Insourcing vs outsourcing: how to make the right decision

Outsourcing or in-house development? This question is often asked when you have to develop or support an IT solution or product. Which is the best choice?

We say it straight away: there is no best form of service provision in software development. The truth is that one can offer both types of services. However, this depends on the company's necessities, expectations and opportunities. It's important to clearly outline these factors and understand how both models work. 

Therefore, it's possible to evaluate the advantages and disadvantages of software development insourcing and outsourcing and identify the typical use cases for each model. This can help with making an informed choice and choosing the most suitable model for a specific case.

 

What is the difference?

Here is a brief overview of the differences between the two models:

In the case of insourcing, the development tasks are delegated to IT experts who are permanently employed by the company. This allows for easy control of the team members' work results and the experts are deeply integrated in the life, processes and products of the company. Ideally, developers share and live the company's culture, mission and vision. Everything from recruitment, onboarding and team building to training and retention is an internal company responsibility.

Instead, outsourcing of development is a model where all or part of the software development activity is delegated to IT experts at external companies. These outsourcing companies typically offer the development of turnkey solutions, the outsourcing of projects, assigned software development teams and team extension services.

 

Advantages and disadvantages of in-house development

In some cases, in-house development is and remains the best solution. Advantages and disadvantages can be summarised as follows:

Advantages of in-house development

The advantages of in-house development of applications and apps are obvious:

1. Direct control over the development process

Working with an in-house team allows a company to have full control over the various phases of the development process. As a consequence, resource management and the management of changes caused by changes in the projects' requirements are improved without having to coordinate with external third parties.

2. Simplified communication and reduced risk of cultural adaptation

Having an internal team significantly facilitates communication among team members and coordination related to the management of the development process. Also, as in-house developers are already familiar with the company's culture, it is easier for them to better understand and embrace the company's values and goals.

3. Growth of skills within the team.

Investing in an internal team means that developers accumulate all the knowledge and know-how and bring it together. Qualified workers are able to better face technological challenges a company might be facing in the future. 

4. Security and confidentiality

Through in-house development, one can benefit from major control over information security and sensible data, reducing the risk of data leaks or vulnerabilities caused by third parties. 

 

 

Disadvantages of in-house software development

Insourcing also has some disadvantages:

1. High costs:

Recruitment, hiring, maintenance, and management of new employees is demanding work that also has initial and ongoing higher costs. This can be particularly hard to implement for SMEs with limited resources.

2. Lack of specialised personnel:

Satisfying all functional and non-functional project requirements requires the presence of highly specialised personnel. Despite having internal resources that know business processes, these resources do not have sufficient specialised knowledge to answer the project requirements and finding new specialised personnel to hire internally can be a difficult, long and expensive procedure.

3. Scalability issues:

Internal development is difficult to scale. For big businesses managing more projects simultaneously  this aspect is not so important, as qualified personnel can be transferred from one project to another. Start-ups and SMEs, instead, may incur problems if they need experts at short notice.

4. Timing of implementation:

Internal development might require much more time to complete projects, as the company has to create and organise an internal team besides managing other business activities. This can influence the time-to-market of the product or service. 

 

When should the in-house team model be chosen?

Considering all the advantages and disadvantages of internal development, this model can be advantageous in the following cases:

• The project is at the core of the business, and it's important to build knowledge of the product inside the company.. 
• There is a reliance on daily communication, so it is advantageous for the whole team to work in one place.
• It must be ensured that all team members have a stable workload over a long period of time.

 

Development outsourcing: pros and cons

Like any model, outsourcing has its pros and cons. It is important to know them in order to choose the most suitable option.

Advantages of software development outsourcing

Properly organised outsourcing also offers advantages:

1. Reduced costs:

Turning to third-party development companies reduces costs. Instead of entering the long and expensive recruitment process and internal formation phase, the company externalises the work to a third party without having to bear the costs of salaries, benefits and infrastructure.

2. Access to more qualified personnel:

Outsourcing offers the opportunity to collaborate with specialised suppliers with experience in specific technologies and sectors. This allows access to advanced skills that could not be available internally and makes it possible to tackle complex projects with major efficiency.

External specialists also have an unbiased and fresh view when entering a project. Therefore, they can bring new and creative ideas and suggest improvements.

3. Delivery and marketing times:

Externalisation allows companies to increase development speed and delivery capacity. Companies can add specialists to their development teams, managing more projects and completing the highest number of activities in the same timeframe. Furthermore, companies specialising in outsourcing often have a rich portfolio of completed projects. This means that they have already created proven procedures that guarantee operations without hitches.

4. Scalability:

The team's workload can fluctuate over time depending on the project's phase, and outsourcing addresses this challenge very well because it is designed to be flexible and the team can scale according to the necessities emerging during the various project phases.

 

Disadvantages of outsourcing software development

Some disadvantages attributed to outsourcing are due to the hasty selection of the supplier, lack of open dialogue and shortcomings in cooperation processes. But of course there are also conceptual disadvantages:

1. Less team overview

One disadvantage of outsourcing development is that companies can have a more limited vision for the monitoring and completion of tasks. Nevertheless, it is possible to overcome this problem by discussing in advance with the supplier the desired level of visibility and control over the work, as well as ways to guarantee it.

2 Confidentiality and security risks

Security risks are present in both insourcing and outsourcing. Still, in the case of outsourcing, these can be slightly higher. It's fundamental to establish appropriate confidentiality and security agreements to protect the company's information and also to research the potential contractor.

3. Communication and coordination risks:

Different timezones, cultural barriers, and language barriers can influence the collaboration's efficiency. Ascertaining that the external team is fully aware of the objectives and existing growth strategies is essential. Providing regular feedback on the teams' performances and having informal communication among team members can be of great help.

4. Loss of direct control:

Outsourcing entails a partial loss of direct control over the execution of projects because the company cannot have constant supervision over all the operational details, which can lead to a sensation of loss of control and trust. Periodical meetings on the tasks performed and in progress, combined with well-integrated communication, can overcome this problem.

 

When should the outsourcing model be decided?

The success of an outsourcing project depends to a large extent on the specifics of the business case. Therefore, it is crucial to understand which characteristics of a business case are a good connector for the outsourcing model.

It is definitely worth considering outsourcing development as an option for your business case if.

• The project is specific and time-limited, e.g. the development of a solution, module, component or system that is not part of the company's core business.
• You have recruitment problems, e.g. the need to grow the team faster or the difficulty of finding the right experts.
• You need experts in a particular technology and it is difficult to assess their skills and work efficiency, manage them and ensure their professional growth.
• You do not have the time or experience to coordinate the development process from start to finish.
• You need niche professionals.

 

Our outsourcing proposals:

1) DevScaling

DevScaling is our company division specialising in the outsourcing of highly qualified IT personnel for development projects. DevScaling's main concept is based on the idea of offering a complete and efficient solution that allows companies to concentrate on their main activities while they delegate complex technological infrastructure development and management operations to field experts. There are many advantages that a collaboration with DevScaling entails.

First of all, the company has a team of highly qualified developers that can tackle projects of every dimension and complexity. Further, thanks to the vast experience accumulated through the years, DevScaling is able to guarantee that the implemented solutions are highly performing and able to manage increasing workloads. Finally, DevScaling's outsourcing allows companies to reduce operational costs, avoiding investments in expensive infrastructure and adopting the most flexible and scalable approach for their technological development.
With DevScaling, companies can count on a reliable and competent partner, focusing on the growth of their own businesses without worrying about the technological aspect.

2) Fractional CTO

A Fractional CTO is a role that is increasingly gaining popularity in the business world. A Fractional CTO is a part-time Chief Technology Officer (CTO) who offers advice and technical strategic support to companies without being full-time employed. This service is mainly aimed at startups and SMEs that cannot afford to hire a full-time CTO or that wish to receive specialised support only when needed.

Relying on a Fractional CTO offers several advantages. Companies can access a wide range of skills and knowledge, as a Fractional CTO usually has a lot of experience in different sectors and projects. This allows companies to obtain advice and guidance from a professional expert without investing in a full-time employee. Furthermore, a Fractional CTO can provide an external and impartial perspective, offering the company innovative ideas and new strategies to tackle technological challenges.

Finally, the services of a Fractional CTO are highly flexible. Companies can use this resource only when they need it, reducing operational costs as it is not necessary to pay a full-time salary. In other words, relying on a Fractional CTO represents an intelligent way to obtain high-level technological skills while maintaining a flexible and efficient cost approach for one's business.