Internal Or External Software Development: Factors To Take Into Account

The world of software development evolves at a very fast pace, with new challenges and dilemmas. So you’re about to start a new software project in this turbulent 2023, right? It sounds promising! However, a controversial question arises: would it be better to create your development team or outsource a software development service?

One way or another, you will end up making the right decision, since both options are equally great. Before making the final decision, it is crucial to thoroughly weigh the pros and cons of each option and take into account your company’s needs and goals. Try answering these simple questions: What is the size of your project? How long will it last? What is your estimated budget?

You will probably need more points of consideration to lean towards a favourable decision. In this article, we are going to compare in-house software development and outsourcing, present their CONS and PROS, and outline situations where one option may be more suitable than the other. Here we go.

IT Outsourcing: Brief Summary

• Revenue is expected to grow 11.07% over the next two years
• The IT outsourcing market is estimated to reach revenue of $ 41 billion by 2023
• According to a recent Deloitte report, 62% of executives surveyed use managed IT services to increase the pace of technology and digital transformation

Despite this, Ukraine stands out as one of the leading IT outsourcing destinations in Eastern Europe and a recognized centre of digital and technological expertise worldwide.

Ukraine maintains its high position in the global IT market thanks to its highly qualified IT professionals, sustainable growth and affordable pricing models. Ukrainian IT experts are fluent in English and have excellent communication skills, fostering smooth collaboration with Western clients.

Understanding Internal Development: Creating An Internal Software Team

Let’s start by talking about the very concept of internal development. Internal development involves building your team from scratch, including hiring, interviewing, and onboarding. This internal team, comprised of developers, designers, QA engineers, and sales and management staff, works exclusively for your organization, addressing all aspects of the software development lifecycle.

Companies like Amazon and Paypal prefer to have their software development teams to gain full project control and customization to meet their specific goals and requirements. The only drawback is the relatively higher cost associated with in-house development.

Advantages Of Internal Development:

What are the advantages of having an internal team? Let’s find out.

• More control. Hiring your IT specialists gives you complete control over the entire software development lifecycle. Each stage of the work process is under your complete supervision, allowing you to have a clear understanding of the tasks and activities of your employees. With an internal approach, you can ensure that quality assurance standards, such as compliance and data security, are diligently followed. Progress updates, project changes, and additional features are at your fingertips.
• Carefully selected development team. As you build your team from the ground up, it’s up to you to decide who should be on your team and what skills and qualifications they should possess to align with your company’s core values ​​and culture. Fostering a high spirit, teamwork, a conducive environment and collaboration is the key to the success of your project.
• Ease of communication. Another obvious advantage of having an in-house team is the ability to communicate with your workers internally. Even if you’re not in the office five days a week, you can stay in touch with your team remotely. There are no third parties with whom to discuss project details, and you can freely discuss confidential or sensitive information.
• Long-term commitment. After developing a product, you can’t be 100% sure that questions or problems won’t arise over time. Employees who have worked on the project can easily offer extended support to customers and resolve issues promptly. On the contrary, an outsourced team may experience delays in responses and corrections as they might be busy with other ongoing projects.

Cons Of Internal Development:

Internal development has several drawbacks:

• Cover numerous expenses. Having a team on staff entails visible and hidden expenses (sick leave, vacations, pension tax, health insurance, business trips and paid time off). If you want your company to enjoy a good reputation and bring your business ideas to life, it is crucial to provide your employees with favourable working conditions and the necessary equipment to complete projects.
• Upgrading to the team is up to you. Outdated technologies can hinder product growth. You have to stay up to date with the latest trends and technological advances so that your company can scale. Investing in employee training influences your company’s bottom line. Be prepared to allocate these expenses, as training your team is essential.
• Possible talent shortage. Finding the perfect person for a position, someone who can fulfil the required responsibilities can be a challenge. When deadlines are tight and it takes more time to find candidates locally, project delays can occur. Deloitte found that 50% of 500 executives surveyed worldwide identify talent acquisition as one of the top internal challenges in meeting their organization’s strategic priorities. According to McKinsey, even high-performing companies struggle to hire specialists in high-growth areas like AI.

Develop software internally Yes:

• There is a deep pool of talent in your area
• His main specialization is software development
• Projects are not subject to strict deadlines
• There are no budget limitations
• Makes very complex products that require long-term development
• Value team spirit and synergy in work processes
• Expensive investments for project success do not scare you
• Prefers to monitor and manage project progress
• Prioritize a high level of security

The advantages of having an in-house team are considerable. You need to have at least a small internal team that keeps everything under control and sets the direction of development in line with your overall business goals and strategies. Their deep understanding of your company’s vision fosters informed decision-making and a collaborative environment throughout development.

What Is Outsourced Development?

It is time we examined the opposite perspective. Unlike the in-house approach, the outsourced model involves entrusting product development to an external agency. Typically, this procedure is governed by a legally binding agreement that specifies the rights and obligations of the parties involved.

In the simplest sense, organizations delegate control of complex development processes to highly qualified specialists who can best cope with the assigned tasks. This allows them to improve the efficiency of their internal operations while maintaining alignment with company goals and objectives.

Becoming a common practice, software outsourcing addresses the technology gap while reducing operational expenses and related costs. Google and Apple, prominent IT giants, used outsourcing as a cost-cutting strategy. Similarly, the responsibility of creating web and mobile applications for Slack was entrusted to a third-party service provider.

Advantages Of Outsourcing:

What can you expect when choosing to develop your software with an external team? Quite a bit.

• Cost-effectiveness. When outsourcing software development, the only expense that companies must cover is that of the service provided. There is no need to manage payroll taxes, health insurance, training courses or workspace equipment costs. They take off the burden of bearing these expenses, isn’t that great? This is one of the main reasons why companies opt for outsourcing.
• Immense talent pool. Outsourcing can save you the headache of searching through dozens of resumes to find the right candidate in your area. It offers an invaluable opportunity to access highly qualified programmers who may not be available in your region. Prepare to be dazzled by the variety of options and limitless possibilities that open up to you.
• Focus on the company’s core activities. Delegating software product development to a specialized service provider allows companies to focus on expanding their internal team and improving management, marketing and customer service efforts. By entrusting non-essential tasks to a service provider for a reduced fee, you can free yourself from labour-intensive activities.
• Faster delivery time. The software is delivered in a short time because the IT provider is exclusively dedicated to developing its product. Opting for this strategy allows organizations to quickly complete each phase of the project, unlike internal teams that have to manage internal tasks.
• Without technological restrictions. When internal employees lack knowledge of specific programming languages ​​or tools, outsourcing agencies can assist. Companies can connect with several software engineers versed in a range of technologies needed for their projects. By collaborating with experienced IT agencies, businesses can stay ahead and pursue their goals with confidence.

Cons Of Outsourcing:

Listed below are some of the disadvantages of outsourcing.

• Lack of control. You cannot supervise every step that an outsourced team takes during a specific phase of the development process, since you are not their direct supervisor. Unlike an internal team that you can communicate with directly, there may be a delay in response from outsourced team members when contacted via email. Also, if any issues need to be fixed, don’t expect an immediate resolution as they might be busy on another project.
• Time difference and communication barriers. If your chosen IT service provider is located on the other side of the world, negotiating a time that suits all parties can be difficult due to large time differences. Language can also be a barrier between you and the leader of the outsourced team, especially if your company is from a non-English-speaking country.
• Trust issues. Before closing a deal with a third-party developer, it is essential to sign specific agreements to avoid problems in the future. Signing a confidentiality agreement (NDA) and a non-compete agreement is a win-win solution for all parties involved. This approach offers you peace of mind, ensuring that granting access to your sensitive information and Intellectual Property (IP) will not jeopardize your business. If these precautions are not taken, the question arises: What guarantees are there that the IT service provider will not collaborate simultaneously with its competitor?

Develop software with an external provider If:

• Your budget is tight
• Lacks highly qualified IT specialists in the field
• Other internal projects require the attention of your core team
• You have little time
• You’re not sure your internal development team can handle a new project
• Your team finds it difficult to adapt to new services
• It is experiencing rapid growth
• Your team is overloaded with internal tasks

When you have to create a product that requires a superior experience than what you and your company can offer, the smart thing to do is to outsource. This allows you to refocus on your core business while entrusting certain tasks to a team with the ideal skill set to help you get the job done. If you find yourself constantly overloaded with tasks, it may be time to consider outsourcing and prioritize what matters for success.

About the Author:

Glad you are reading this. I’m Yokesh Shankar, the COO at Sparkout Tech, one of the primary founders of a highly creative space. I’m more associated with digital transformation solutions for global issues. Nurturing in Fintech, Supply chain, AR VR solutions, Real estate, and other sectors vitalizing new-age technology, I see this space as a forum to share and seek information. Writing and reading give me more clarity about what I need.

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