In-House Software Development vs. Outsourcing: Which one to choose?
Planning a project requires making strategic decisions that will determine the success you will achieve – before the work even begins. When it comes to software development, most of these decisions center around balancing cost with product delivery, access to talent, and project management.
This leads to the classic “in-house software development vs. outsourcing” dilemma. Do I retain complete control – potentially adding to my in-house team and driving costs up – or do I “risk” the cheaper outsourcing alternative?
That said, this decision is not as cut and dry as it may seem. Often, aspects of each approach appeal to project leaders, and yet the logistics of cherry picking between the pros and cons of each strategy make it difficult to navigate.
The good news is, if you find that neither of these approaches fully satisfy your requirements, there are more options available – team augmentation and nearshore outsourcing. Depending on your specific goals and requirements, these options can provide the benefits of either in-house or outsourced software development while mitigating the risk of the other.
In-House Software Development vs. Outsourcing
Many project leaders believe that developing software in house is the better option. A McKinsey article even goes so far as to claim that success as a software company is a matter of culture.
Beyond simply hiring an in-house team, you need to build a culture that “deeply values the creativity and artisanship of great engineering, elevates product leadership and a customer-first focus, and empowers a leadership team with a strong understanding of software business models and tech.”
McKinsey’s own research claims that 70% of the top performing companies use their own software as a means of differentiation. And yet businesses worldwide reportedly spent a total of $1.3 trillion dollars on outsourced IT services in 2022 – services which McKinsey also provides.
Different organizations have different goals
The reason for this is because McKinsey’s advice in the cited article centers on specific organizations. It’s for companies with large budgets that have made a strategic decision to leverage proprietary software as their primary differentiator and source of revenue.
Not all businesses have these goals and, depending on the circumstances, outsourced software development could be the strategy for them. There is no one-size-fits-all approach to software development. What’s wrong for one business could be perfect for you.
But this leads to even more nuances. Maybe the article’s approach of in-house development is too much, but pure outsourcing may also not tick all the boxes. How do you know what’s right for you?
Pros And Cons of In-House Software Development
Before we talk about alternatives to in-house or outsourced software development, it’s important to understand exactly what each offers – both the good and the bad.
Pros of In-House Development
Full Control and Customization. Perhaps the main reason companies choose the in-house option is a matter of control. With a dedicated team, project leaders can get regular updates and set internal deadlines to monitor progress. This gives them greater control (whether planned or ad hoc) over the software’s features as it’s developed to produce the results they want.
Direct Communication and Collaboration. Your team is present, full time. You can decide when and how you get updates or organize collaboration, with meetings, instant messages, internal tools all optimized to your ends.
Better Knowledge of Internal Processes. The software development skills are just one piece of the puzzle. In-house team members know exactly how your business runs and can bring this knowledge to the project.
Long-Term Cost Efficiency. If your in-house team develops the software, it’s easier to keep up with ongoing upgrades and maintenance and can represent key savings over time for your business.
Cons of in-house software development:
High Initial Investment: Developing software in-house requires a significant upfront investment. This includes expenses for hiring skilled developers, setting up infrastructure, acquiring necessary hardware and software licenses, and providing ongoing training and support. The initial investment can be substantial – especially for smaller businesses.
Talent Acquisition and Retention: Building and maintaining a competent in-house software development team can be challenging and is often cited as a top challenge for tech leaders.
Longer Development Timelines: Internal team members may have other responsibilities or projects competing for their time and attention, which can impact business operations and delivery timelines.
Limited Specialized Expertise: Even the most talented or skilled team will have skills gaps. If you’re developing specialized software, there may be times when the skills you need are not available among team members.
Low Economies of Scale (At First): When it comes to software, the economy of scale is generally high. After the initial costs of creating the software, you can reproduce the work easily – it’s simply a matter of reusing the code. However, the high costs of in-house software development mean that it can take a longer time for it to become effective at scale, if that is your goal. This means there is more risk in the time after launch as there is greater pressure on the software to produce a return on investment.
Pros And Cons of Software Outsourcing
Now let's compare them with full outsourcing, which is the best choice for many businesses.
Pros of Software Outsourcing
Cost Savings. Perhaps the most popular reason for choosing outsourced software. It can simply be more cost-effective as it eliminates the need for infrastructure and ongoing employee costs.
Access to Specialized Expertise. Outsourcing allows access to a wider talent pool with specialized skills and expertise, enabling companies to work with professionals experienced in specific technologies or domains.
Scalability and Flexibility: For specific projects, you will have times of intense development and more relaxed periods. Outsourcing provides the flexibility to scale resources up or down based on project needs, allowing businesses to adapt to changing demands.
Faster Time to Market: Leveraging the expertise and dedicated resources of outsourcing partners can speed up the development process. If you need to bring your product to market quickly, outsourcing can help you to do that.
Focus on Core Competencies: By outsourcing software development, companies can focus on their core competencies and strategic initiatives, freeing up internal resources and improving overall operational efficiency.
Cons of Software Outsourcing
Communication and Language Barriers. This is a key issue as navigating cultural and geographical differences can harm or delay projects.
Loss of Direct Control. You simply can’t control an outsourced project in the same way, which will have knock-on effects on communication channels and project management approaches.
Quality Assurance and Risk Management. Outsourcing is a risk. Ensuring consistent quality standards and managing project risks can be more challenging when relying on external providers. This is top of mind for most project leaders.
Intellectual Property and Data Security Concerns. How do you guarantee your sensitive information is secure? You can have comprehensive agreements, security measures, and confidentiality protocols to mitigate risks, but it will never be as secure as with an in-house team.
Dependency on External Providers. Outsourcing creates a dependency on external providers for ongoing support, maintenance, and future updates.
How are team augmentation and nearshore outsourcing different?
Team augmentation and nearshore outsourcing offer alternatives to in-house development and straight outsourcing that can make them more viable.
Nearshore outsourcing
Nearshore outsourcing is, by all intents and purposes, the same as outsourcing except for a number of key points. Instead of outsourcing your software development to a country thousands of miles away, you focus on geographically closer regions.
These regions offer the same cost-saving benefits but reduce the challenges associated with traditional outsourcing. For example, at Asymm, we’re a software company based in California, meaning that Mexico is the natural first choice for nearshore support.
Nearshore outsourcing is for you if you are happy with traditional outsourcing but are worried about communication and language barriers and risk management. In fact, by working with a trusted partner like Asymm, most of the cons associated with outsourcing are mitigated – allowing you to achieve your goals at a more accessible cost.
If you’d like more information about nearshore software development outsourcing, we have other articles on the subject.
Team augmentation
Now, imagine that you’re more on the in-house end of the spectrum. You have a solid team that’s able to perform well. But, as we mentioned, even the highest skilled teams can have gaps in specializations.
This is where team augmentation can fill in the missing gaps and provide you with the extra support you need to achieve your aims. At Asymm, our team augmentation services are also nearshore, meaning that the individuals can fit into whatever processes you currently have in place.
This ensures there are never any of the breakdowns in communication or siloing that can occur when you outsource select parts of your project. Instead, it’s like having a full team member, but on a temporary basis.
Would you like to work with Asymm?
We understand that every company is different. If you would like to develop customized software to help your business stand out, we can offer flexible support that matches your specific needs.
Whether full nearshore outsourcing or team augmentation, we can provide you with bureaucracy-free access to top talent in Mexico that is more cost-effective and produces excellent results.
Want to find out more? Schedule a call with us today.
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Written by Ari Lew
Ari is the Ceo and Co-founder of Asymm. With a passion for product design and media, Ari oversees the UX/UI practice at Asymm and leads client success at the company.