A Guide to Custom Software, Part 3: Outsourcing vs. In-house
This series, A Guide to Custom Software, was developed to provide insight to give you an edge when making decisions about software. The first entry in this series objectively weighed when to choose a prepackaged software product versus when to explore a custom software solution, while the second entry focused on custom software, highlighting some of the benefits that come with a custom solution. This third entry continues the focus on custom solutions, identifying some of the benefits and challenges of outsourcing to an external developer – both on- and offshore – versus utilizing an in-house development team for your custom software needs.
- Part 1: Custom Software vs. Off-The-Shelf Software
- Part 2: Ten Benefits of Custom Software
- Part 3: Outsourcing vs. In-house
- Part 4: Six Reasons Custom Software Projects Fail
- Part 5: Seven Ways to Reduce Custom Software Risk
While it is generally associated with moving jobs out of one country and creating them in another, the concept of outsourcing is not limited to this practice, which is more accurately called off-shoring. In fact, local or onshore outsourcing is a popular method for businesses seeking to have certain processes or business functions completed externally. In the custom software industry, both off- and onshore developers are viable alternatives when pursuing a custom solution. Although reduced costs are primarily associated with outsourcing, there are additional benefits with which external custom software developers can provide your business as well. That is not to say outsourcing your software development comes without risk. On the contrary; there are some challenges that should be considered before determining if outsourcing is right for your scenario.
Reduced staffing and time costs. In today’s business environment, outsourcing is nearly synonymous with cost reduction. By moving development outside of this country, companies can realize considerable savings – primarily in employee costs and benefits – because many foreign countries do not face the same laws and payment requirements seen in the United States. Outsourcing locally also helps reduce cost; many firms have staff levels that allow for multiple developers to work on a project in quick succession, reducing the overall length of the project from concept to final delivery compared to the time frame in which a small in-house team can complete the work.
Short-term commitment. Upon completion of a project that utilized outsourced work, the developing firm’s services are no longer necessary. While the firm may continue to provide services in the form of maintenance, the cost associated with such action is minimal compared to the potential inefficiency of retaining in-house developers. Outsourcing provides an avenue for a short-term commitment. Conversely, by employing an in-house team, a project’s conclusion often sees the retention of the staff – whether or not the employees’ skills are perfectly aligned with current business needs – due to the high level of time and effort it took to initially build and train the in-house team.
Focus on core business. Shifting your custom solution development to a software development firm that is external to your company helps you focus on your core skill: running your business. No longer will you have to be the project manager for a technology with which you may not be at all familiar. The development firm can take over this role, unburdening you to oversee marketing, engage customers, or drum up sales – areas you know best. With an in-house team, particularly a small one, it is necessary for you to play the role of project manager during development. Choosing the right technology, ensuring coding standards are being followed, and knowing if the project is progressing in a timely manner all rest squarely on your shoulders. If overseeing such technology is not a core function of your business, your new software may be exposed to a variety of risks.
Wide range of skill sets. Finding the right employees with the desired skill-set for in-house software development teams takes considerable time and energy, resulting in teams that are often small. Because of the small size of the teams, it is not uncommon to focus on one technology at the expense of many others. Outsourcing enables you to find developers who possess a vast library of knowledge and are trained in a number of technologies. You can then select those developers that are most appropriately aligned toward providing a solution to your business needs.
Logistics. When software development is outsourced, logistics become complicated and can prove to be a problem. Overseas developers come with the added complication of working in a completely different country and time zone. Phone calls and virtual meetings may be difficult and inconvenient for at least one party as these types of communication will often need to be conducted during traditional business off hours. Onshore developers may require substantial travel distances that consume time and other resources, or face smaller time zone differences that can still prove to be a challenge. Coordination between an outsourced developer and their client can be a difficult hurdle to overcome.
Quality of foreign developers. While they may be trained in a variety of technologies, many overseas developers lack the practical experience of applying their software acumen in a true setting. Because of this, the quality of the software solution may not be up to par. It is not uncommon for companies to outsource to an offshore software development firm only to require extensive reworking of the custom solution once the final deliverable has been received. This need to rework the solution effectively negates any cost savings that may have been realized through outsourcing, in addition to causing a delay in the utilization of the new software which further erodes any savings or industry advantage that may have been afforded with an on-time project.
Cultural differences. Outsourcing the development of your software project inevitably leads to interactions between different company cultures. Offshore developers, due to limited real world experience by coders, may not achieve as high of a quality standard, leading to a breakdown in the relationship and a disappointed customer – you. Outsourcing to local companies can also result in culture clashes. Not all companies value the importance of communication, while others lack the humility to admit they don’t understand a business requirement, and waste time and dollars going down the wrong path. Cultural differences can easily sink a project.
In-house Development Team
Opting for an in-house development team is the route to take if your business wishes to internally develop the solutions to your software needs. As a branch of the company, the development team will be fully under your management and direction. While maintaining a team of in-house software developers certainly brings benefits, much like with outsourcing development to an external firm there are significant challenges that can arise. Review the benefits and challenges of putting together an in-house development staff to determine if it is the right path to contribute to the success of your business.
Commitment and responsibility from employees. Employees want to know that their efforts are having an impact for the company. With an in-house team performing your software development duties, you’ll likely see high levels of commitment from your employees because they will take pride in building something that can help both showcase their skills and further the company’s success. Often when development is outsourced overseas, however, this commitment and responsibility to the company is lacking. Because the overseas developers are not a part of your company, they don’t share the same vested interest in the project, which potentially creates merely average expectations and average results.
Complete business knowledge. As the phrase implies, an in-house development team is indeed a part of your company. As such, the employees are generally exposed to the inner workings of the business. They can recommend improvements for a better work environment or suggest changes that may lead to greater competitiveness for the business. An in-house team contributes to the company’s culture and, through their work, represents the business. It’s difficult to find an outsourced software developer that has a similar impact. An external firm may go to great lengths to understand your business during project development in an effort to provide the best custom solution, but completion of the project generally brings such overhead to an end.
Confidence in quality and security. Overseas developers may have familiarity with a number of tools and technologies thanks to their schooling, but they commonly attain only a theoretical knowledge base. Such developers lack the practical skills for building solutions with these technologies in the real world, exposing their clients to potential quality issues that could ultimately derail the project. Additionally, many foreign laws don’t afford the level of protection of software and intellectual property that can be found in the United States, making theft or infringement of the code a real concern. With an in-house team, you can feel secure in the protection of your code thanks to the laws and penalties in place in this country to protect such property. Similarly, you can ensure the quality of your solution by seeking and hiring staff that have had experience applying their knowledge and skills in a true business setting.
Cost. An in-house development team can be a substantial cost for your business to maintain. Developers are in high demand, and to retain such employees means paying significant salaries to ensure you employee the best in their craft. In addition to a competitive salary, many employees seek extra benefits – healthcare coverage, a 401(k) plan, personal days, paid vacation – that cause their overall compensation to increase. Such costs increase as your in-house team grows, while no such cost to you is accumulated when you opt for an outsourced software developer.
Time. Finding the right candidates with whom to assemble your in-house team is not a task that is completed overnight. Seeking out these candidates takes considerable time and effort. While you work to find employees that will be a fit for both your immediate and future software needs, you are losing valuable time that could be better spent actually building the new technology. Outsourcing your custom software development allows you to engage a team that is currently staffed with experienced and skilled professionals, enabling the project to commence in a fraction of the time it takes to get underway while trying to build an in-house team.
Staffing issues. Often, business needs fluctuate from year to year, creating peaks and valleys in IT staffing needs. Taking on new employees simply to meet the business demands of the current quarter may result in being over-staffed in the next. Paring this abundance back when requirements are low all too often sees yet another spike in IT demands in short order. This fluctuation in business needs and the resultant staffing levels is a common problem businesses face, causing either a waste of resources or missed business opportunities. By outsourcing the software development for your custom solution, you can balance IT staffing levels with your current business need. As your needs change, it’s easy to ramp up or scale back your software developer workforce.
Significant value can be realized whether you choose to outsource your software development or to keep things internal with an in-house team of developers. There are, however, challenges with each alternative that can pose risk to both your project and business alike. It is therefore critical not only to review the benefits and challenges associated with outsourcing and maintaining an in-house team, but to closely evaluate your current business environment to determine which path is right for you in pursuing your custom software solution.