Outsourcing vs. In-house Development: Key Differences and Why it Matters

Outsourcing software development comes with a bit of a stigma. Many software providers that cater to foreign markets even shy away from the term altogether. They nearshore or offshore or contract out. No matter what you call it though, outsourced vs. in-house development is up for debate. Many consider in-house developers to be the ideal. But just why an in-house team is better doesn’t really hold up as long as you’re working with a professional software house. 

Running costs, good code quality, and control are many of the reasons companies think they prefer in-house developers. But with the right technology partner, you still get this without the high cost of building and maintaining an internal team. 

It’s no secret that developing custom software takes a lot of time and resources. No matter how you slice it, building an app is labor intensive. Whether you in-house or outsource, the teams will have plenty to do. It really comes down to how much time you want to spend recruiting. 

Senior developers are hard to find in many countries and competition for them is fierce. Employee retention in in-house teams is another aspect that’s hard to assess. High employee turnover in the industry can slow down software projects, only adding to the overall cost. Keeping highly skilled developers can get expensive and there’s no guarantee they’ll stay long-term. Developers can and do work wherever they want. 

Outsourcing a team passes the hassle onto the provider. Competent software houses have strong recruiters and a large pool of qualified developers who can step in to fill gaps. You can spend time hiring, or spend it growing your core business. It’s up to you.

Having an in-house development team does give you some control over the work that they’re doing. It may also give you some control over cultural fit. After all, you can choose who’ll work well with your existing team. However, this is expensive. Not every company can afford to build and retain a team in-house. 

Hiring an external team taps into a competitive advantage. With outsourced software development, you’ll often get a team of experts who’ve already worked together on similar projects. You won’t have to recruit or onboard new hires. Instead, you can focus on your business while your dedicated IT team focuses on creating quality software. In-house software development vs. outsourcing is a balancing act of pros and cons. Here are some to consider. 

Choosing in-house development

There are several key pros and cons of in-house development. For companies with time and resources, an in-house software development team can be a good idea. Full-time workers are arguably more engaged and may understand the core business better than outsiders. Internal developers may also be able to respond to problems faster since they know where to look to find bugs.

Communication may be more direct since team members are used to working together already. If your software project is a standard application that doesn’t require any hard-to-find skills, and you plan on a long-term project consider hiring in-house.

Some of the advantages of in-house system development revolve around better code quality, better communication, and more control over the work. This, unfortunately, comes from poor experiences with low-quality software houses.

However, with the right outsourcing partner, you can get the benefits of an in-house team for a fraction of the cost. Many of the positive aspects of an in-house team are in contrast to inexperienced outsourcing companies. With the right due diligence, you can find high-quality outsourcing partners that work like in-house teams.

Pros of in-house development:

Communication

Effective communication between team members is one of the most commonly cited pros of an in-house development team. Having everyone under the same roof and face-to-face can improve team cohesion. Regular meetings and reports make the work go smoothly throughout the development process. When everyone is in the same office, there’s more of a special bond among employees. 

Another aspect when you’re comparing in-house to outsourced teams is a language barrier. If you hire an outsourced team abroad, how can you know that they’ll understand your business and exactly what you want them to do? This uncertainty generally isn’t there in in-house teams. Since you’re recruiting from a narrow geographic area, it’s unlikely that you’ll face major language or cultural barriers.

From a logistics point of view, an internal team is also likely in the same time zone so scheduling meetings is far easier. 

Cultural fit

Just as having everyone under the same roof improves team cohesion, cultural fit plays a role in a few of the in-house software development advantages. If you’re hiring internal teams, you have greater control over who you let in. Hiring someone new can either improve team productivity or undermine it. If you and your recruiters are careful about hiring, you can avoid conflict. 

In that same vein, if you’re working with outsourced teams in different countries, ideas about work ethic, time off, or the definition of done may clash. You may not have to clearly define expectations and spell out every aspect of how you want to work together. 

Engagement

Internal hires may have more incentive to fully engage with the core business. Since there’s more control over in-house teams, they’ll care more about the software they’re working on. Their effort is directly tied to the success of the company and the future of their own job position.

Moreover, internal developers only have to focus on one product and learn the ins and outs of their own project, not several different accounts as outsourced developers do. This gives greater clarity of purpose and can help with motivation. In-house developers are more likely to catch errors and know where to look to fix them.

Control

In-house development options give you more oversight into what developers are doing and how they’re working. It also makes it easier to shift priorities and to adjust the project to fit development milestones.

Some software houses can take a while to adjust to a new project scope especially when they have to rearrange other projects. Some software outsourcing companies also aren’t great at project management, meaning essential work goes undone. Hiring a solid internal team allows you to run a tight ship. 

As long as you have some experience with development, you can keep projects under control, but some inexperienced companies can struggle to keep everything running smoothly. Established companies have a tech structure in place. Smaller companies with small web and mobile teams, however, may lack the processes that experienced software houses can offer. 

Cons of in-house development:

Higher cost

While there are some positive sides to having an in-house team run your software development, there are also several drawbacks. Top of the list is the price. It’s considerably more expensive to recruit and retain an internal team than it is to outsource. Average senior developer wages in the U.S. are around $81 per hour, according to a survey by U.S. News and World Report. In competitive cities like San Francisco and New York, those rates are even higher. 

What this figure doesn’t show, however, are a whole host of other costs. Salaries for project managers, architects, designers and other supporting staff adds up. In addition to recruiter salaries, job posting fees, office costs and salary raises are just a few of the many line items you’d have to take on. Yet another hidden cost is lost productivity from high turnover and onboarding new employees. Productivity loss is harder to pin down, but is absolutely part of the risk of hiring internally. 

High turnover

People with development skills are in short supply and demand for their skills is growing. Few industries are as cutthroat about recruiting as IT. As a result, developers don’t stay long in one place as they’re lured away with better offers or leave out of boredom. As I mentioned this frequent turnover adds to the cost of hiring an in-house team in several ways. It means your recruiters have to work to fill the position, you may have to raise your salaries to attract new employees, you have to onboard them and integrate them in your company. 

In the meantime, there’s more work for the developers on the team that can strain nerves and encourage them to look for other offers, only completing the churn cycle. 

Long recruiting time

To find senior developers with specific skills can take months. Any time a new framework emerges, it also takes a while for developers to catch up and get enough experience. High demand for developers with niche expertise only drives up recruiting costs. Even in a small in-house team, this can be a huge hassle. Filling gaps in a team can take a long time and the cost adds up the longer it goes. 

Onboarding time

High developer turnover leads to longer onboarding once you hire someone new. Onboarding can slow down development and throw off the flow of an in-house team, only compounding lost productivity. 

Obsolescence

Technology goes out of date quickly. Trendy frameworks can go out of fashion within a few years. So one-trick ponies can very quickly become redundant. If the time it takes you to find and hire people with specific skills goes longer than the life of a popular programming language, it doesn’t make a lot of sense to rely so heavily on in-house teams.

Choosing outsourced software development

Pros of outsourcing:

Lower cost

Outsourcing software development is considerably cheaper than hiring an in-house team. For many quality software houses, the hourly rate for development is half of what you’d pay an internal developer. You also don’t have the hidden costs of hiring and retaining developers. Instead, you’ll pass that cost and hassle onto your tech partner. Choosing the right partner who you trust can do is essential.

Flexibility 

Just as outsourcing is less expensive and easier to predict, it’s also more flexible. With the right partner, you can switch out specialists on the team as you need them, even for a short period. You can also quickly expand a team as the project scope grows.

By contrast, in-house teams are static. It can be hard to find in-house people for a short-term position or a one-off project. With outsourced teams, it’s far easier to find experienced people and adjust their tasks to the project’s workflow.

Provider handles recruiting

Rather than spending countless hours recruiting, software providers can do the hard work of sourcing the right developers for your software project. Many countries have a surplus of skilled software developers for a competitive price compared to the U.S. average. In many cases, software houses abroad have developers on standby, ready to jump into new projects. 

Short onboarding

Project managers and software developers who regularly work on outsourced software projects have to quickly learn and adapt to new businesses and challenges. It’s part of the job description to jump into new projects and get to work as fast as possible. 

Easily source experts in trendy technologies

One of the biggest positive aspects of outsourcing software development aside from cost is that you’ll be able to quickly find experts in the technology you need. Rather than spend six months finding the right senior developer with enough experience in your specific field, you can just get a ready team to handle your project from start to finish. They’ll know how to handle problems because they’ve seen them before. From code quality to security to data protection laws, the right outsourced developers will be able to propose the right solution for you. This saves time in development and saves you money in the long run.

Cons of outsourcing:

You get what you pay for

Some substandard software houses haven’t followed through on their commitments to quality code. This is unfortunately a big part of the stigma against software outsourcing. With a trustworthy software development partner, poor code quality shouldn’t be an issue. Don’t be too quick to choose the cheapest provider and be sure to get plenty of client references if you decide to outsource. 

Culture shock

Disreputable or inexperienced software providers often struggle to communicate with their clients abroad. Since software development is open to a global market, you’re bound to run into firms that don’t communicate with you effectively or fail to work as you expectChoose partners that will be upfront with you and schedule regular stand up meetings where they lay out exactly what’s been done and what’s left to do. 

Mismatched goals

One common objection to outsourced developers is that they don’t work for you directly and have no real connection to the software. They don’t work for you, so how can they possibly support the goals of your company? While some software houses do have this attitude, ones you want to work with know that their client’s success is their success too. Finding a provider that has many long-term clients is a good way to find motivated developers. Those that can build successful partnerships are the outsourcing firms you want to work with. 

Intellectual property considerations

Among the cons of outsourcing is that some software houses don’t transfer ownership of code, wireframes or other designs to their clients. Software is protected under copyright law and you should be clear about who will own the rights before you start a project.

Some software houses retain ownership and license out the software to you, which is far from ideal. Be sure to check with your tech partner about whose intellectual property the application will be. We at Applandeo transfer copyright to our clients and make that transfer very clear from the beginning. 

Do I need an in-house team or a tech partner?

Whether you decide to build an in-house team or outsource development comes down to questions of how much you want to spend and how you want to organize the development project. If you’ve got deep pockets and plenty of time to recruit, hire an internal team. Just expect it to be a constant struggle to fill open positions and onboard new developers. 

If you don’t have the structure, then consider outsourcing to a solid tech partner.. Many of the cons of software outsourcing are really cons of working with poor quality software houses. Thousands of software providers have cropped up across the world with varying degrees of effectiveness.

However, with a competent, experienced software provider, you’ll get the positives of an internal team for considerably less. With the savings from outsourcing your software development, you can launch new functionalities or invest it back in your business. Relying on a software partner to handle development allows you to focus on what you’re best at.

Choosing a software house who will work with you to achieve your goals is essential to make the most of your limited resources. Some of the ways to do this is to do your due diligence. Some key indicators that a software house is effective is if they have plenty of similar clients with positive reviews. The longer the software house has worked with clients, the better. Long-term cooperation means that the client has trusted the provider to deliver new features and maintain their systems, just like they’re an internal team.

If a software house can’t prove that they’ve had long-term clients and can’t point to major successes, steer clear. 

Another indicator is how effectively a software house communicates. After all, one of the pros of having in-house development is the seamless communication in the team. Can the software house you’re considering outsourcing to prove that they communicate quickly and effectively? Do they set up regular standup meetings and clearly define expectations? If they don’t it’s a red flag.

Lax communication can be a sign of poor project management, which can sap motivation and kill productivity. Really pin down the outsourcing company on their practices and ask for proof. Again, a good indication is if they can immediately point to current or previous clients as references. 

Code quality is also a major consideration when you’re deciding on whether to outsource or hire in-house. Every software house, of course, will say their code quality is high. So just how can you check it yourself? While you may not be able to review the codebase yourself, you can collect references and check in with other recent clients.

Also as you shop around for software providers, avoid the cheapest rates. As with all things, you get what you pay for. Software development has become a race to the bottom in many places. As I’ve gone over, though developers can work anywhere they want, so it makes you wonder about some of the lowest rates. 

In-house vs. outsourcing conclusion

Outsourcing vs. in-house development is an ongoing debate over how best to carry out software development. There are pros and cons to each, but a lot of the negative stigma against outsourcing is really a criticism of poorly organized software outsourcing. With the right partner, you’ll be able to get the quality of an in-house team without the expense and uncertainty of hiring in-house. Find the right tech partner and you’ll get the best of both worlds – senior developers for half the cost and none of the hassle.