually, your initial projects will evolve and grow in terms of scope and requirements, which require you to scale up the development team capacity. Scaling an internal team can be a challenge, especially when a company experiences rapid growth or needs to quickly adapt to the introductions of new projects or changes in the market. Lengthy recruitment processes put pressure on your existing teams and resources.
Hiring and onboarding new IT talents takes time. If you cannot scale up your team’s size early, the projects could meet development inefficiencies and ultimately delays in the development processes.
Outsourcing Software Development
Software outsourcing involves the contracting of a third-party company that helps you execute the software development process, effectively tapping into a large pool of software talent and their skills and knowledge required to complete the project.
By leveraging the advantage of lower cost and scalability, outsourcing of software development allows you to provide the detailed project-related requirements to an outsourcing provider. Here, the outsourcing teams would help you manage the entire software projects, from beginning to end, or work together with your in-house teams to complete the project.
You can choose to work with a local outsourcing agency (onshoring), a nearby country with little difference in time zones (nearshoring) or a distant country (offshoring software outsourcing). In addition, you can decide what type of outsourcing strategy best meets the needs of your project, including outsourcing the entire development project, or hiring a dedicated or opt for IT staff augmentation.
Pros of Software Outsourcing
Cost-Effectiveness
The cost of working with a software outsourcing company is usually lower compared to hiring in-house, especially if the outsourcing companies operate in a country where salaries for software engineers, at the same level of expertise, are relatively lower than in the local area. This is, for example, often the case of outsourcing vendors in Eastern Europe, Asia and many other developing countries.
Using this working model, your company does not have to worry about any additional costs besides what you agreed with your outsourcing vendors beforehand. Through outsourcing, various employee related expenses like pensions, insurance, taxes, and other benefits as well as infrastructure costs are the responsibility of the software outsourcing company.
Most outsourcing vendors allow you to directly interview, verify, and then select the candidates from a vast pool of talented, pre-vetted IT professionals. You will be able to save significant time and money in the recruitment process.
Access to a Vast IT Talent Pool
The nature of software outsourcing removes the limit of your company having to hire from a limited pool of local candidates. This is because the available talent pool is not limited geographically anymore. Most outsourced software developers work remotely in different countries, which enables your company to have access to the best IT experts in the world.
By partnering with an outsourcing company, you no longer need to sift through stacks of resumes to find suitable talent for your software development projects. You can choose from a list of experienced professionals with a wide range of skills and solid knowledge.
Scalability and Flexibility
The outsourcing business model operates as an on-demand service which allows you to adjust the contract requirements based on changing project needs. For example, after the launching of your products, you can choose to scale down the team size as needed as the project is now wrapping up.
On the contrary, if you need to speed up the development processes, you can easily do so by increasing your outsourced teams size. Many companies in various industries are now turning to outsourcing for its scalability and flexibility advantages.
Disadvantages of Software Outsourcing
Lack of Control
When partnering with an outsourcing service provider, especially in a turnkey or full-cycle model, your company may have less control over the project development, schedule, and troubleshooting. While outsourcing allows you and your teams to focus on core business functions, it also makes it more difficult to ensure necessary quality control, in line with the company standards.
Moreover, you may find it difficult to make instant or direct contact with the outsourced development team, as they can be located in a different time-zone and take some time to reply to your email or arrange a suitable time for a meeting. This often results in communication issues, and could lead to misunderstandings and possible project delays.
English Skills & Communication Issues
When working with an outsourced software development team, you may face cultural and communication barriers that can impact the working relationship. This is because you may sometimes work with experts who speak different languages and work in different geographical areas. Misunderstandings can still occur even if the outsourcing agency provides a project manager who understands and speaks the client’s native language.
Fortunately, these barriers can be overcome by establishing appropriate communication channels and collaboration methods. This reduces possible inconveniences.
Intellectual Property Protection
When working with software outsourcing service providers, you need to entrust them with the project’s confidentiality as well as your company’s intellectual property. This raises security and privacy concerns as there is a potential risk of data leak.
The first step to mitigating these risks is to choose a partner with a good reputation and proven security measures. You can ask your potential vendors to enter into a contract that includes clear provisions regarding confidential data disclosure and protection. To further protect yourselves, you may request to sign a non-disclosure agreement (NDA).
In-House Hiring vs. Software Outsourcing: Making The Right Decision
Before deciding whether to hire and build your own team of software developers or outsource the development projects to an external vendor, you should first analyze the needs of your organization, weighing the pros and cons, and consider whether you can implement a hybrid strategy.
Assessing The Project Needs
Assessing the specific needs and business goals of your company, as well as the requirements and scope of the project, is a crucial step when deciding whether to hire an in-house team or outsource. Knowing the scope of a project early makes it easier to consider factors such as cost, timeline, and complexity, which allow you to make better and more informed decisions.
Large projects with long-term execution may require in-house development. However, you may find that your projects could need additional IT staff and therefore a potential technology partner. On the other hand, one-off projects or simple short-term development projects can be better handled by an outsourcing contractor.
As mentioned earlier, there is a big difference between hiring in-house developers and outsourcing your software projects. It is best that you have a clear understanding of the project budgets to determine the needs and develop an efficient hiring strategy in line with the budget and its limitations.
Analyzing the Benefits and Disadvantages
Making the right decisions will ultimately allow you to build better products and reduce your time to market and increase your productivity and efficiency. On the other hand, making the wrong decisions can cost the company time and money.
The advantages and disadvantages of each model (in house vs. outsourcing) vary from industry to industry and company to company. You need to carefully consider the pros and cons of each model.
Considering a Hybrid Approach
By combining elements of traditional in-house recruiting with outsourcing to form a hybrid approach, you can leverage the strengths of both models.
For example, a hybrid approach might allow you and your in-house team to work on the key tasks while other remaining, non-important tasks will be performed by the contractors. As a result, you can incorporate these hiring practices into different development stages and streamline the overall development process.
It should be noted that you should try to outsource tasks where the in-house team lacks the sufficient expertise and experience for a fast and flexible execution by your outsourcing partners in order for your company to gain advantage in the market.
How To Make Outsourced Software Development Projects A Success?
After you have analyzed all the pros and cons of each model and decided to work with an outsourcing company, the next step is to develop a strategy for managing the outsourced software development projects efficiently.
To do this, you must establish a clear channel of communication, define the scope and deliverables of the project, and enforce quality and security standards.
Clearly Established Project Scope and Deliverables
To ensure project success and customer satisfaction, outsourced development teams should have access to well-documented and clearly defined project requirements early on.
To do so, you must prepare materials and other documents such as requests for proposals (RFPs), specifications and approvals beforehand. All requirements must then be analyzed, discussed and evaluated together by all parties involved before the vendor can begin the development process.
If the scope and deliverables of the project are not correctly defined and managed, this can result in a lack of communication between the company and stakeholders.
Coding Quality and Data Security
Establishing and maintaining high quality and security standards in outsourcing software development is critical for both customers and vendors. You can apply measures such as firewalls, encryption and access controls to protect and secure your data. Additionally, it’s important to ensure that your outsourcing service providers follow legal requirements and comply with applicable data protection laws and regulations, such as GDPR and HIPAA (for healthcare projects).
Furthermore, proper contract terms and agreements can help you mitigate risks and manage expectations. Popular terms in these areas are Service Level Agreements (SLAs) and NDAs.
Software outsourcing success also focuses on maintaining coding quality and meeting project deadlines. As a result, both parties must have appropriate systems in place to test and review code and evaluate the standards to ensure they meet all the requirements. Outsourced organizations can also use project management tools and processes to track and report progress, ensure visibility, and complete projects on time.
Proper Communication Channels
An established and clear approach of communication can help you and your outsourcing vendor assess whether the two teams are working effectively as a unit, thereby reducing any potential interruptions that might happen during the development process.
Generally speaking, a quality outsourcing service provider will work closely with you to establish communication channels that work well for both parties. Popular methods include the use of digital communication tools such as video conferencing and messaging platforms (via Slack, MS-Team, etc.), and other project management software like Jira, etc.
Conclusion
Both traditional in-house hiring and software development outsourcing have their advantages and disadvantages. It’s important that you take time to carefully weigh these pros and cons against factors such as cost and time in order to choose the best strategy for your business.