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In-house vs. Outsourcing Software Development: The Pros and Cons

Demand for software is at an all-time high. The global business software services market was valued at $429.59 billion in 2021 and is expected to grow by an 11.7% CAGR between 2022 and 2030. The ever-growing business automation trend is one of the main reasons behind this soaring demand for enterprise-based software tools and applications.

IT leaders try all kinds of tactics, from using low-code and no-code software to DevOps, to bridge their digital gaps. But one crucial question often remains unanswered: is it better to outsource software development or handle everything in-house?

This will be an insightful and eye-opening read if you’re caught on the fence between outsourcing and in-house software development. We’ll discuss the pros and cons of each approach so you can better decide the right fit for your organization.

Here goes!

In-house software development

In-house development means building your own on-site team of developers from scratch to create custom software. It’s no different from hiring and retaining any other employees in your organization. The developers become part of the internal IT or HR department on either full-time or part-time basis.

Here’s a list of the pros and cons of in-house software development:

The pros

Complete control over development projects

Developing in-house gives you full control of the development projects and the team itself. You can closely monitor what the developers are doing at all times while getting real-time updates on progress and any iterative changes along the way. Having both hands on the wheel helps preserve quality, performance, requirements, and security standards throughout the software’s lifecycle.

Direct communication and collaboration

There are no barriers to communication or collaboration among members of an in-house development team. Plus, project managers and supervisors can simply walk right up to the team for quality face-to-face engagements. Working in close quarters makes for a smooth, unimpeded, real-time flow of information. Seamless communication and collaboration are essential for team cohesion and project success.

Minimal security and confidentiality risks

Handling development in-house minimizes the risk of any software-related intellectual property, sensitive data, or trade secrets falling into the wrong hands during development. That’s because the developers are trusted HR members and true advocates of the company. They may also be bound by employee confidentiality agreements.

Tight cultural fit

Permanent employees are usually hired not just for their skills but also for their cultural fit with the employer company. In-house developers are more likely to understand your company’s culture and the thought process behind various development choices. Plus, they might stick around for the long haul, which is key to maintaining consistency across multiple software products.

Close support

Immediate IT support is another perk of in-house development. Any flaws or technical issues during the software’s lifespan can be addressed as soon as they emerge and crucially by the same people who designed, coded, and deployed the software in the first place.

The cons

Talent scarcity

IT talent is in short supply. In a Gartner survey, IT executives said talent shortage was the biggest hindrance to adopting emerging business technologies. Other reports show a severe and worsening IT skills shortage across various technical occupations, including systems development. So, populating an internal team of developers with enough qualified professionals might prove a tall order.

High costs

Hiring permanent employees is a costly affair. According to the SBA, signing a single employee typically costs about 1.25 to 1.4 times their annual salary. That’s quite steep, given that a software engineer earns an average of $89,000 per year. In addition to hiring costs and salaries, in-house employees also need constant upkeep and a host of benefits.

Delays and slow progress

It can take months to assemble a team of competent developers to perform a specific task. The time spent seeking, vetting, recruiting, and onboarding individual candidates really adds up. So, an in-house development project can be slow getting off the ground. Plus, the development speed will depend on the team’s strengths and other employee-related factors such as absenteeism and workplace distractions.

Turnover concerns

Retaining employed developers is becoming increasingly challenging as labor shortages and quit rates intensify across the board. Employer firms are constantly fending off talent poachers and persuading their workers to stick around, usually through increased pay and extra perks. Losing employees is not only painfully expensive but could also derail any projects in development.

Strain on the team

An in-house development team can only do so much. You must carefully portion the team’s workload to avoid putting undue pressure on the developers. Remember, overworking can lead to subpar outputs, low work morale, and even turnover.

Outsourcing software development

Outsourcing development involves delegating software/web building projects to a third party—a team of independent freelancers, a staffing agency, or an outsourcing company. This arrangement is usually bound by a contractual agreement describing each party’s roles and expectations.

Let’s find out how software outsourcing compares to in-house development in terms of the pros and cons:

The pros

Access to a global talent pool

One of the best things about outsourcing development is that you’re not limited to the local labor pools. In fact, outsourcing is the most practical way to beat the developer labor shortage. Moreover, the global IT labor market is teeming with all kinds of developers at various qualification levels. You can really narrow down on the specific talent needed for the project at hand.

Low labor costs

You don’t have to go through a tedious and expensive onboarding process when outsourcing software development. Additionally, outsourced developers cost much less than their in-house equivalent, and you won’t incur employee upkeep or benefits either. Deloitte’s 2020 Global Outsourcing Survey reveals that cost reduction is the key driver behind IT services outsourcing.

Fast turnaround

An outsourced team hits the ground running since there’s no need for time-consuming orientation, training, or onboarding. Work on the project begins as soon as both parties sign the outsourcing contract. A ready team of developers increases your speed to market and software churn rate.

No employee burdens

Compared to in-house employees, outsourced developers are incredibly low-maintenance. They’ll never ask for work resources (computers, desks, IDEs, etc.), days off, or any employment perks; the outsourcing agency or the developers themselves take care of all that. Moreover, they are contractually obligated to complete any assigned jobs, so you never have to worry about turnover. Besides reducing costs and responsibilities on the employer’s part, outsourced development is conveniently reassuring.

Flexibility and ease of scaling

There’s no limit to how big you can outsource software development. One, you can outsource just about any project, from simple static web pages to complex enterprise-integrated systems. Two, you can delegate any number of projects at the same time, even to multiple outsourcing agencies or contractors. This freedom of flexibility and scale builds on your overall business agility, which is essential in today’s fast-paced e-commerce world.

The cons

Communication challenges

Connecting with an outsourced development team can be challenging, especially when dealing with culturally diverse individuals scattered across multiple time zones. Language differences can also make it difficult to express your requirements and expectations clearly.

But you can easily avoid this problem by outsourcing closer to home. Compared to far-off outsourcing destinations such as China and India, Latin America is a much more convenient nearshoring hub, thanks to its geo-proximity and cultural/language similarities with the US.

Limited control

Unlike an in-house team, an outsourcing or staffing agency does not work exclusively for one client. Outsourcing contractors and developers often juggle multiple clients and jobs at the same time. On top of that, they’ll have their own ways of doing things (work culture, ethics, schedules, etc.).

Outsourcing might feel like throwing a project over the wall and hoping for the best, although that’s not entirely true. Most outsourcing agencies, such as WeDevelop, allow their clients a high level of control over who works on their project and how it’s handled from start to finish.

Trust issues

Many companies are understandably reluctant to share access to their valuable IT resources and data with outsiders. But if you’re worried about sensitive company information leaking during software development, you can always ask the contractor to sign a legally binding NDA (non-disclosure agreement). Plus, it’s important to only work with outsourcing agencies with reassuring confidentiality, trust, and security guarantees.

In-house vs. outsourcing development: Which is better?

Now the big question: which is better—in-house or outsourced development? Unfortunately, there’s no single answer to this because it depends on several variables, such as the development budget, the project in question, the level of developer commitment required, and the company’s preference.

But generally, you may go for in-house development if you have the time and budget to source, recruit, onboard, and retain skilled developers. In-house development is ideal if you’re looking for fully committed long-term developers and to retain complete control over the development process.

Outsourcing, on the other hand, is the better option for short-term or one-off development projects on a tight budget and deadline constraints. It’s also a great way to build websites, apps, and software tools when short of the necessary workforce. However, some outsourcing agencies can just as easily handle long-term projects from conception and development to deployment and lifetime support.

Just to recap, the table below summarizes the pros and cons of in-house and outsourced development:

Embracing in-house and outsourced development with WeDevelop

WeDevelop is an IT staffing and outsourcing agency that supports both in-house and outsourced software/web development.

You can quickly boost your in-house development team with extra hands and skills through our staff augmentation service. Or build a dedicated team of developers using hand-picked candidates from our diverse pool of 200+ software programmers, designers, and engineers. All our developers come from the lush talent market of the LATAM region, and each candidate is carefully vetted and screened for competence, qualification, and professionalism. But if you’re not looking for new remote hires, you can always outsource your development project to our team.

Get in touch with us to learn more about IT staffing and development outsourcing.

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