Outsourcing vs In-house – Benefits and Drawbacks

As an entrepreneur, you might be wondering how to get the operational agility in your company that would help you to adjust to sudden changes and crises. Sometimes outsourcing can be the answer, especially when it comes to dealing with COVID-19 pandemic consequences. Although many executives are more likely to keep their work in-house. Both solutions have their own benefits and drawbacks and the right decision isn’t always obvious. Let’s take a closer look at them and consider which strategy better suits your situation.

You’ll learn from this article:

• what’s the difference between outsourcing and in-house development 
• what are the pros and cons of both strategies
• which strategy you should consider depending on the situation of your company.

In-house vs outsourcing – what’s the difference?

Long story short, when deciding on outsourcing services you choose the external company that provides such services and let people outside of your organization fulfill your projects or tasks. On the other hand, the in-house strategy assumes that you decide to rely on your own resources and people you hire to your office. 

Outsourcing – benefits and drawbacks

Pros of outsourcing

1. Cost-effectiveness

According to the Global Outsourcing Survey conducted by Deloitte, 59% of all respondents said that the reduction of costs is for them the most common reason for outsourcing. The average wages of developers in western countries can range from $100 even up to $150/hour. In comparison, programmers from the East earn 2 or 3 times less, due to the lower costs of living. It’s a huge cost saving from the entrepreneurs’ point of view. Besides that, there’s also the cost of infrastructure or hiring expenses. As a result, the software development costs can be cut by outsourcing up to 60%.

2. Focus on the core business and less responsibility on your teams’ shoulders

Concentrating on the main function was the second most important aspect listed by the participants of Deloittes’ Survey. Deciding on outsourcing services you delegate some responsibility to another company and this can be a great relief, not only for you but also for your entire organization. It helps to protect your team from work overload, which has a direct influence on the productivity level at your company. “Do what you do best and outsource the rest” – as was said once by an Austrian economist, Peter Drucker. 😉

3. A wider pool of IT specialists to work with

When you’re looking for different specializations of experts, the talent pool within your area may be limited as you hire in-house. Sometimes it’s hard to find an individual within a specific tech stack. Outsourcing solves that problem – due to the fact that you can find almost any specialist you wish from around the world, actually the sky’s the limit.

4. Time savings & flexibility

Expanding your in-house team, spending resources and efforts on the recruitment and hiring of new members is a costly and time-consuming process. Engaging an external agency to do that for you means for your organization a lot of time saved. What is more, the working time of external programmers depends on your needs. You can decide to outsource either a whole project or a simple specific task. According to the 3 common models of engagement (Hourly Model, Time and Material Model, and Dedicated Team Model) you don’t have to deal only with long-term commitments unless you need it.

5. Team modification at your request

If the quality of services of the dedicated specialists doesn’t fulfill your requirements, you’re always able to change your service provider and the process is much easier and quicker than with your in-house team.

Outsourcing’s Cons

1. Possible miscommunication

As the outsourcing service takes place remotely, there may occur problems with communication between companies, especially when they’re separated by different time zones. There are many ways to cover that issue and it’s good to find out first how your business partner deals with that, however, communication with the off-site team is a bit more difficult than on-site.

2. Less control over the projects

Definitely, one of the most common concerns that entrepreneurs face considering outsourcing services, is the loss of control or a part of it. That problem might be correlated with a lack of transparency of the contractors’ process. Although, this can also be turned to your advantage as you are losing some of the responsibility by losing control. It’s important to conduct comprehensive research at first to make sure that you choose a trustworthy business partner.

3. No direct interactions

Despite the fact that more and more companies are working 100% remotely nowadays, for the companies that value their organizations’ culture, that issue might be important. Face2face communication is still valued and in some cases more relevant, depending on the situation and relations between the supervisor and employees.

In-house – benefits and drawbacks

In-house Pros

1. Ability to manage the teamwork and processes directly

As you decide to keep your work in-house your sense of control over single tasks and the whole project is higher. It’s easier to care for the quality of employees’ work and ensure that everything is going according to the established plans.

2. Extending the competencies of your team

If your company puts a strong emphasis on the internal culture, it can be important for you to give your employees increasingly more challenging tasks and projects to enable the further development of their skills. 

3. Solving technical problems immediately

In case of any emergency situation in the project, having your developers on-site is helpful, because they can immediately solve the problem as it occurs. When it comes to offshore teams, the time of reaction may be a bit delayed due to the remote mode of work or different time zones. Although some companies offer technical support 24/h and the risk of possible delayed reaction is smaller.

4. Face to face communication

Face to face communication is still important, especially in organizations that don’t want to fully switch to remote work mode. It enables smooth communication, accelerates processes and creates irreplaceable interpersonal relations. However, nowadays more and more companies are working 100% remotely so it is not always a true advantage.

Cons of in-house recruitment strategy

1. High recruitment and payroll expenses

If you decide to have your staff in-house, you’ll definitely spend lots of time and money resources to find suitable specialists. Moreover, you are limited by the office space for which you have to pay fees. Employees usually also expect some medical, sport or educational benefits and these costs in result get quite high.

2. Narrow talent pool

As we said, recruiting employees costs a lot and what’s more – you can’t be sure that you will find the right person with the specifications that you need. And if you finally do, you also can’t be sure that they will finally decide on your offer and want to commit to your company for a longer time. An external company will do it for you in a shorter time, and because you can outsource employees from almost any part of the world, the talent spectrum is significantly wider.

3. Your team’s overload

The time of your employees is limited. If you want to save some money on the recruitment, you can give your developers new tasks, hoping that they can bear it. However, their resources are also limited, so if you give them too much, it can burn them out. It’s better to distribute the work evenly on your in-house and off-shore developers to prevent unwanted consequences.

When to outsource?

Now, when we know the main advantages and disadvantages of both working models, let’s consider when it’s better to outsource and when to stay in-house.

There are a few situations when outsourcing is a perfect solution. For example when the deadline for your big project is coming, you don’t have to go through the long recruiting process to hire a new developer – just look for help on the outside for just a short period of time. Outsourcing is also very helpful in such situations when you don’t have enough budget for a new team member, but have a lot of additional tasks that also have to be done and there’s lack of hands to work in your company. Outsourcing can save your money, because the off-shore team members often work more efficiently and can finish the job quicker. Also when you’re struggling to find an expert with specific skills and experience, don’t give up, just look wider. There are many developers with unique experience or talents, but they may be located in other parts of the world.

If you’re about to decide on using outsourcing services but still have questions and doubts, you can find out more from our previous articles about how to avoid the most common problems of outsourcing, 7 IT outsourcing myths, or how to hire remote developers, and more.