Pros and Cons of In-House Software Development, Outsourcing and Outstaffing

In light of how rapidly technology evolves and advances, it can be difficult for some companies to stay competitive given the limitations of an in-house team only. Perhaps they lack the expertise or their skill set just isn’t up to par; maybe they don't have sufficient recruiting capabilities to grow quickly. Additionally, some need to build a larger team with a lower budget. Particularly when it comes to software development, cultivating the talent necessary in-house simply may not be feasible. 

The term outsourcing has been around for quite some time. Not as readily recognizable though are the concepts of team augmentation and outstaffing (or having dedicated teams). And yet, given how fierce the competition to find skilled IT professionals, these too are becoming popular go-to solutions for startup CTOs or a VP of engineering, as they tend to align more incentives between the clients and providers while still getting projects done in a cost effective and predictable manner.

To help avoid some of the confusion surrounding these terms, we thought we’d highlight a few of the pros and cons of each: outsourcing and outstaffing.

In-House Development: Goods and Bads

Obviously, an in-house team is going to be exactly as it sounds: they are your employees working directly under you, generally within the same location. They are tasked with product development and are fully under your control. Communication overall is generally easier with the in-house scenario. 

That said, keep in mind, with in-house teams you are carrying all of the overhead. And all aspects tend to be more complicated (as well as costly): from the expensive and time-consuming recruiting process, to the ability to scale the team up and down as required. When hiring a US employee, comparatively speaking, the costs are generally higher than they would be working with a professional from a developing country with demonstrated expertise in hard skills. Ukraine, for example, is toward the top of the list as far as emerging countries supplying superior tech talent. In fact, between 2013 and 2018 its IT sector grew by fifty times as far as the country’s overall GDP

Additionally, with an in-house team you have to take into consideration the time factor. From recruiting, to hiring, to onboarding--it is without question a lengthy process, and often it happens that your project simply can’t wait. Not to mention, you have to establish an office in order to build that strong engineering culture. This again takes time, and money. 

So while, certainly there are some perks to having your own staff work on your software development projects, it definitely comes with drawbacks as well.

Outsourcing: A Cost Saving Approach

Outsourcing really gained traction in the 90s with the tech boom prompting many companies to require more help in this field—more than an in-house team could provide without overstressing company resources. Essentially, what happens is that a business has a special project in the works. Without the experience or knowledge directly available, they opt to outsource the entire project to a third party. Among the most widely outsourced projects: software application development and maintenance.

How outsourcing works

This represents an almost total hands-off approach. So quite different from having that in-house team at your disposal, you are depending upon full remote software development. The benefits of outsourcing: the third party to whom the project is outsourced is completely responsible for all employee management processes. So there is no need for you to provide technical management. Also it’s important to remember that this is what they do. This is all they do. Therefore, they are quite adept at problem solving and devising creative solutions to issues that can potentially arise. And certainly, there is the savings factor. Versus hiring talent and the cost entailed with that, you still get to work with skilled professionals but without all the overhead.

On the flip side, miscommunications can arise. If the outsourced team butts heads with the in-house team, this can make for a pretty dicey process. And of course, you are giving up control and relying upon another entity to bring your idea/vision to life. It is near impossible to build any sort of culture with an outsourced team as you are separate entities. That also means that there is generally a lack of dedication from the engineers to whom you’re outsourcing the work. Hand-in-hand with this, comes an absence of any long-term thinking. On the third party’s end, odds are, they are looking at it as a one-and-done project. 

When outsourcing projects, make sure you clearly specify terms and agreements. Scope creep can be a major problem in this type of scenario. Before you know it, you are faced with delay after delay plus an increase in the overall project cost. Outline everything first! Every single detail you can think of. 

So is outsourcing the right solution? There are instances in which it can make sense: if for instance, the project represents a more independent task than that which is generally associated with your company. If there isn’t necessarily a need for direct technical supervision and/or if the resulting quality isn’t a huge consideration, then this might represent a job that you could consider outsourcing. However, in most cases it probably isn’t highly recommended to go this particular route. 

Outstaffing: Dedicated Teams with a Cost Saving Benefit 

What really is the difference between outstaffing (dedicated teams) and outsourcing? This is a blurry line for some, and yet the differences are quite notable. For one, when using dedicated teams versus a separate third party you are in a supervisory position. You are, in other words, not just handing control of a special project over; rather, an in-house manager is in direct contact with the remote team and in full or nearly full control. Lessening the potential for miscommunication, outstaffing assures more of an “on the same page” approach to project development.

How outstaffing works

What’s more, with outstaffing, as with outsourcing, you don’t have to worry about the associated expenses of having an employee. The company with which you sign in order to procure the necessary talent takes care of taxes, insurance, requisite licenses and so forth. You are simply paying for the hours worked.

Another benefit to using dedicated teams: while professionals work in direct concert with your in-house team, you don’t have to worry about the nuances of hiring that talent. That is to say, all facets of HR, legal and administrative are dealt with by the recruitment company. Your sole focus is upon product management. And of course, there is a cost saving aspect to outstaffing as well. Pay rates are generally 50-70% lower than what you’ll find in the US, for example.

What other benefits do you stand to gain from outstaffing your projects, particularly to talented individuals hailing from one of Eastern Europe’s major tech hubs, such as Ukraine...With outstaffing, you are in essence acquiring “team players.” That is to say, they are engaged, they are integrally part of the project and thus, there is that level of loyalty you simply can’t find with some of these other models. And as such, you have an opportunity to build a culture. There is also the added benefit of scalability--you can quickly scale the team up or down depending on your specific needs and without having to worry about regulatory obstacles. Really, the only downside as far as this model goes is if, for whatever reason, you aren’t able to provide technical support and management within the context of a project, then this might necessitate you opting for a different model. 

Moving forward in this post pandemic world, more and more startups and fast growing companies seem to be gravitating toward those models that do entail some sort of stability and flexibility at the same time. The dedicated team of the outstaffing model works best for the companies that are looking for a scalable and cost effective solution to grow their engineering capabilities. Especially as the economy reels, finding ways to cut costs while scaling engineering teams is going to be critical for company survival.

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