In-house Vs Outsourcing: Cost and Benefits

As businesses decide the tasks that need to be kept in-house and which are to be outsourced to specialized development agencies, they are compelled to re-think their strategies. According to recent trends of outsourcing report published by Deloitte, most companies outsource to reduce cost and improve cost efficiency.  

This is typically done with staff augmentation for IT activities. It is also the best solution when a business needs specialized skills. Hence, before we delve into in-house vs outsourcing, let’s provide an overview.  

What is In-house Development? 

In-house software development is hiring employees on a full-time basis. There are many reasons why businesses keep an in-house team. The most important benefit is that the ownership and control completely lie with the team. Having an internal team helps businesses focus on the core functions of the business.  

Hiring an in-house team requires time and investment to hire and train resources. It also increases ongoing overhead costs. In an internal team, the flexibility of scaling up and down is a challenge.  

What is Outsourcing? 

This is an approach in which businesses hire a third-party IT software development company to reduce everyday critical aspects for businesses and frees up the in-house team to focus on core functions. It also significantly reduces overheads. 

What are the In-house vs Outsourcing Pros and Cons  

Pros of in-house development 

• Overseeing all aspects of development 

The in-house team can over see all aspects concerning development, pivot strategies, and adjust. It helps businesses to ensure company vision is being followed, and changes are implemented. 

• Knowledge retention and development of internal expertise 

An in-house team helps focus on core functions, while businesses can outsource critical projects to vendors. This in-house team helps businesses keep the momentum of core functions. 

• Better alignment with company goals 

Teams that are in-house are very in sync with the company's values, objectives, and vision as they have direct access to various business heads. Over a period, these team members become subject matter experts and can-do excellent job and act as a bridge between internal team and outsourcing partner. 

Cons of in-house development 

• High Over-head cost 

Building and maintaining a skilled internal team requires training and support for in-house development. This involves increased costs for businesses, which is expensive for smaller businesses with limited budget. In-house payroll proves to be much expensive vs outsourcing.                               

• Limited Access to specialized expertise 

External agencies have a range of skilled professionals, expertise, and exposure to different technologies. In-house teams may be slow in adopting newer technologies and may lack the required project specific skills.   

• Difficulty in Scalability 

For an in-house team, the difficulty in scalability is a challenge as it can over-load the team during peak hours and finding new talent to fill the demand takes lot of time. The team can struggle with large-scale implementations as they may lack the flexibility to delay bottlenecks. 

What are the Pros and Cons of Outsourcing? 

Pros of Outsourcing 

• Expert skills and quality                              

By outsourcing companies can tap into vast global talent pool available. Such variety of expertise is not available internally. Third party vendors or agencies have specialized knowledge. They also work across various industries and have experience of offering innovative high-quality services. 

• Cost Savings 

The most significant advantage of cost savings is that there is a huge difference in cost savings. Businesses avoid over-head cost for recruitment and training new employees, they also save expenses on salaries, benefits, and infrastructure. 

Outsourcing can also help companies pay for services that are needed when they are needed. 

• Flexibility 

Business can build their capability of scaling up and down their operations based on projects with outsourcing. It is suitable in case of a small term project or a large-scale initiative. Outsourcing helps businesses meet their demands without too much expenses and over commitment. 

Cons of Outsourcing 

• Less control over processes 

When a project is outsourced to a team, there can be a chance of having less control over your processes. While making the selection of technology partner businesses should check their developer selection process and culture of the company. Partnering with wrong vendor is worse than having no external help at all. Having no checklist for selecting outsourcing partner can lead to issues related to quality, timeline, or adherence to practices. 

• Communication barrier 

Teams outsourced from different locations may have time and language differences. It may be difficult to understand their language and accents, which can result in challenge in communication, misunderstandings or delays.  

• Data security and confidentiality 

Businesses are concerned about security risks and sensitive information. Data breaches is another concern for businesses. There may be a threat of unauthorized access or misuse of confidential information. Look for a partner who has zero tolerance for data breaches. 

Benefits of In-house vs outsourcing software development 

Different Outsourcing Models 

Choosing different outsourcing models depends on the scope and nature of the project like mobile app development outsourcing. Here are software development outsourcing models along with their benefits: 

Staff Augmentation Model 

This model helps businesses get resources on a temporary basis as an addition to the in-house team or to fill-in the skill gap. These outsourced resources work as part of the inhouse team under the provision of company supervisors. 

Project based Model 

The project-based model involves outsourcing an entire project to an external vendor. The vendor is responsible for developing a project-specific solution. The client provides the project’s scope, and the vendor manages everything. 

Dedicated Development Team 

It means businesses hire an entire development team from an outsourcing partner providing software development outsourcing services. This team is committed to the clients' projects but remains under the payroll of the vendor. The team is provided by the vendor and not hired by the business, unlike staff augmentation. 

Offshore outsourcing 

Businesses outsource work to software development outsourcing companies located in faraway countries, in different continents where outsourcing costs are lower. Companies can explore specialized skills and expertise. This type of model is preferred by businesses that have cost savings as a priority.  

Onshore outsourcing 

This is when countries outsource within the same country. With the same timezone, communication and collaboration become easier. Companies in same country follow same regulations and standards. However, it is very expensive as they have higher labor costs. 

Nearshore outsourcing 

It is when companies outsource to vendors that are situated in neighboring companies. It is a moderate cost-saving option. It has few timezone differences and similar cultures. Hence, there is a low challenge in communication and collaboration. 

Conclusion 

In this blog, we have explained how cost-effective outsourcing is vs in-house. Companies can benefit from outsourcing software development companies and cut down on expenses significantly. 

FAQs 

Why should companies outsource software development? 

The biggest benefit of IT outsourcing is cost savings for business. They can access specialized skills, reduce development costs, and speed up project timelines. It helps businesses to focus on core functions while delegating non-core development to external agencies. 

How do I choose the right outsourcing partner? 

While selecting the right IT outsourcing companies, one must consider the expertise in the right technology stack. Also, explore the vendor's experience, client reviews, and project management approach. Businesses should also know their communication practices and also ensure quality standards are being followed when they hire developers. 

How can I maintain control over my project in outsourcing? 

Maintaining clear communication is the key to holding control over your project. Set up a frequent update and collaboration mechanism. Defining deliverables and milestones can help achieve control in your project.