In-House vs Software Development Outsourcing Explained

We’ve focused on outsourcing a lot thus far, but how does it fare against in-house development? Let’s compare the two models with their contrasting characteristics.

Cost

In-house software engineering can be very expensive to fund over the product development cycle.

Not only does the company have to pay full-time salaries to the engineers, but also consider their workspace, hardware, and other tooling required to carry out the project.

This often amounts to various licensing costs for miscellaneous software packages to stay in-line with industry standard infrastructure, such as cloud services, deployment tools, IDEs, etc.

Insurance, taxation, holiday pay, and company perks also must be considered to stay competitive in hiring the top talent to your project.

This commitment is simply not a viable option for many small and mid-sized companies.

Outsourcing a company removes the burden of many of the above-mentioned expenses, simplifying the cashflow into either an hourly rate (the most common payment structure) or a fixed project cost (less common).

So when does the additional cost of bringing in-house developers make sense?

If the company is well funded and working on cutting edge software, perhaps for research purposes and in partnership with a large industry player or academic institution, in-house development makes more sense than outsourcing.

Such environments often require specialised equipment and an intimate world-class development team required to work closely together.

For everyday applications though, such as your standard iOS / Android app development or web applications, outsourcing is the winner when it comes to cost.

Staff turnover

Good software developers are highly skilled with years of experience – the most highly paid having over a decade of programming experience.

These highly valued workers are aware of their value and the salary ranges they are able to demand.

The talent gap has led to occurrences of practices that negatively effect in-house development efforts:

• Employee poaching, also known as talent or job poaching, is especially common with sought-after software developers. Common positions where job poaching happens include the full stack role, data science (encompassing the Machine Learning and specialised artificial intelligence fields such as self-driving cars), cybersecurity and cryptography, and programming language experts (knowledgeable of syntax analysis, functional programming, the compilation process, and other principles of how programming languages work).
• Even with a strong mission statement and a great working environment, loyalty is a rarity in the software space. As a result of high demand, developers will constantly be monitoring the market for better opportunities  and a larger pay-check, or demand a higher salary if they feel it is appropriate.

Concretely, keeping a talented software engineer is a costly and uncertain endeavour for a company, and staff turnover is high.

What the outsourcing model ensures is that there will always be a team of engineers working on your project.

The stress of keeping staff happy in all the ways they demand will now solely lie with the responsibility of the outsourcing company.

Are there any scenarios where the in-house model is immune to such practices?

Much like the previous point, cutting edge research or working on unique propositions that are miles ahead of the competition will spark the interest of passionate developers.

These opportunities will lie in areas like quantum computing, rocketry and space exploration, cutting edge robotics, and academic research funding that only particular institutions are capable of carrying out.

Talent Pool

An area where software outsourcing shines is the sheer scale of talent available to hire.

A major drawback of hiring locally is the limited scope of talent available in your area, and the process of getting someone to your area if they are living abroad (with visa processing, accommodation arrangements, etc).

This geographic barrier is removed with outsourcing, with a global talent pool available anywhere where there is an internet connection.

It is good practice to consider a number of outsourcing vendors when vetting potential partnerships, and it is often the case that each candidate is situated in a different country or even continent.

Central and Eastern Europe and Latin America are trending locations for outsourcing software development, resulting from lower hourly rates for higher skilled engineers relative to the US.

The talent pool that the outsourcing model unlocks is undoubtedly a major attraction in adopting the model, making it an even more attractive proposition after the staff turnover and cash flow considerations we previously gauged.

Cultural fit & team effectiveness

Where in-house software development has an upper hand is in cultural suitability, with the development team often having time to bond through their employment at the company, and often living in the same area, familiar with the local culture and work ethics.

Face to face communication is the normality, which in-turn encourages more discussion and analysis on day to day tasks. Lunch breaks and social activities among staff further enhance this team effectiveness.

As outsourcing is dominantly an online and digital process, these benefits do not exist in such a partnership.

Timezone, cultural and language barriers may exist between outsourcing business and client, all of which should be analysed amongst outsourcing candidates before finalising a chosen partner.

Scalability

Scaling up and scaling down staff assigned to an application is a capability that an outsourcing partner should be capable of offering.

With highly skilled individuals available to drop into a project (with minimal onboarding required due to the familiarity of working with the outsourced development team), it is much easier to scale software development on an application.

Comparing this to the in-house model, introducing or dropping employees is by no means an easy or quick process.

The recruitment and hiring process will need to be revisited for the former, and firing or re-assigning employees would need to be worked out for the latter.

Firing employees also comes with a risk of dispute or losing company credibility, adding to the complexity.

Speed of project delivery

Outsourcing software development comes with the added benefit of a quicker time to market. With a capable outsourcing vendor, resources can be added to a software development effort as and when you need them.

The added manpower can dramatically speed up the software development time of an application.