Insourcing versus Outsourcing Software Development in 2020
In this article, we would like to help you to choose between insource and outsource and to assist you in making the right decision. You will discover more about the pros and cons of outsourcing and insourcing software development. Together we will try to find the best option for you and your business.
A little spoiler: you should not choose only between these two options. We believe that there is another way to reduce costs, avoid risks, involve talented specialists - a team with excellent expertise and enviable reputation - to accomplish challenging tasks for your company.
Outsourcing vs insourcing. Background
The concept of outsourcing, which significantly changed the world approximately 70 years ago, means to get resources from the outside. Of course, the concept of "getting resources from the outside" was created even before the Romans, who were taking goods and slaves extensively in ancient Europe and North Africa. Thus, outsourcing definitely means something new for humankind.
Victor-Adrian Troaca and Dumitru-Alexandru Bodislav from Bucharest, Hungary, wrote in their article that outsourcing is characterized by the transfer of manufacturing from the developed countries to the developing ones. Companies from the first ones want to reduce costs and open manufactures in countries with lower remuneration, based particularly on a lower cost of living.
Tim Hindi, who contributes to The Economist, wrote that outsourcing has made its presence felt since the time of the Second World War. Already in 1946, 20% of the value-added of US goods and services were from external sources. 80% are made by insourcing. However, outsourcing became a remarkable trend only in the 1990s. In 1996 the value-added of US goods and services made by outsourcing was 60% against 40% of produce by insourcing.
In the early 2000s, the average western manufacturing company outsourced 70% to 80% of its finished product. This phenomenon is not only about saving costs, but it works as a powerful tool for the global economy.
Outsourcing software development
At the same time, large companies commonly outsource near 50% of their IT-operations. The global market of IT outsourcing is expected to reach more than $481 billion by 2022. It is a very suitable solution to hire an outsource company to process IT projects as the IT sector of the global outsourcing market is the largest. Respondents of Deloitte’s 2016 Global Outsourcing Survey, 85% of which are from organizations with over $1 billion in annual revenues, acknowledge there are many reasons why companies outsource. Reducing costs is not the only thing.
Advantages of outsourcing
Leading organizations use outsourcing to drive transformational change and improve business results, Deloitte wrote. Among the benefits of outsourcing, respondents remark:
Cost Cutting Tool 59%
Enables Focus on Core Business 57%
Solves Capacity Issues 47%
Enhances Service Quality 31%
Critical to Business Needs 28%
Access to Intellectual Capital 28%
Manages Business Environments 17%
Drives Broader Transformational Change 17%
Difference between insourcing and outsourcing
Outsourcing is not suitable in all cases. Outsourcing is required when contracting a vendor to perform a specific function. For example, it can be an IT firm if you are some financial institution and looking for a software development team that should deliver to your business some fintech product or service. In case you run a technology firm, and the technology solutions are the core of your business, this requires the recruitment of in-house software development employees. So, insourcing is a situation when a company decides to perform activities, projects, processes with internal resources. At the same time, it doesn't mean that you will hire a team in your city or country. Outsourcing and in-house recruitment are opposite as first is about hiring a talented team, and the second is about training your staff. Together with that, the office of your company can be located not in your domain, but the nearshore country. In-house is hiring staff to the company to give them tasks or functions to work internally instead of providing the work to vendors outside the company.
In-house development vs outsourcing
Simon J. Elliot wrote in his article about outsourcing and in-house recruitment. He mentions the following different benefits of insourcing and outsourcing.
Advantages of insourcing:
Direct Control
Employees of the Organization
Keep to Tradition
A feeling of “Family”
No Third-Party Involvement
Advantages of outsourcing:
Focus on Core Business
Specified Scope of Work
Cost and Efficiency Savings
Reduce Overhead
Operational Control
Staffing Flexibility
Continuity and Risk Management
So, if your company is going to launch a new product or service, it looks like you need to hire and train new employees. On the other hand, if your business is, as already mentioned, a financial institution and you are in the middle of the technology development process, perhaps you need some temporary team. Starting a recent online service or mobile application requires the recruitment of a lot of people. But how long will the project of software development go on? The point is the company can save costs and time for recruiting and training newcomers. All these employees will lose their job when the project is successfully finished. That is why a company has a convenient option to select an outsourcing company in such cases and deliver it the tasks and responsibilities for some time. A vendor will successfully complete your project as this industry is its core business. Meanwhile, you could concentrate on the core processes of your company.
Insourcing vs outsourcing? In-house development vs outsourcing
The last things before you decide to contract an outsourcing vendor or build your own software development team are to check some tips and tricks on how to find a respectable partner company and establish communication with it.
Core businesses
When you doubt what team you need, in-house, or outsource, remember about the core functions of the company. What is the value of the company? For example, the text is the main issue and the core value of an author. If the author outsources the process of writing the book to a third party, it will be nonsense or fake. He can outsource the process of creating images to illustrators or selling to bookshops.
The same way an IT company can not deliver to any vendors a process of software development as it is its crucial value. IT firms can outsource the recruitment process to the HR-company or process of paying taxes to a third party. At the same time, a software development company can manage outsourced non-core objectives of non-IT partners.
Outsource and insource: communication and trust
In in-housing, you can track the process of developing the software and control the quality of work, the productivity of the team, and the desired outputs. Also, among the pros of insourcing is the possibility to create a strong community with good communication. The time zone and cultural circumstances are the same, so your team members can easily understand each other and work at the same working hours without delays.
On the other hand, such regions as Eastern Europe and Mexico are the favored outsourcing destinations for IT clients in Western Europe and North America accordingly. The cultural context and time zones are similar. Moreover, companies have a long experience of working together. But the main point is if the client and the vendor are professionals, they will find a way to build communication. For example, team leaders or C-levels may even travel to a partner's country to attend a personal meeting. Some of such cases you can watch here.
Outsourcing and in-house recruitment
You are the one who should pay your In-house software development teams or departments: recruiting, training, and maintaining employees, buying equipment, renting the offices, etc. All this means a long-term investment in your company. The benefit is that after months or years of investment, you will get a high-quality team that can solve any technical tasks in the future. The question is, does your business need its own high quality, but an expensive group of professionals, or it will never have enough work to do?
On the other hand, outsourcing is cheaper, and it is a well-known tool for reducing costs. Nevertheless, if a company has any plans, ideas, or ambitions to manage a new software development project in the future, it is better to invest in programmers, managers, processes, equipment, but not hire a outsource partner. To sum up, both insourcing and outsourcing have their benefits, advantages, and disadvantages. The only task is to choose the most suitable model for your business.
Difference between insourcing and outsourcing: cost and recruiting
To build a loyal in-house team, your company must establish a process of recruiting. First, your business needs to hire an HR-professionals who will be able to find well-trained software developers with the right skills to perform your project, work with your product and service. It takes time. Moreover, there are some limitations. For example, the recruitment department must search for the right people, and the number of such developers in the area is limited. The process of recruiting itself needs funds and time. If your company has set a goal to develop its own IT department, play your cards right, and everything might work out fine. If your company's project, which requires software development, will not be regular, it seems you should not invest in a black hole and find the right vendor with a considerable reputation to do work for you for a couple of years.
In-house development plus outsourcing
There is a third way, too. A business that wants to take benefits from both in-house and outsource software development combines these two concepts. Imagine that a company is starting a new digital product. It is not a new business, so they have a lot of employees, competent management, and a skillful recruitment team. Also, they have at their disposal an effective software development team. However, a new product may require a few developers that have experience and skills that companies employees don't possess. One more detail: the company will need those developers for a short time. So, the best option is not to invest time in hiring new people. Moreover, it is not necessary to contract the whole third party firm and pay more than enough. In such a case, it is easier to find the right people for the exact time you need.
Skill, talent, reputation. What can you find and offer via SignSpot?
Superbly, when all employees are busy working on the projects. However, sometimes they are on the bench. With SignSpot, you can get a benefit from it. If you have some software developers on the bench, you can sell them to companies that lack employees for their projects, and vise versa. Here, on SignSpot, companies can also sell leads to each other if they have them too many or they don't fit the company's profile. By using these management tools, your business will have work for all employees, have a profit from every lead, even if some of them don't fit. But most importantly, your business will be among the like-minded people where you can find talents and teams for your project and exchange experience with companies like yours.
Few tips to find a team, whether or not it is outsourcing, insource or combine
Familiarity with a market
When you are looking for a team or just a few specialists, you may be interested if these people have experience in completing a project in your country. If they have the experience to work in countries with similar market circumstances to yours or they perform work in different countries or even continents, it could mean they are quick learners, and they will be the perfect fit for your project.
Industry experience
Second, but no less important, is the skills of your future team or co-workers. Do they have the right expertise in the technology your project requires? You should find out how the software will be developed as a product for a market. Do you have your department, or you need not just several developers, but a vendor? Check also the industries in which your future teammates have experience. Every industry has its specifics.
The future of your software
Even though it sounds gloomy, but “Software is never done.” The product could need some modifications and additional tools and extensions. The best option is when the same team will make this work. You can always check if your future teammates or vendor will do this.
Involving in your project
Before starting a new project, it is better to understand how much is your future team loaded with work tasks. Sometimes companies are trying to get as many projects as possible. Perhaps, it is okay because they still can manage incoming tasks. You should find out if your teammates or future vendors have enough time and capacity to develop your software. Professional teams do not take all leads and projects, but they take as much as they can do. You can always recommend clients you are not able to manage or who do not fit your portfolio, to partners, who have room for additional work, and obviously can do it well.
How will your company deal with the future in-house or outsourced team?
Skills in the software development department are principal. The working experience of people is also essential for the result. There is another significant point. It is about how well you and your partners, employees, or vendor teams will match each other. Some companies could hire vendors looking only at professional qualities, but for others, the corporate culture of coworkers is even more critical. The best way to understand if these are your people is to establish a few video calls and, if possible, meet in person.
SignSpot. The best place to find your new team
After you think over these points, take your time to make the right decision. Surf the SignSpot B2B hiring marketplace, find the best option, and sell your bench or start a new project.