In house vs Outsourcing Software Development: What Should You Choose and Why

As you stand at the outsourcing vs in house development juncture, grappling with the need to upscale your business, a series of questions arise: Should I expand my in-house team or hire a team of remote developers? Is it wiser to allocate resources internally or leverage the expertise of an external partner? In such cases, making the right decision for your business calls for extensive research. Fortunately, we’ve done all the legwork for you!

In this blog, we’ll help you make an informed choice with a comprehensive comparison of in-house vs outsourcing software development. We’ll also dive into a statistical overview, weigh the in-house vs outsourcing pros and cons, and give practical insights for choosing the right model. So, let’s get started!

Table of Content

• In-house Software Development vs Outsourcing: A Statistical Overview
• What is In House Software Development? 
• What is Outsourcing Software Development?
• Why CEOs and CTOs Prefer to Outsource Software Development
• In-house Software Development vs Outsourcing: What to Choose When
• Why is Rishabh Software a Reliable Outsourcing Partner
• Frequently Asked Questions

The choice between an in house and outsourced team paints a picture where cost, flexibility, and expertise are considered as the key criteria. Outsourcing allows you to tap into an external talent pool with a dedicated team, while in house development commits to a prolonged engagement with fixed costs and employee benefits. Each choice resonates with its set of complexities and opportunities. In a world where competition is fierce and agility paramount, infrastructure and human capital become the engines of growth. This is where outsourcing software development, with its ability to expedite hiring and training, emerges as a better alternative.

For every entrepreneur standing at the crossroads of choosing between in house vs outsource software development, statistics can help guide decision-making.

• IT outsourcing market share is expected to grow $98 billion by 2024^[1].
• According to Forbes, outsourcing a part of the operation or the whole project rather than handling it internally can reduce costs. And it is imperative as growing an in house staff typically requires more time^[2].
• The most common reasons for outsourcing are reduced operating costs, flexibility to focus on core business, ability to solve capacity issues, and the agility to adapt to talent scarcity^[3].
• According to ISG, IT services take up 72% of all global outsourcing contract values^[4].
• Software development outsourcing continues to be a top priority for US businesses, with 60% of US businesses planning to outsource software development in 2023^[5].

These figures make it pretty apparent that businesses are turning to outsourcing to fill gaps, drive value, and provide end-to-end solutions as they build a blueprint for the future. Yet, the IT outsourcing industry’s rapid growth doesn’t mean it’s the right choice for you. There are several factors to be considered before you make your choice. Let’s dig deeper into the in-house vs outsourcing software development.

This engagement model essentially allows you to build your own full-time, permanent team from scratch. You are responsible for training and upskilling this internal team to keep up with evolving user expectations and market trends. Building an internal team involves a costly and complex process of creating different job postings, screening applications, scheduling and conducting interviews, and recruiting the right fit for different positions.

Depending on your project’s scope, scale, and complexity, your team can include various roles like business analysts, designers, developers, test engineers, software architects, team lead, and a project manager.

Advantages of In House Development Team

While leveraging your own team’s experience and skills has several benefits, they may not be relevant to every project type. Let’s assess the pros and cons of having a full-time, in house team:

Complete Control

In house software development enables total control over the quantity and quality of work. This ensures that your company’s standards and deadlines are upheld.

Ease of Customization

You can easily customize and innovate your software product with an in house IT team with a better understanding of technical processes to quickly make changes, fix bugs, and add new features.

Enhanced Data Security

In house IT teams are better equipped to uphold the privacy and security of your sensitive business data. They are more familiar with common security challenges, which helps them mitigate the risks of data breaches and accidental exposure more efficiently and promptly.

Optimal Team Structure

In house software development team includes the required skillset and a well-balanced group with relevant certifications, experience, and expertise. This ensures that every employee makes a valuable addition to the team.

Culture Fit with No Communication Barriers

An in house dev team employees are deeply rooted in the company’s culture. They are more aware of the vision and needs of the company and thus pay more attention to delivering the best to the project and achieving optimum results. This ultimately ensures higher efficiency and faster time to market.

Disadvantages of In House Development Team

No approach can be flawless, and in house software development also has its own limitations and downsides. If you are building a custom software solution, you should be aware of the following cons of in house software development:

High Costs

Managing a full-time, in house team demands heavy investment in recruiting, training, and maintaining skilled resources. Given the current job market, a trained and certified crew is difficult to find and costly to retain. This is particularly challenging for startups and SMEs with budget constraints.

Limited Technical Know-how

A particular project may require specialized skill sets. And in-house dev teams may not always be fully equipped and experienced to perform specific tasks efficiently. Hiring an extra resource for a new technology requires significant investment, and you may need to incur many other costs, such as equipment and resource allocation. This can adversely impact product quality, delay deliveries, or result in project failure.

Risk of Burnout

Full-time in house dev teams often work in a fast-paced environment, following a tight schedule with multiple tasks on their plate. While they can prioritize deliverables and take up crucial initiatives first, the risk of exhaustion is extremely high. Expecting these teams to put in extra hours is neither reasonable nor sustainable in the long haul.

Lack of Scalability

When in house teams face an immediate need for specialized knowledge or a sudden spike in workload, they may struggle to adjust their resources and capabilities. Restricted scalability often results in bottlenecks and delays, increasing the pressure on dev teams. On the contrary, when there is less work, maintaining a full-time, in house team invites unnecessary costs due to the underutilization of resources.

Ongoing Learning and Development Initiatives

The IT industry constantly evolves, so your in house team must keep up with emerging tools and technologies. For this, you must invest in periodic training and upskilling initiatives, which is costly.

Challenges of In house Software Development

Listed below are some of the most impactful challenges that further complicate the process of recruiting and retaining in house team for software development:

• Building in house team that caters to the unique needs of your software development project requires significant investments and effort. According to a recent study by Accelerance^[6], companies can achieve 40% – 70% reduction in overall cost by outsourcing custom software development as compared to setting up an in-house dev team.
• You need to bear the additional cost of retaining this team over and above the visible cost of hiring an in house team. These hidden costs include sick leaves, public holidays, health insurance, social security, workspace maintenance, supplemental benefits, etc.
• Additionally, having a dev team also needs you to have access to the latest tech stack required for custom software development.
• With an in house team, members are more likely to get bogged down by bureaucracies, which can decelerate turn-around times.
• The global tendency to work from home kills the purpose of hiring an in house team for greater control and ease of collaboration. If forced to revert to full-time office work, 45%^[7] of employees in the United States expressed a clear intention to either quit their current job or promptly initiate a search for a remote work opportunity.

SMEs must ensure swift project turn-around times, but these challenges are further aggravated by In house teams that lack the agility and scalability of outsourced dev teams.

In-house Software Development Examples

Despite the possible downsides, many software development partners choose to hire, train, and retain an internal software development team. Let’s look at a few examples of popular tech companies that count on extensive in house teams to achieve their business goals:

• Salesforce: In situations where critical data or sensitive corporate information is involved, business owners often prefer maintaining full control over product development. Renowned for its top-tier CRM system, Salesforce took an internal approach to ensure its team can track progress, resolve issues swiftly, and minimize the risk of information leaks.
• Netflix: Netflix has invested heavily in Machine Learning and Data Analysis programs for user interfaces that set them apart from competitors. Since Netflix’s main platform delivers movies and shows, they needed total control over the UIs. Hence, an in house development strategy made more sense to them. However, their in house approach is supplemented by strategic outsourcing to maintain their competitive edge.
• Amazon: The internal development team’s deep understanding of the company’s processes, systems, and culture is crucial for industry giants like Amazon. This aligns with their choice to keep the development team In house. However, this decision came with its challenges. Amazon had to invest substantially to enhance technical capabilities, which were sometimes lacking in house, leading to a $700 Million^[8] investment to bolster existing skills. Outsourcing ultimately saves your time, money, and resources.

When you outsource software development, you hire an external team with the required staff, experience, and skill set to develop a specific software solution. You can engage the development team either locally (onshore) or, in a neighboring country with a similar time zone (nearshore), or in any geographic area and time zone (offshore). If you’re interested in leveraging an offshore dev team, here’s an insightful read on IT offshoring trends in 2023 with compelling stats.

Additionally, outsourcing a software development team allows you to leverage their certifications, skills, and industry experience, regardless of their location and time zone.

There are three main outsourcing models that you can choose from depending on the type of dev team you need:

• End-to-end Outsourcing – The vendor takes complete responsibility for the entire development lifecycle.
• Dedicated Team – The vendor’s team works as an extension of the client’s team but without full integration.
• Staff Augmentation – The vendor provides skilled and experienced professionals to support your existing team.

You can also choose a suitable pricing model that fits your budget:

• Fixed Price— You can determine the budget based on predefined requirements and the scope of work.
• Time and Materials (T&M)— You pay for the resources utilized for your development project.
• Subscription-based Model—You are charged a monthly fee for every engaged employee.

Advantages of Outsourcing Software Development

Outsourcing is a business strategy that gives you easy access to IT expertise, specialized skills, and knowledge that can supercharge your projects.

Let’s first dive into the pros of outsourcing software development:

Lower Costs

When you outsource IT projects, you’re tapping into a cost-effective solution. Instead of hiring and training a whole in house IT team, you can access skilled experts when needed. This is a big plus, especially for smaller businesses.

Specialized Expertise

IT outsourcing providers are backed by a multidisciplinary team with industry-specific experience and skills in software development like DevOps, Cloud Computing, Data Engineering, and Data Analytics. Most IT outsourcing companies make their dev team undergo regular training and certifications to stay up to date on the latest best practices and technology.

Enhanced Efficiency

When your existing team does not have the knowledge or experience in a specific area, outsourcing can take care of such specialized tasks. Get your projects done faster while cranking up the quality of your work.

Scalability

Outsourcing lets you scale your IT operations to meet dynamic market needs. These expert providers can swiftly scale resources up or down to adapt to your needs, saving you significant time and money.

Disadvantages of Outsourcing Software Development Team

Just like building an in house team, opting for an outsourced dev team is not without limitations. This is why you need to consider your needs and goals before entrusting your project to a tech partner.

Security Risks

Outsourcing can be a potential gateway for security risks. However, you can lock down your data by choosing an experienced technology partner with robust data protection policies, security measures, encryption protocols, and a rock-solid infrastructure.

Code Quality Concerns

If the chosen technology partner does have a stringent quality control policy in place, then the documentation and code produced by their team might be substandard. You can avoid this pitfall by setting your expectations right at the start. Clearly define project requirements, deliverables, and what “good quality” means to you.

Lack of Focus

Outsourcing agencies serve multiple clients, due to which your development project may not receive the priority it needs to guarantee an excellent outcome. This lack of attention can be detrimental to your business. This is why you must choose trusted and top-rated tech partners with a dedicated team for every client they engage.

Despite these common challenges, outsourcing a software development team is still viable if you want to develop quality software quickly and efficiently.

Challenges of Outsourcing Software Development and How We Address Them

The challenges of software development outsourcing typically spring from differences in culture, language, and time zone.

Challenge: Cultural and Time Zone Differences

An outsourced software development team can run into issues if there are cultural differences with the engaged partner or if the dev team is up to the mark with communication. Also, when the difference in time zone leaves little overlap during work hours, it can result in communication gaps that kill a project.

Solution:

Rishabh Software ensures that you have prompt access to a skilled team that speaks fluent English and is culturally well-aligned to work with Western companies. With regular video calls, status updates, and project tracking tools, our team keeps everyone on the same page. This proactive approach bridges the gap between teams and ensures smooth collaboration.

Challenge: Harmonizing Teams

Ideally, an outsourced dev team is not meant to replace in house employees but works as an internal headcount extension. Despite this, some employees may view an outsourced team as a threat to their position, leading to a decline in efficiency and reluctance to integrate an external team. Clear communication from leadership is pivotal to defining an outsourced dev team’s role and how it will affect the functioning of in-house team members.

Solution:

We view outsourcing as a means to speed up and streamline software development. Our team adds more capabilities, skills, and experience so you can be assured of quality and timeliness for any project, large or small. We also consult your leadership on how they can convey the advantages of outsourcing and create buy-in from in house teams.

Challenge: Performance Benchmarking

Ensuring the performance and quality of software development is a pivotal challenge when it comes to outsourcing. When your development processes extend beyond your in house team, monitoring metrics and maintaining consistent quality standards can become complex.

Solution:

As a seasoned Software development company, we implement stringent quality control measures, including code reviews, testing cycles, and continuous integration. Load testing, stress testing, and performance profiling help identify bottlenecks and areas for optimization. Our industry-wide experience equips us to spot issues early on and maintain consistent, high-quality work throughout.

Adhering to best practices and maintaining a commitment to continuous improvement, we ensure that the performance of the delivered software remains consistently high.

Outsourcing Software Development Examples

Some of the world’s most successful companies have outsourced a software development team and benefited greatly.

• Slack: The development of this popular collaboration tool was outsourced to a custom software development company that developed both web and mobile apps.
• Google: This multinational tech company outsourced parts of its software development project to cut costs and save time.
• Expensify: This software helps users to stay on top of their expenses and transactions. The back-end development of this platform was outsourced.

Outsourcing a software development team is an excellent option for creating a high-performance product without breaking your budget.

Custom software development is the linchpin of digital transformation, and stakeholders rely on CEOs and CTOs to make smart, sustainable decisions that drive tangible outcomes. This is where outsourcing takes center stage. It’s like a Swiss army knife of value, blending speed and operational efficiency with quality and cost-effectiveness.

Outsourcing remains the cornerstone of success, from nimble startups to established IT giants. CEOs and CTOs forge alliances with adept software development firms for easy access to an agile team and their technical proficiency. Additional advantages include the flexibility to scale teams up and down, cost reduction, and a comprehensive tech stack to develop innovative IT products and services.

We’ve listed a few key factors that you can consider before deciding which is better, in house or outsourcing:

• Cost-Effectiveness: While in house development ensures direct control, it can increase your expenses. Outsourcing will help cut your costs as their streamlined structure reduces the weight of overheads. You get to tap into a much wider talent pool that offers quality with affordability.
• Time-to-Market: Time is crucial, especially in the dynamic world of software development. While your in house teams better understand internal dynamics, navigating bureaucratic bottlenecks can slow their progress. This is where outsourcing offers a swift solution. An experienced tech partner will leverage their existing IT infrastructure and skills to slash your time-to-market.
• Quality Assurance: Whether you go in house or outsource, rigorous testing, adherence to performance metrics, and the assurance of a flawless user experience are the KPIs that define your path to success. Outsourcing will grant you easy access to diverse talent for building feature-rich solutions. Conversely, in house teams offer a lens into the development process, enabling granular quality control.
• Talent Gap: If the talent pool you need to realize your vision is beyond your internal talent arsenal, external specialists are key to harnessing your project’s full potential. So, if your in house expertise is not enough, you can reinvent the wheel with a trusted technology partner. Also, outsourcing is your best bet if custom software development is not your company’s core competency.

Challenges of In-House Development vs Outsourcing Solutions

Still confused about which is better in house or outsourcing? We now cover key challenges in-house software development poses and how outsourcing can address them.

In-House Challenge#1: Hidden and Unforeseen Expenses

Several unforeseen costs can pop up for specific projects- from procuring new hardware administration to maintenance and specific tech-stack requirements.

Outsourcing Solution: Predictable Expenses

You can experience significant savings because of geographical cost differences and the easy availability of a comprehensive tech stack.

In-House Challenge #2: Hiring, Training & Upskilling

In-house teams must have the necessary skills and resources to support complex and specialized projects. For this, you either need to hire new talent or upskill your existing employees; both prospects are costly and time-consuming.

Outsourcing Solution: Expert Resources for Niche Projects 

Specialized outsourcing agencies have a multidisciplinary team with skilled, trained, and certified experts across IT services and technologies.

In-House Challenge#3: Operational Overheads

Maintenance of development projects is generally complex, time-consuming, and costly as you need to hire experts.

Outsourcing Solution: Top-notch Service

As your chosen service provider has a dedicated team with specialized support and maintenance skills, your project execution becomes faster and less costly to maintain.

In-house Challenge#4: Lack of Latest Tools and Technologies

In-house teams may not always have access to the right tools and technologies to cater to the needs and goals of specialized projects.

Outsourcing Solution: Easy Access to Emerging Technologies 

The latest tools and tech stack are readily available to specialized outsourced agencies.

In-house Challenge#5: Capital Expense

Right from Human Resource expenses to recruitment costs and infrastructure maintenance to resource salary, there are lots of capital expenses included in maintaining in-house resources.

Outsourcing Solution: No Additional Capital Expenses

You can upskill and upscale your software development team easily and conveniently. There’s no reliability and dependency with this business model.

In-house Challenge#6: Lack of Flexibility

You will only be required to complete the project with your in-house team. There’s less flexibility and more rigidity because you cannot hire resources for specific tasks and exclusive projects.

Outsourcing Solution: Agility, Speed, and Quality   

You can leverage your project’s much broader technology stack and scale your team when needed. There is no compromise on the quality and performance of your software product.

We hope your purpose of making the right choice between in house software development vs outsourcing is served. Let us walk you through how we sync with your time zone, converse in your preferred language, and collaborate seamlessly with your team – all with the goal of delivering on your expectations. Here’s what gives us an edge over others.

Extensive Technical Expertise

Rishabh Software boasts a diverse team of skilled professionals proficient in various technologies. Our competencies span the entire tech spectrum, from web and mobile app development to AI, ML, and IoT.

A Proven Track Record

With over two decades of industry experience, Rishabh Software has a successful track record of delivering projects on time and on budget across various industries. Our portfolio showcases the depth of our technical prowess.

Robust Quality Assurance

We adhere to stringent quality assurance processes, including comprehensive software testing and code reviews, ensuring that the final product meets your expectations and performs seamlessly.

Global Delivery Model

With offices in the US, India, and the UK, our global delivery model ensures seamless communication across time zones with prompt support.

Cross-Industry Experience

We have worked for global clients across business verticals ranging from healthcare and finance to retail, manufacturing, and more. This cross-industry exposure gives us a holistic understanding of your unique needs and goals.

Recognized By Clutch.co

Rishabh Software has been recognized by Clutch, across not one but three illustrious categories. The titles below are a testament to our unwavering dedication to excellence:

• Indian IT Services Leaders
• Indian Software Development Leaders
• Indian Web Development Leaders

Microsoft Gold Partner

We’re a proud Microsoft Gold Partner for Data Analytics with Power BI expertise our team constantly upskills and leverages new approaches, technologies, and best practices to give our clients a winning edge.     

Dedicated Support

Our commitment doesn’t end with project delivery. Rishabh Software offers ongoing support, maintenance, and enhancements, ensuring that your software stays up-to-date and optimally functional.

Whether you want to develop custom software, leverage cutting-edge technology, or streamline your processes, we’re ready to be your trusted outsourcing partner on this transformative journey. Check out our How We Engage page to learn more about our project execution methodology, outsourcing models, the benefits of hiring us and our client experiences.

Q: What is a hybrid approach in software development?

A: A hybrid approach in software development combines both in house and outsourced resources to achieve project goals. It blends the benefits of direct control with the flexibility of outsourcing.

Q: When is a hybrid approach recommended?

A: A hybrid approach is often recommended when critical tasks demand in house expertise, while non-core functions can be outsourced efficiently. It’s a strategic way to optimize resources and maintain quality.

Q: How do I choose the right outsourcing partner?

A: Select an outsourcing partner by evaluating their experience, expertise, portfolio, communication skills, and cultural fit. Conduct thorough due diligence and consider client references.

Here’s a quick read on outsourcing that explores the key factors to consider before outsourcing and how to choose an outsourced development company.

Q: What are the best practices for successful software development outsourcing?

A: Key practices include clear project scoping, setting realistic expectations, regular communication, defining milestones, ensuring a shared understanding of project goals, and conducting thorough testing.

Footnotes:

1. https://fortunly.com/statistics/outsourcing-statistics/#gref

2. https://www.forbes.com/sites/forbesbusinesscouncil/2022/01/28/in-house-or-outsource-whats-better-for-a-large-enterprise/?sh=29307bc270f3

3. https://www.forbes.com/sites/forbesbusinesscouncil/2022/01/28/in-house-or-outsource-whats-better-for-a-large-enterprise/?sh=29307bc270f3

4. https://apiumhub.com/tech-blog-barcelona/software-outsourcing-statistics-predictions-players/

5. https://www.accelerance.com/hubfs/2023%20Accelerance%20Software%20Outsourcing%20Trends%20Rates%20Guide%20vFinal.pdf

6. https://www.accelerance.com/hubfs/2023%20Accelerance%20Software%20Outsourcing%20Trends%20Rates%20Guide%20vFinal.pdf

7. https://www.goodhire.com/resources/articles/state-of-remote-work-survey-2022/

8. https://www.inc.com/don-reisinger/amazon-is-investing-700-million-in-its-employees-heres-how-you-can-follow-its-lead.html