In-House vs. Outsourcing Software Development: Which is Right for Your Business?

June 12th 2023

Table of Contents

  1. In-house vs. outsourcing software development: what’s the difference?
  2. The pros and cons of in-house software development
  3. The pros and cons of software development outsourcing
  4. In-house vs outsourcing: how to choose?

In-house vs outsourcing software development: it’s one of the biggest choices that software developing businesses are currently having to make. Every business involved with software has to constantly innovate and develop new products in order to keep pace with their competitors. However, perhaps now more than ever, that can be an incredibly difficult proposition - especially when deciding whether to run a project in-house, or turn to software development outsourcing.

Each approach is perfectly valid in terms of bringing new products and applications to market, but there are upsides and downsides to each one. Which one is right for you depends on many factors, such as the size of your business, budget, timescale, level of skills and expertise, and much more. 

This article explores the pros and cons of each method in turn, and helps you understand how to make the right choices for your software development projects.

In-house vs. outsourcing software development: what’s the difference?

The simplest explanation is that in-house software development projects are undertaken by an internal team, while software development outsourcing means that the work is contracted out to an outsourced team. But the changing nature of the software development market means that making the choice between the two has become a very different proposition.

The rate of growth in the software development industry is only set to accelerate in the years to come: according to research from the U.S. Bureau of Labor Statistics, the market will be growing 25% faster in 2031 than it is at present.

At the same time, outsourcing is becoming more and more popular. As of 2023, the global software outsourcing market is worth $430 billion, according to Statista figures, while BusinessWire research has found that 36% of software development is now outsourced. This suggests that, for a variety of reasons, outsourcing is a much more acceptable and viable proposition than it has been in the past.

The pros and cons of in-house software development

The advantages of in-house development

Despite the growth of outsourcing companies, keeping development in-house remains the best option in certain use cases. As well as being able to stick to existing processes and workflows that an internal team is comfortable with, it also delivers simplicity in several other areas, too:

  • Communication: with everything self-contained within your own team, communication is smoother and more direct, especially if working face to face in the same physical location. Any changes or teamworking can be conducted far more easily, without the time lag or lack of nuance that comes through emails and messaging apps.

  • Security: ensuring that all data and intellectual property stays within the business minimises its potential vulnerability and attack surface to cybercriminals, removing much of the hassle that comes with keeping information safe.

  • Support: in-house teams can immediately respond to any issues that might arise, and ensure any fixes get executed without any delay to the development process.

The disadvantages of in-house development

However, there’s a reason that outsourcing companies have enjoyed so much growth of late. That’s because there are some substantial drawbacks to in-house development, especially in the modern technology and business landscape:

  • Expense: employing full-time software developers can be extremely costly, with salaries often approaching $100,000 a year in some countries (particularly the United States). Then there are the added costs of holiday pay, sick leave, social security contributions, onboarding, regular training, recruitment and more. Unless you have a constant flow of projects for them to work on, this can prove to be a highly inefficient use of budget. 

  • Skills gaps: the fight to attract and retain skilled software development staff is harder than ever, as HR professionals are struggling to recruit from a small talent pool of qualified developers. And even if you can attract them, the demand is so high that it can be hard to retain them in the long-term. This can lead to a high rate of turnover which impacts the stability within your team.

  • Lack of scalability: if you need to scale your in-house development team up or down, this takes a long time when having to hire new full-time staff or let people go. At a time when agility and quick innovation are vital, this can make a business far too slow to react to new opportunities with the right development resource.

  • Distractions for management: managing and maintaining a software development team can be a time-consuming process. This can often serve as a distraction from core business activities that need more attention. ciklum_blog_inhouse_vs_outsourcing_imagery_01

The pros and cons of software development outsourcing

The advantages of software development outsourcing

If in-house development doesn’t make sense for you, or just isn’t practical or financially viable, then turning to outsourcing companies will likely be your best option. And there are some very good reasons why, as these benefits of outsourcing demonstrate: the talent pool for software development outsourcing is large and extremely diverse. Whatever skills you need or innovations you want to pursue, you’ll be able to access them far more quickly and easily than trying to bring specific areas of expertise in-house.

  • Wider access to skills and technologies: the talent pool for software development outsourcing is large and extremely diverse. Whatever skills you need or innovations you want to pursue, you’ll be able to access them far more quickly and easily than trying to bring specific areas of expertise in-house.

  • Greater cost control: if you’re trying to make development more cost-effective, then outsourcing can ensure that any inefficiency in your spending is stripped out. You can spin up an outsourced team for the specific timeframe you need them for, and not be stuck paying for them when they aren’t required. That means outsourcing can play a leading role in your cost resilience strategy.

  • More flexibility: the more temporary nature of software development projects, and the outsourced teams that can support them, gives you much greater scalability to get things up and running quickly with an appropriate level of resource.

The disadvantages of software development outsourcing

While software development outsourcing is getting more and more popular all the time, it isn’t necessarily suitable for every software project. When making your decision, there are a few potential pitfalls to bear in mind:

  • Security vulnerability: outsourcing to a third party means that your vital data and intellectual property may be at risk of a breach if their security policy isn’t up to scratch. That information is where the true value of your business often lies, so ensuring they can demonstrate robust security - and sign a non-disclosure agreement to safeguard your key differentiators - is vital.

  • Lack of control: an outsourcing company will be working for many other businesses as well as yours. They will manage their workload and approach to troubleshooting in ways that best fit them, which won’t necessarily suit your needs. For example, you may have to wait longer than you would really like to get bugs fixed.

  • Communication barriers: not only might an outsourcing partner be working remotely (and therefore take longer to communicate with), but they could theoretically be working from anywhere in the world. This can lead to significant barriers in time zones, and in language, that can hinder smooth development and collaboration.

  • Cultural integration: similar to the previous point, an outsourced team may not be used to the same values or ways of working as an in-house team. This can lead to some cultural friction on occasions where in-house and outsourced teams need to work together.

In-house vs outsourcing: how to choose?

Now you understand the differences between in-house vs outsourcing and their pros and cons, how can you choose which one is right for you? Naturally, every project, business and outsourcing requirement is different. But generally speaking, we recommend the two options on the following lines:
  • Choose in-house if you: have plenty of budget to play with; need to retain full control and security of development; have long-term projects and demand for skills over several years. 

  • Choose outsourced if you: need to maximize cost efficiency; need to plug skills gaps; need to iterate quickly and meet demanding timescales.
ciklum_blog_inhouse_vs_outsourcing_imagery_04To help you appreciate how and when to apply outsourcing, these three examples are perfect demonstrations of when it’s the right option:

6sense:

This account-based management platform was faced with the considerable expense of hiring engineers in San Francisco, and so outsourced instead to bolster expertise more quickly and cost-effectively.

 

Alibaba:

Back in the 1990s, China’s biggest online retailer started out by outsourcing its web and software development to American providers, as China didn’t have sufficient developer talent or internet infrastructure at that time

 

Expensify:

a leading tool for organizing and storing business expense information, Expensify outsourced their entire back-end development to speed up their time-to-market, and to allow their core team to concentrate on the front-end

 

Why Ciklum is your perfect partner for software development outsourcing

A McKinsey study has found that 87% of businesses either have recruitment bottlenecks in the IT teams now, or expect to have them within the next few years. If this includes your business, then outsourcing is the way to go - and that’s where we can help.

We’re experienced experts in helping businesses like yours accelerate your software development and take first-mover advantage when new opportunities come your way. Our outsourced teams can work closely with you to solve complex business challenges, so that you can redefine your industry with ground-breaking innovation.

We have a skilled global workforce of more than 4000 developers, consultants, data engineers, architects and scientists. We’re also a Niche Player in the Gartner Magic Quadrant for Custom Software Development Services. So if you decide to pursue software development outsourcing, we’re the people to call. Get in touch with our team today to discuss your specific use cases.

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