We will discuss in detail the differences between the two software development models internal and external. Once you clearly understand their advantages and disadvantages, you can analyze your situation to determine the best model.
Introduction
It is hard to resist assembling an internal software development team when you have a vision or an idea for a new product. You should ask yourself if it is worthwhile to do so at this stage. It is difficult to find talented technical experts, particularly if your time and budget are limited. Outsourcing development is a way for companies to cut down on administrative and tax costs and reduce the costs of developing the product. It is also possible to access the talent pools of different countries.
This article will help you to understand two approaches for software development: in-house and outsourcing.
Outsourcing Market Status
It is worthwhile to look at the statistics to understand this topic better:
Companies will spend more than $700 Billion on Outsourcing in 2022. In 2023 global outsourcing could be worth $731 billion, according to Deloitte. IT outsourcing is projected to reach $519 billion by 2023 when segmented, which represents a 22 per cent increase from 2019. Business process outsourcing spending is projected to hit $212 billion by 2023. This represents a 22% increase over 2019.
IDC reports that IT services represent 94% of the total value of worldwide outsourcing contracts. IT services made up $44,16 billion out of $48 billion generated in contract values by outsourcing firms in the first half of 22. Business outsourcing contracts accounted for the remaining contract value of $ 3.84 billion. IT outsourcing deals were primarily focused on cloud migration, digital transformation, and technology modernization.
83 % of IT executives have considered outsourcing security (Syntax). IT departments are looking for outside solutions to their cybersecurity problems due to a combination of staff cuts, funding reductions, and an increase in cyber threats. Although 91% have a security team, 83% will consider outsourcing in the future.
Clutch reports that accounting and IT services are among the most frequently outsourced small business processes. Small businesses outsource 37% of their accounting and IT services. Other common tasks outsourced by small businesses include digital marketing (34%), customer service (24%), development (28%), and human resources (24%)
What is Outsourcing?
The outsourcing of programming is the delegating of tasks to organizations with appropriate technical expertise. They also have permanent employees who are specialists in the field. The team can be located locally, in another country that shares the same time zone as yours (nearshoring), in a country nearby with no time difference (offshoring), or anywhere else. Outsourcing can be done in three different ways.
You can also choose from three different outsourcing models in terms of the development team:
- Full-Process Outsourcing - The vendor is responsible for the entire process.
- Managed team - the team of the vendor works with that of the client but is not fully integrated.
- Extended Workbench - The vendor supplies some specialists to supplement the client's existing team.
You can also choose your pricing model when you outsource:
- Fixed Price - The budget for the project is established before the start of the work based on clearly stated requirements.
- T&M - The client is responsible for paying the cost of the resources used.
- Team fee - The client pays a fee per employee that includes their salaries, taxes, benefit packages, infrastructure costs, and profit margin.
When a founder of a new business or an entrepreneur is trying to put an idea into practice, they may be faced with the question, "Should we hire in-house developers or outsource the development of the application?" There is still no definitive answer, even though the IT outsourcing industry is predicted to grow to a value of $98 Billion by 2024.
In the 21st Century, outsourcing software development has become a common practice. Outsourcing software or app development was a common practice in the past as organizations looked to reduce costs. Today, it is important but not a top priority. It is important to hire experienced, skilled talent who are familiar with the latest technology.
The IT industry in India, Ukraine, and Poland is a great place to find talent at a very reasonable rate. This makes it incredibly lucrative for countries such as the USA or UK.
In-house software is another option. In-house software development requires patience, time, and money. Each approach has its pros and cons. We'll analyze the most effective way to develop software apps.
What is In-House Software Development (ISD)?
In-house software development is a method that requires you to create your own team from scratch. This is similar to hiring permanent employees; the team responsible for developing your IT or app will take on this role. This involves a long and tedious process that includes posting jobs, screening applications, interviewing candidates, and finally hiring the best ones.
Create a team of required members, such as a content creator, designer, developer, and QA. Then, post separate jobs for each position. Amazon, PayPal, and other tech giants hire their developers to give them complete control over the project. However, this comes at a cost. This is recommended when building software that you cannot afford to compromise data or when the project has complete control. Here are the advantages and disadvantages of developing software in-house:
In-House Software Development Benefits
Align Your Team with the Goals of Your Company
The biggest tech companies always look for a team of highly-motivated individuals who can grasp the goals and objectives set by the firm with their product, as well as embody its core values. You can hire employees who are in tune with your startup's culture by doing internal development. You can achieve better results when a team is working together. This may not be feasible with an outsourcing strategy.
Direct Communication
It is clear that having a development team in-house has a direct and obvious benefit. You will primarily be communicating with an external project manager or coordinator, who might not have the same technical understanding as a developer. In-house developers are usually located in a physical location that you can easily contact.
You don't need to send them emails or schedule meetings to get their understanding of the project requirements. Face-to-face communication will speed up the discussion, especially when it comes to finalizing project requirements. This not only speeds up the process but also reduces the chance of miscommunication.
Immediate Support
It is a privilege to develop in-house. Some flaws are discovered when the product is deployed on a production server or goes live. With an internal development team, you can fix these problems immediately. Outsourcing can cause delays.
Search for Team Members With Specific Skills
It can be very useful when working with a particular technology for which the companies that outsource are not able to provide developers. Imagine that your chosen outsourcing company does not have the necessary expertise to develop a project involving multiple technologies.
The developers will try to learn the technology but still won't be able to become an expert. This leads them into a slow and bug-filled development process. You can hire a team with specific skills if you choose the internal approach.
In-House Development Disadvantages
High Cost
The cost of hiring an internal development team is both visible and underlying. Hiring an HR, who then hires other members of the team, is a costly process. Sick leave, health insurance, and public holidays are hidden costs. You still need to pay for the costs of the idle team, even if they have no task.
Finding The Right Talent Can Be Difficult
It is difficult to find the best talent for your project. IT professionals are looking for companies that handle outsourcing projects. It's possible that you end up offering the developer more benefits to counter his offer, which will increase costs. You will end up losing the best talent in your team if you don't.
You Are Responsible For Improving Your Team Skills
The IT industry is constantly evolving with new technologies, languages, and tools. You must make sure that your staff is up-to-date with the latest changes in technology, tools, and languages. It may be necessary to provide expensive training courses and invest in the team.
What are the Advantages of In-House Development?
Even though in-house developers are expensive, they have many good reasons to build your team. The following are some of the reasons why you should build your development team:
Are Your Ready to Pay More
Imagine you're not a new business or organization that has a lot of money to spend on your digital footprint. Hiring an internal team has many advantages and a few cons.
Plan a Long-Term Project
It makes sense for a company that is focusing on a long-term, multi-change product with future scaling to have an in-house team.
What Do You Want?
If you want to have complete control over your project, and can't risk any problems in it, then the in-house team is for you. Your team allows you to make important decisions about product development, and it eliminates the risk of any data breach.
Outsourcing Software Development Is A Term That Has Been Used To Describe The Process
The outsourced approach to development involves delegating the entire process of creating the product. In this case, your needs will be shared with a project coordinator or manager. A manager will listen to your requirements and then provide you with a quotation, Scope of Work, and any other necessary documents. A contract will only be signed if both parties agree. A manager can also be a contact person for the entire project cycle.
It is highly recommended to outsource development due to the low costs and scalability. Outsourcing has been a huge trend within the IT sector, generating $66.5 billion globally in 2019. Google and Slack are two of the most reputable companies to outsource IT development.
Outsourcing is usually done when IT isn't the core competence of the business or when there are already too many core processes in the IT department. Let's now look at the advantages and disadvantages of outsourcing development.
Benefits Of Outsourcing Software Development
Dramatic Cost Reductions
Outsourcing will certainly save you money. Outsourcing is a good option if you live where local developers are expensive, like in the USA, UK, or Europe. IT companies in India, Indonesia, and Ukraine offer highly-skilled developers at reasonable prices compared with Western countries. Outsourcing also means you won't need to spend money on extra costs such as office space, additional insurance, or recruitment bonuses.
There is a Large Pool of Talent
You can find talent that meets your needs by outsourcing. We, and other large tech companies like ours, have highly skilled and talented developers who are experts in various technologies. You are not restricted to the candidates in your immediate vicinity. With an enormous global pool of developers, you will be able to select from a wide range of choices. You don't have to go through hundreds of resumes in order to find the right developer.
Simple Scalability
The outsourcing firm can scale up or down the team to meet the needs of the product. There will not be any roadblocks when scaling your project up or down. In-house development is unable to provide this flexibility. Hiring new employees takes time, and if you fire them, it will damage your reputation.
Quicker Time to Market
You can have the app developed immediately by outsourcing. Hired agencies will allocate resources according to the needs and do their best to begin the project quickly. It takes time to build an internal team. According to our experience, it takes at least a month to hire a specialist.
Proven Workflows
Experienced teams in outsourcing agencies have worked on diverse projects and industries. The teams know how to work together and follow well-defined processes for improved productivity.
A software agency can also provide you with the roles needed for development, such as project managers, scrum masters, QA specialists, UI & UX Designers, etc. You can hire digital marketers to help you improve your website's ranking.
Budget Constraints
Outsourcing is your best choice if you are on a tight budget and, like many startups, cannot afford to have an office staff. You can have more flexibility with your cash flow and don't pay monthly salaries.
The Talent Shortage
You can't seem to find the best talent near you, or it is not professional. You can save money by contacting an IT agency directly instead of wasting time and energy in your locality.
Clarity is Lacking
Even if your company has in-house software developers, creating complex IT applications is still not easy. It isn't easy to translate business needs into technical requirements. Outsourced agencies already have roles such as project managers, consultants, business managers, etc., who can be your intermediary to developers.
Outsourcing Software Development Disadvantages
Control Less
Outsourced workers don't work exclusively for your project. The outsourced company has its working methods, standards of coding, and practices. You will therefore have limited control over development, troubleshooting, and progress. As you won't be in direct contact with the team members, you won't know what is happening. Companies like ours provide you with a project manager who provides regular updates about the tasks that are currently being done.
Communication Barrier
You may find it difficult to schedule meetings if you're a business in the USA, UK, or South-East Asia and your hired agency is located in India. Many companies now communicate with clients in their preferred time zone. Our project coordinators are also fluent in English, so they can better communicate with you.
The Trust Problem
You have to trust your agency when you outsource and share confidential information. You might be concerned about how the agency protects your privacy and if they will share it with competitors. However, professional companies such as us provide an NDA to ensure the security of your data.
Software Development Comparison In-House and Outsourced
It's Quality
Multiple stages of testing are used by software development firms to ensure high-quality products. These outsourcing partners also have multiple developers that can share their knowledge and consult each other when they get stuck. It is best to use an external development team if quality is important to you.
Market Time
Outsourcing is the best option for those on a tight schedule who need to get their product out there as quickly as possible. This means you won't have to deal with hiring developers or onboarding procedures, and they will understand your project.
Outsourcing the project allows you to hire team members such as business managers, scrum masters, and team leaders, among others, who will ensure that the project develops quickly.
The Cost of the Product
Outsourcing development is better for those with a limited budget. Outsourcing development services is a great way to save money, particularly if you do not have constant requirements and a lot of development time will remain idle during the project cycle. You can either buy developer hours or you can hire them when needed.
How To Choose Between In-House Development And Outsourcing?
It's Time to Recruit
It takes an average of 40 days to hire an internal developer. You will also have to pay for recruitment costs. Finding an outsourcer can take 1-4 weeks (depending on the requirements and level of engagement). Your time is the biggest cost.
Cost of Development
In Europe, the average developer salary is around EUR 50 K per year. According to a recent report, in the United States, it is around $90K. According to a report, additional costs can increase the number by 2.7x. The costs will pay for themselves in the long run (especially if the software is at the heart of your company). Outsourcing is usually $50 to $100 per person per hour (depending on where you are in Europe or the USA). Additional costs are very minimal.
Expertise & Availability
There are a limited number of local developers. Experience is highly individual. The location of the person is important. The global talent pool is accessible through outsourcing. The companies are likely to be more experienced with different projects. Experienced and talented outsourcing providers will charge higher rates.
Flexible Scaling
It takes time to hire and fire people. Some local skills are hard to come by. It can also be difficult to find developers willing to work on short-term assignments. You can easily adjust your contract when you outsource to software companies. Outsourcing has many advantages, including the ability to scale up or down.
Acceleration of Development
In-house, the speed at which you can build things is limited by how many people are onboard and how long it takes to hire. Outsourcing allows for the quick creation of temporary teams, which could translate to faster development.
Communication
Face-to-face communication may be easier and smoother, but it is also more likely to lead to unnecessary chatter and defocus. The development of the software in-house ensures a better fit with culture and language. Online communication is more difficult and less natural, but it reduces distractions. Language and cultural issues can arise when outsourcing to another country. Find high-quality partners.
Management
In-house employee onboarding requires an introduction as well as training. This takes time, but it is well worth the effort. Someone must manage your team. There will be no difference in time zones with an internal team.
Outsourcing teams are experienced in getting up and running quickly. They are organized and independent but less likely to take on your project. It may take time to find a partner who is interested. Time zone differences may require special workflow organization.
Security
Intellectual Property Protection is required for both solutions. Security is a concern for software houses more than individual developers.
You May Be Distracted From Your Core Business By Building An Internal Team
Choose between investing all of your resources into core business operations or building and managing an entire software development team. The time and money invested in building the software may be worth it if this is your core business. Consider this carefully if you don't want to.
Wrapping up
Your choice will depend on your preferences. Outsourcing is a great option if you want to avoid the hassle of hiring and dealing with technicalities while focusing on your business goals. You can also hire your developers to control the project fully. Cyber Infrastructure Inc. is the leading web and application development company. We offer the best IT outsourced services. Please let us know what you need.
