In-house vs Outsourcing Pros and Cons
The debate over in-house vs. outsourcing pros and cons has been going on for a while. Employers naturally want the best talent they can get, but the talent shortage is a challenge. Consider these pros and cons to decide what is best for your company.
Business competitiveness today depends quite often on the ability of companies to manage digital transformation well. Therefore, the successful hiring of top-tier IT talent is a priority. That leads to the in-house vs. outsourcing pros and cons debate. Is it better to hire tech talent in-house or outsource the whole project?
Many companies have been outsourcing their IT teams with great success. Yet, some are still doubtful about the wisdom of outsourcing software. Perhaps they have heard horror stories about software development outsourcing or simply do not understand how the process works. As a result, they tend to favor in-house hiring.
However, that might be easier said than done. Finding highly qualified software developers is not easy. Most already have jobs. Those that do not are probably in business and hiring developers for themselves. The few available to work can be expensive, and even then, there is no guarantee they will stay when they get a better offer.
So, how do you solve this dilemma? It might be a good idea to go through the in-house vs. outsourcing pros and cons for software development. You can then decide what is best for your company.
In-House vs. Outsourcing
Before getting into the pros and cons, you need to understand the meaning of in-house and outsourcing as used in this context.
In-house hiring or in-sourcing software developers is the hiring and managing of IT professionals onsite. Some may work some of or all the time remotely, but they are all local. In-house teams are regular employees, so they have a fixed salary and benefits. In addition, the employer supplies in-house programmers with workspaces and the required hardware and software.
This is different from in-house software developers because they do not necessarily have to be onsite. For example, you might have programmers from other states or countries working for you remotely. Technically, that would still be in-house, but that is a subject of discussion for another time.
On the other hand, outsourcing is choosing a software development company to build your software or handle IT issues for you. The arrangement may involve contracting one or more people to work hourly, monthly, or per project. In most cases, the programmers work remotely, which is good, as you will see later. Your responsibility as a client is to pay the company for its services.
With that out of the way, it is time to discuss the in-house vs. outsourcing pros and cons. Let’s start with in-house hiring.
In-house software developer hiring
In-house hiring is attractive to many employers because it is familiar. People have been doing it that way for a long time, and local hiring is still a practical recruitment model in many industries. In manufacturing, for example, people must be onsite, so they need to be local hires. The same is true for most healthcare professionals and construction workers.
However, when hiring software developers, the situation is not the same. Most of the work can be done offsite, so physical location is not a prerequisite. Nevertheless, in-house hiring has some things going for it even in that situation.
1. Physical presence
Local hires are available onsite, even if they work from home some of or all the time. In-house employees can come into the office when needed. That makes collaboration with team members as well as other teams and departments easier. Additionally, people working in the same place have an easier time connecting, increasing employee engagement.
2. Same time zone
It might not be top of mind, but being in the same time zone is an excellent reason to hire local people. Keeping to regular working hours can significantly affect productivity in more ways than one. For instance, people can connect without having to worry if the other party is still working. When something comes up that needs urgent attention, the reasonable assumption is if you’re up, they’re up.
3. Same culture
Some might disagree, but most people in the exact geographic location think the same way. A shared environment and experiences make it easier for onsite teams to meld into the company. For instance, if you speak the same language, it can help prevent misunderstandings at the job front. They do say birds of a feather flock together.
If you notice, the pros of in-house hiring are primarily about convenience and cultural fit. However, the cons might tip the balance.
1. Limited talent pool
The main reason for the in-house vs. outsourcing pros and cons debate is the IT professional shortage. The struggle to find qualified tech talent seems never-ending. As a result, employers are starting to look beyond geographic borders for what they need. How far beyond? Anywhere in the world.
Suppose you are lucky enough to attract qualified people for your in-house development team. Congratulations! However, that leads to the next drawback to local hiring: cost.
2. High salaries
High demand plus short supply is bad news for local hiring. Highly qualified developers tend to command top salaries. While big companies might not have a problem with that, it is otherwise for small and medium-sized enterprises with limited budgets.
To give you an idea of the investment, the average annual salary of one in-house software developer in the US is $ $72,642. However, that can go as high as $106,000. Most IT teams have two people and typically have five members of varying skill sets and levels. You do the math.
3. Overhead costs
Having employees onsite might be convenient, but it will also cost you a pretty penny. Employers shoulder the overhead expenses of setting up and maintaining workspaces for all employees. These include rent, utilities, and workstations. A company can spend as much as half of its revenue on overhead if it is in an expensive location.
As overhead costs do not directly contribute to revenue as operating expenses do, it is essentially a burden to the company. If you can cut down or eliminate overhead expenses, that would mean a lot of savings.
4. Employee churn
Local developers tend to move around a bit. Because of the high demand for their services, developers always get job offers. Unless they are engaged or loyal to the company, or both, developers will likely leave when a better offer comes.
Given the significant drawbacks of in-house software development hiring, you might want to consider outsourcing instead. Here are the pros and cons.
Outsourcing companies typically tap the talent pool in states or countries with lower wages. Full Scale, for instance, sources top-tier IT talent from Cebu City and other major cities in the Philippines. The average salaries in the Philippines are just a fraction of that of developers in the US. As a result, Full Scale clients receive top-quality development services without having to pay top prices.
Additionally, outsourcing usually means remote work, which is good news for clients. Employers can cut down on overhead expenses as there is no need to set up an office or provide equipment. The outsourcing company provides all that for its pool of developers. Clients only pay an all-in fee for the services rendered.
2. No commitment
The whole point of outsourcing is to cut the costs of hiring, onboarding, and supporting regular employees. Clients merely pay for what they need with outsourcing. In other words, clients do not need to make a long-term commitment to an employee or the company.
Some outsourcing companies might ask for long-term contracts, but the best ones do not. Consequently, clients can choose to hire the services of a developer per hour, month, or project.
3. Large talent pool
Going beyond their borders can open vast opportunities to employers and recruiters. Instead of settling for whoever is available in their city, they can find the most qualified talent available anywhere. When you have a large pool of skilled talent, you can afford to be picky.
Finally, the core value of outsourcing is convenience. Clients can shift the burdens of recruitment and employee administration to the shoulders of outsourcing companies. By outsourcing software development, businesses can focus on doing what they do best and grow as fast as possible.
5. Reduced risk
Software development projects typically have budget, schedule, operational, technical, and security risks. Outsourcing is an excellent way to reduce those risks if you partner with a reliable company.
Contracts bind the outsourcing company to set parameters. They must follow the scope of work, schedule, budget, and payment terms. As a result, this reduces the client’s risks when anything goes wrong by sharing it with the outsourcing company. If they work together, they can reduce the risks to nearly zero.
1. Loss of control
Some employers need to micromanage all projects. They need to see their employees in the office and monitor all projects every step of the way. If that is the case for you, then outsourcing is not the answer. When clients work with an outsourcing company, they essentially hand over the reins of the work or project.
For many, that is the whole point of outsourcing. Non-tech companies, especially, do not want or need to know every little detail of a software development project. They wouldn’t know one end of it from the other, so it is a waste of their time. What they want are results. If they work with the right company, that is what they get.
However, some employers are not comfortable with not having total control over their projects. Outsourcing only works when the client can let go of some control.
2. Communication barriers
A client working with a remote team needs patience and skill in handling long-distance relationships. Outsourcing companies typically put communication infrastructures in place to make it easier. However, communication can be a problem, especially given the possible time zone differences and language barriers.
Choosing the right outsourcing company can solve those issues, though. Developers in the Philippines, for example, are used to working in different time zones. They are also comfortable dealing with people from different cultures.
The reason is the vast BPO industry in the country. Many multinational companies have chosen to outsource their business processes in the Philippines because it is cost-effective. That in-house vs. outsourcing pros and cons debate did not last long! Consequently, a large part of the labor force in the Philippines work in the time zones of foreign companies.
In addition, most Filipinos speak and write English very well. This is a legacy of the American education system. As a result, most clients in the US have no problem communicating with them at all. It also helps that Filipinos are typically friendly and warm, making it easy to work with them.
Outsourcing Software Development is the Clear Winner
The many advantages of outsourcing IT teams make it an attractive choice for many employers. Full Scale knows this, as it is a US-based outsourcing company with operations in the Philippines. We have a foot in both worlds, and that can work to your advantage. Full Scale has the expertise to build IT teams quickly and affordably for companies of any size, anywhere.
If you still need convincing, drop us a line. Let us know what you need, and we will walk you through the outsourcing process.