In house development vs outsourcing

Rapid global digitalization, especially in the face of the Covid-19 pandemic, has prompted more and more companies to turn to custom software development. To build their digital solutions faster, to ensure high quality and best value for money, many are opting to hire outsourced software development teams.

In the U.S., UK, or even Australia, the in-house cost of an in-house development team can be enormous. Add to this the factor of uncertainty or lack of resources, operational efficiency, and technical know-how, and all this can be quite a good reason to reject the idea of in-house development. On the other hand, outsourcing development such development projects can help avoid exorbitant investments. In this case, client organizations pay only for product development and do not incur any other costs related to operations, technology, or training.

In-house development is most often suitable for small companies where an in-house IT department can handle both the support and development of internal information systems. As a company grows, its digitalization needs increase. At this stage, IT products are an integral part of the business, which determines its competitive advantage. Does the question arise as to which is better in house development vs outsourcing?

Processes worth outsourcing:

1. Implementation of a long-term project. Short-term developments are usually not outsourced but are implemented using a Fixed Price model. Long-term projects, such as the implementation of SAP or another ERP system, are better outsourced to a specialized IT company. The external provider will do everything faster, and his services will be cheaper than expanding the staff, which entails considerable additional expenditure.
2. Non-core function. Transferring the main function is very risky for business, you may become a hostage of the outsourcing development company. But auxiliary operations are an ideal option for attracting specialists from outside.
3. The final stage of the business process or the entire business process. If the company plans to outsource the software development, it is necessary to understand that not only IT specialists but also the project manager, the analyst, the tester take part in the process. In order to have adequate and effective cooperation, these roles must be realized either on the side of the customer or on the side of the outsourcing company.

Disadvantages of outsourcing

Well, like any other strategy,  outsourcing development also has its disadvantages. So, let’s break this one down as well.

1. Lack of control and involvement in the project. This is perhaps the most common problem. When an  outsourcing development company or a specialist can’t be completely involved in a project and feel its peculiarities. When comparing in-house and outsourcing, this particular point will always be in favor of the former. But this problem can be easily avoided by documenting all your requirements, creating milestones and a project charter. That way, you can keep track of the work. If something goes wrong, you can easily figure it out.
2.  Communication and quality issues. Regardless of the specifics of the contract, you should always stipulate all communication issues at the start. Often problems arise if your team is in a completely different time zone, does not have a reliable Internet connection, and has not identified a preferred method of communication. In addition, quality control is another problem. If you’re not getting the quality you expect, then what’s the advantage of outsourcing.

But again, these problems can easily be avoided by working with a reliable  outsourcing development partner and determining the right channels of communication and meeting times.

In-house development team

In-house development implies having your own team with the necessary IT skills. And everything would be fine, but maintaining such a team is often a serious burden on a company’s budget. Although in some cases, in-house development, in the long run, is cheaper than outsourcing.

Advantages of in-house development:

• Deep involvement, understanding of the specifics. An in-house IT specialist knows the intricacies of business, understands the goals and pitfalls, and reacts quickly to changes in processes.
• Independence from the external market. A full-time IT employee understands the in-house product well and can adapt to any changes. In theory, this means you gain independence from outside contractors, but in practice, you may face a number of challenges, which you’ll read about next.
•  Clear communications. The in-house team is more likely to have a similar cultural, social background, which simplifies communication.

Disadvantages of in-house development:

• Cost of IT specialists.  Finding a good IT specialist, and even with specific competencies – a difficult and expensive task. And if the specialist is under-utilized, the company will essentially pay for “downtime”.
• Employee’s departure. This is one of the biggest risks of in-house development. The dismissal of key specialists can undermine the development process. It will take time to quickly find a replacement.
• Narrow specialization. Besides the programmers themselves, in order to build your own IT team, you will need to hire developers as QA-engineers, Devops, managers (this list is not by far complete), and if new tasks appear, an engineer with highly specialized development skills may be required. And again, expensive recruiting.

The market for logistics services – especially in the 3PL segment – is seeing the introduction of increasingly complex, customized IT systems. Therefore, solutions created by logistics providers themselves can be offered to other market players as independent products in the future. The industry is interested in IT tools that essentially grew “out of the business” – the company learns from its mistakes and offers the market a well-thought-out solution. Therefore, for a 3PL provider, the decision to create its own development teams can be justified.

In-house development and outsourcing development have their advantages and disadvantages. The choice of the best option is always individual and depends on the goals, objectives, and resources of a particular company. If it is important to retain the IT functions that determine the main direction of the business and belong to the key competencies of the team, then in-house development will be the most suitable solution.