IT Insourcing VS Outsourcing: Which Model to Choose

Survival can be summed up in three words: never give up.

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We’ve been going through quite a tumultuous time for the past two years, and drastic changes have occurred in industries all around the world. Businesses are not immune to the changes, so it might be the right time to weigh the benefits of hunkering down and waiting for a light at the end of the tunnel or taking a risk during a very risky time. People around the globe are facing challenges not seen in decades: a pandemic, economic shockwaves, and an uncertain future. All of this has pushed people to choose alternative ways of dealing with their business and addressing the new challenges. Companies have to thoroughly examine all aspects of their operations in order to weather the seemingly never-ending storm, and that includes an analysis of outsourcing and insourcing. 

When talking about the new ways of doing things in the domain of custom software development, the discourse around the benefits of insource vs outsource software development has become as relevant as ever. With the pandemic locking people at their homes for months, we’ve learned that it is not that necessary to keep all of your employees in-house and that it is rather sufficient to just let them work from whatever place they deem comfortable, as long as they keep doing their job. So, do you really need to keep all of your employees in-house or is it actually more sufficient to work with the outsourced teams who can do as good a job? That is exactly what we are going to find out by comparing the benefits of in-house vs outsourced development.

What is IT Insourcing vs Outsourcing?

With insourcing, a company chooses to assign a new project to a member(s) of its own IT department. This could result in a departmental reorganization, hiring new staff, whether temporarily or permanently, and retraining. It is a traditional hiring method where you find people who fit your job description and have the relevant skills and assign certain tasks to them according to their area of expertise. 

A company that opts for IT outsourcing basically hires another company to perform certain tasks related to the company’s functioning. In the IT domain, outsourcing means that the client company delegated the tasks related to the development of certain software to the vendor company. Simply put, you hire people from the outside on a temporary basis and they would serve as a part of your team with the difference being that they would work remotely. However, that is not the only difference as outsourcing packs many more benefits albeit with a couple of caveats.

What are the Pros and Cons of Insourcing?

Simply put, the insourced team is in-house, giving a company total control of all personnel, the services provided, and/or a specific project. This means that you have direct face-to-face contact with the developers, can manage their performance directly, and monitor the progress of the project delivery on the spot. This is where the insource model shines – full control and total immersion in the development process.

The staff would understand the goals and objectives and subscribe to the corporate culture. Managers could provide input and guidance on a daily basis, offer feedback, and monitor progress. Scheduled performance reviews would help with employee growth and identify new training opportunities. Staff activities build morale and foster a greater sense of teamwork. A free lunch, for example, is a big hit in every office. Overall, having your development team working in the same building as you is great, and this can even strengthen your relationships, boost dedication, improve productivity, and make working in your organization more pleasant overall.

Other insourcing pros are:

• Time zone sync – no worrying about what time it is in Europe. Unless someone is on vacation, everyone probably works and sleeps at the same time. You can be sure your development process is perfectly aligned with all of your internal schedules and that all the involved developers are available during working hours.
• Better communication – regular staff meetings (although likely a lot of Zoom calls these days) and corporate emails keep teams on the right path and allow for a collaborative approach to solving problems. Also, you know most, if not all the developers personally, and they have a much better understanding of what your corporate culture and goals are, and for that matter, you can even establish friendlier relations with the team to keep it motivated and encourage them to do their best job.
• Hiring and firing – recruit the right person. Terminate the contract of an underperforming employee. This is classical employment – you just hire and fire people depending on their skills and performance, it’s that simple. Of course, having everyone working at your side, you can make more informed decisions on whom to hire or fire. 

But IT insourcing is not a perfect solution for any project. The main reasons why many firms switch to outsourcing their software development projects are the ease of hiring and handling the projects. But at the end of the day, it all comes down to money.

Top tech talent is in hot demand, even during these upside-down times. Recruitment and retention efforts will impact the bottom line, along with salaries, benefits, and bonuses. Fending off poachers from other companies would also need to be top of mind. Rather than focus on the actual work being done, managers could be trapped in a constant hiring loop. Onboarding for new staff, and other Human Resources related issues, is also time-consuming. The required IT skills and talents would change and that might necessitate staff changes, which increases stress and anxiety in the workplace. 

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Retraining or upgrading is an extra cost, and would temporarily decrease productivity while staff members are not actively engaged in the development. That is where the disadvantages of insourcing come to play.

• Low flexibility – basically, when you hire people for a full-time job, you sign certain agreements that keep you bound to these people. Depending on your country, the employee termination laws might differ, but in most cases, you won’t be able to fire people easily just because you switched your area of business interest. Basically, you are stuck with the people you’ve hired, and to terminate their employment, you’d have to pay compensation or go with the tiresome retraining process.
• Higher cost – it is much more expensive to maintain an entire team of developers on your own. 
• Administrative expenses – you will spend time and money taking care of your team, paying their sick leaves, days off, insurance bills, and more.

What are the Pros and Cons of Outsourcing?

The global pandemic smashed traditional views on how and where we should work. Working from home is now the norm for millions of people, and companies are getting used to the idea of a workforce that doesn’t commute to their office buildings downtown in a big city. Many people are even giving up their homes/apartments and heading out on an adventure. This is how things are today, and you need to adapt to this new reality and make the most out of it. Outsourcing has become even more prominent throughout the past year and a half, and you can surely benefit from the advantages offered by this model.

There are benefits a business that contracts a software development outsourcing company can gain, and these are mostly based on the cost-efficiency of this approach. It is true – when comparing insourcing vs outsourcing software development, the latter surely is a more cost and time-efficient model. More so, it allows for much greater flexibility using a wide variety of different approaches to software development such as agile, waterfall, XP, lean, and more. All of this, can benefit your product and streamline your software development lifecycle for maximum efficiency. 

• Big talent pool - Outsourcing means geography doesn’t matter. The right people for the job could be across an ocean. If the question of whether to develop in-house or outsource your project is not a decisive one for you, you can easily hire people from the opposite side of the globe and get them to do all the job. This would also decrease the cost of development, as outsourcing often offers a more cost-efficient development cycle. 
• Skillset - Software development is easier when another company runs the show. They find IT professionals with the right expertise leveraging technologies like Python, Java, cloud services, cybersecurity, or information management. Basically, you get access to a global talent pool of developers all of whom can offer an exclusive skillset and bring something valuable to the table. 
• Lower cost to retain employees - IT salaries are high in places like the United States, especially for those living in San Francisco, where housing prices are extremely high. Although, many professionals are now searching for greener and cheaper pastures. It is actually cheaper to hire people from, say, Europe, where they would change somewhere around $50 an hour, whereas in the US, you would have to pay an average of $160 per hour. Of course, the cost of developing custom software would depend on many more factors, but at least the average hourly rates are considerably lower. 
• No additional hiring - Outsourced teams are the responsibility of the vendor, saving time and money. So, all you need to do is tell the vendor how many people you need and to do what tasks, and the vendor would then proceed to hire those people for you. Here at Intersog, for instance, we hire the full team of experts in as short as four weeks. Just tell us what kind of people you need – web development experts, mobile developers, AI, IoT, Ignition – whatever, we’ve got all of your needs covered.
• Focus on what really matters, the core business - Day to day IT operations are taken care of, allowing you to focus more on your business operations. You can save yourself tons of time and headaches by simply hiring a good vendor who’ll take care of all of your development needs. In the meantime, you’d be able to focus on more pressing tasks ensuring your business functions smoothly while the developers do their best job. 
• Unexpected problems handled - Don’t things always go horribly wrong on a Friday night when staff is seemingly unreachable? The outsourcing market has many options for businesses needing service 24/7. You can negotiate different conditions of employment with your vendor to guarantee clock-around support of your product.
• Efficiency - Outsourced teams are focused on the task at hand and not weighed down by company meetings, calls, and group emails. You hire them for a purpose of getting your product ready for market launch, and your development team does everything to make that happen. At the same time, you can focus on other tasks and deliver value to your business in other areas.
• Lower rent - Fewer people in the office means a bigger space isn’t necessary. This means that the company could also move to a smaller, but better space for the same cost in a more convenient or central location. Whether you rent an office building or have your own, it is much cheaper to have most of your team working remotely as you would not have to pay so much in bills.

Of course, a company’s approach to an insourcing vs outsourcing decision has to be measured and cost-effective. Each model has its pros and cons, though, so you should be aware of those when opting for either. Insourcing really is a great choice for building a strong team of professionals who are loyal to your business and know exactly what is going on there and what solutions need to be implemented to get the maximum benefit.

Outsourcing has its flaws too, so you have to consider the following:

• The fine print. Unexpected or unforeseen charges could blow away any cost savings. 
• Lack of control. The outsourcing company may be hindering growth potential. The main problem here is that the team you are working with is located somewhere on the other side of the globe, and you probably won’t even meet those people, not to mention working with them in a neat team. They are on their own, you are on your own, and both of you are only committed to following the deadlines and delivering on project milestones.
• Saving money, but service quality goes down. You get what you pay for – the lower the price, the lower the quality. You need to remember that the cheapest developers who charge something like 15 bucks per hour would not perform on the same level as those who charge $50 or more. 
• The impact on employees. Big layoff announcements are announced every single day. This year, even the toughest people are having mental health issues. If top performers are worried about their job being outsourced, productivity will likely take a hit. The stress factor is not to be omitted here, and it is necessary to save as many in-house jobs as you can. While outsourcing might be more cost-efficient, it does not mean you should just fire every in-house developer in favor of outsourced developers.

Deciding when to outsource vs insource IT isn’t an easy one, but with extensive research on costs, goals, and resources available, the picture will become much clearer. As you see, outsourcing is not a magic pill and there are some issues related to the implementation of this strategy that might put a strain on your business and make it less efficient. At the same time, outsourcing offers some solid benefits such as cost-efficiency, fast recruitment, access to a broad talent pool, and many more. Insourcing also has its perks such as improved communication and more control over the project delivery. All of the pros and cons of both approaches are up to you to weigh out, and you can surely make an informed decision based on the current needs of your organization. 

Final Thoughts

Choosing between insourcing and outsourcing is not an easy deal and you must remember to always put your interests upfront. Do you need to save money, hire people fast, and get the job done? Well, in that case, outsourcing is for you. Do you want to build a strong, loyal, and professional team of developers you’d be able to talk to at any given moment? That is where insourcing would be a better option to go with. While the two approaches are so different, with each having its benefits and its flaws, both of them can benefit your business under the right circumstances. It all comes down to what suits your business right now, and if you want to achieve better cost efficiency, save a considerable chunk of your budget, get your project going fast, and tap into a broad talent pool that consists of developers from all around the world, Intersog can get it done for you.