In-House Development vs. Software Development Outsourcing: A Comparison of Pros and Cons

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Business
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Software development may just be one of the most lucrative areas of business. With an increasing number of people using smart devices of all kinds on a daily basis, the world keeps changing and new demands keep arising—demands that only new, innovative software can meet.

While there’s no shortage of experts ready to help you build the next big thing in software development, quality comes at a cost. Having an entire team of the finest talents in the industry might be a tempting prospect, but only so long as you don’t consider the total potential cost.

This is where software development outsourcing comes into play. An increasing number of businesses these days rely on external teams to handle either entire projects or specific tasks. The global market for business process outsourcing is projected to reach $220 billion by 2020.

Outsourcing is a viable alternative to in-house development, which comes with its unique share of pros and cons. We’re here to tell you about both development options, showcasing exactly what each has to offer.


Table of contents

I. What is in-house development?

II. Advantages of in-house development

III. Disadvantages of in-house development

IV. How to build an in-house development team?

V. What is software development outsourcing?

VI. Advantages of software development outsourcing

VII. Disadvantages of software development outsourcing

VIII. What are the differences between nearshoring and offshore outsourcing?

IX. Best practices for outsourcing software development

X. Summary: Final thoughts on in-house development vs. software development outsourcing

Case studies

I. What is in-house development?

Also known as insourcing, in-house development simply means developing software using the experts you have on hand at your company. You don’t get any external help; all the developers are employed by you and performing their assigned tasks for you. The term also encompasses using other resources developed within your company.

The way in-house development works is fairly simple, though the success or failure of its implementation really depends on you.

You handpick your in-house development team to perform a specific set of tasks. Every member of said team must serve a specific purpose, whether it’s a specialist with the know-how to fill a niche in your project, or a leader who will ensure the other team members are at the top of their game and work together to deliver on their goals.

Assembling an in-house team is a process. It can be long and grueling, but if you know what you’re doing and play your cards right, everything might just work out fine. You’ll end up with a loyal, committed team you’ll be able to count on for the tasks that come along in the future, since the team already works for you.

II. Advantages of in-house development

There are several substantial benefits to in-house development that are as relevant in this day and age as they were in the time before outsourcing, namely:

1. Full control

You get to train your team from the ground up, making sure they know exactly how to use the tools at their disposal to develop software in accordance with your company’s philosophy.

As permanent members of the company, in-house developers are more aware of its needs and can adapt to them as they move from task to task much faster than any external specialist will. This compatibility is often called a cultural fit.

2. Direct communication

Since your in-house developers work directly with you at your company’s headquarters, interacting with them face to face is a lot less cumbersome than in the case of outsourcing.

You can communicate easier, implement unexpected changes to the project faster, and eliminate any mistakes caused by miscommunication almost completely. However, think twice before you opt for an open-space office in hopes of improving communication.

3. Hand-picked team members

Because an in-house team member is a far greater commitment than an external contractor, you’re bound to spend more time finding the right candidate.

This may extend the recruitment process a bit, while also making it more thorough. As a result, the person you end up adding to your team will likely be a much better fit for the role you’re looking to fill.

The True Cost of Hiring In-House Developers

III. Disadvantages of in-house development

Of course, outsourcing wouldn’t be nearly as popular as it is today if in-house development was the perfect solution, so here’s a rundown of some of the biggest problems with insourcing:

1. High costs

All that loyalty to your company and the cultural fit come at a cost; buying equipment, training, and maintaining employees all need to be paid for by the company.

Unlike with outsourcing, this isn’t a one-time payment, either. More employees within your organization mean a greater long-term investment.

2. It’s a time sink

To get employees to work for you locally, you need to post a job offer, wait for the candidates to come in, and conduct a bunch of interviews to make an informed decision. Not only that, but you’ll also spend a lot of resources on training, meetings, setting goals, and much, much more.

Without an easy access to a comprehensive talent base, you will drain a lot of your time and resources on the recruitment process alone.

3. Limitations

Let’s face it: the number of people you can meet in real life doesn’t even compare to the number of people you can encounter online. This extends to seeking out employees.

When hiring in-house, you only get to choose from a group of people that either already lives where you are or is willing to move there. Between a limited talent pool and the total cost of full-time employees, you’ll have a harder time hiring all the talent you need for your projects.

IV. How to build an in-house development team?

To make the best choice between in-house development and outsourcing, you should know how to minimize the risks and maximize the benefits of either option. So how do you go about assembling an in-house development team?

Naturally, the formation of your team won’t happen overnight. The process requires a good eye and sound knowledge of what you’re doing (the costs involved notwithstanding). While outsourcing your recruitment is definitely an option, in most cases you’ll get better results by taking the process into your own hands.

Here are the basic steps you should follow in order to effectively put together your in-house team:

1. Decide whether you’re going the outbound or inbound way

In other words, are you going to make the potential hires come to you, or are you willing to get your hands dirty and hunt for the prospective employees on your own?

a) The outbound way

The outbound approach may take several forms.

There’s the classic messaging through LinkedIn and other similar websites, which involves you contacting someone you think is a good fit directly. Here, you’re doing your best to convince them to join your company, so the way you present your offer is crucial.

You can also try to scout out new talent by hosting various workshops, conferences, and presentations—all of which are a great way to showcase your brand at its strongest and let people know they’re welcome to join you if they have what it takes.

b) The inbound way

The inbound approach mostly involves posting job offers for the general public to see, rather than targeting specific individuals.

Job hunting portals are, unsurprisingly, great hunting grounds. Developers usually huddle around LinkedIn Jobs, Indeed, AngelList, Glassdoor, or Dice, just to name a few, so those are definitely all good starting points.

Of course, you might also turn to social media, such as Facebook, Twitter, or LinkedIn. A nice, clean, visually appealing post can make a huge difference here, since people who might not even be actively looking for a job now may turn their attention your way if you do your job right.

Finally, there’s the career page of your website. It’s important to make sure it has just the right amount of content; an empty or otherwise neglected career page won’t send the message that you’re open to new hires. Conversely, a career page overstuffed with content will most likely feel overwhelming.

2. Send out the offers

Once you’ve sent out your offers, the next step is to wait for the résumés to come in. What’s incredibly important at this stage is that you respond to every single one of them.

It doesn’t matter how short or to the point your answer is; it doesn’t even matter whether the candidate seems perfect for the job or horribly mismatched. If they actually took the time to send you their CV and give you their personal information, it’s common courtesy to acknowledge them. Remember to do it if you wish to maintain a good reputation.

3. Screen the résumés

Every résumé needs to be screened to determine whether the candidate has the skills you require. Once you take your pick, it’s time to set up an appointment. Leaving some room for the interviewee to reschedule the interview is also a good idea.

4. Conduct the interviews

Then comes the main event: the interview. In the field of software development, we usually hold separate HR and IT interviews.

The purpose of the former is to eliminate the candidates who are clearly incompatible with your workplace, while the latter is meant to draw out precise, technical information that will determine whether they have the knowledge to complement your team the way you need them to. Regardless, all candidates should receive feedback, whether you hire them or not.

Always keep in mind that a completely in-house team is a team of full-time employees. That means taking care of their training, monthly paychecks, benefits, etc.

It’s fine if you decide this model is more profitable to you than the largely commission-based outsourcing. Just remember there are always ways to switch gears and try the other approach.

The Ultimate Guide to Hiring Software Developers

V. What is software development outsourcing?

When you outsource software development, you commission a specific project or task to a workforce outside of your organization. You basically employ a team from a different company—or a freelance contractor—to do the job for you. This is meant to save you both time and money.

Thanks to the internet, we all now live in a global village to a certain extent, so you’ll have no trouble finding someone to do specialized work for you without them actually being there to do it in person.

On paper, this is an ideal option, as you get to choose between a wide variety of experts in the field from every corner of the world. Still, there are some very important things to keep in mind with outsourcing, just to keep your expectations in check.

You’re paying an external party to do your work for you, so one of the most important decisions you have to make right off the bat is the pricing model. A fixed-price model is very reliable, but you’ll have to wait longer to see results, while the time and materials model offers quick benefits, though only if you know exactly what you’re doing going in.

And then there are the three essentials you need to take care of to ensure that your project gets carried out properly:

  1. a Product Owner who will oversee the project;
  2. the initial backlog, so your team can start working right away;
  3. handling the access to all dependencies and data to help you maximize the time you actually spend on the project, instead of figuring out who answers to whom about what.

VI. Advantages of software development outsourcing

Here are some of the key pros of outsourcing your software development:

1. Cost-efficiency

With outsourcing, you don’t have to worry about providing the contractors with workspace or equipment. Additionally, you only pay for them when you need them—if you need to scale your project up or down depending on your budget and needs, it can be done very easily.

2. Wide talent pool

The internet gives you unlimited access to experts in almost any field, with whatever background you’re after. Whether you’re in need of a developer, graphic designer, or any other specialist, you get to choose among the best specialists in the world, free of geographical restrictions.

3. Increased efficiency

Since you’ll be looking for someone specialized in a given area immediately, you won’t be wasting time on training. Instead, the experts you hire will be able to start working on your project right away, making the entire process much quicker.

Software development

VII. Disadvantages of software development outsourcing

There is no perfect solution to anything, though, so before you decide to take the outsourcing route, here are some cons you’d be wise to keep in mind:

1. Potentially unreliable communication

Most of the communication with your outsourced team will be conducted via email, Slack, or any other means that doesn’t exactly carry the same weight as face-to-face communication. This can potentially lead to misunderstandings.

Additionally, you’re more likely to find yourself working with people who don’t speak the same language as you, which would only add fuel to that fire.

2. Higher security risks

A non-disclosure agreement is pretty much a must with outsourcing, and even that may not be enough to protect you in time if you aren’t careful.

It’s important that you carefully research whoever it is you’ll be working with before you sign any contracts, as the risk of your company secrets spilling are far greater here.

3. One size doesn’t fit all

While training your in-house crew costs more, a huge benefit of that is a team that understands your goals on an intimate level. With outsourcing, you have much less control over the experts’ process, which might lead to some hiccups down the road.

VIII. What are the differences between nearshoring and offshore outsourcing?

Once you have secured a team of reliable experts from an external company and have handled everything we’ve already mentioned, you should be good to go—as long as we’re talking about nearshoring solutions.

But there is another form of outsourcing that’s hard to ignore, since it can bring in even more benefits, though it comes with its own share of issues you need to handle. Offshore outsourcing is what happens when you commission work to a team that happens to be several time zones away.

The best developer for your project may actually live in Nepal or Paraguay or anywhere else you can’t get to within a day. Does that mean you shouldn’t work with them? Of course not!

The whole point of outsourcing is getting experts on board who would otherwise be unavailable to you. However, it’s important to be mindful of the limitations of offshore outsourcing before you put all your eggs in one basket:

1. Communication

Due to disparate time zones and schedules, either as a result of cultural differences or practical reasons, communication can become extremely hampered.

Even your sleep schedules can be wildly different, making it next to impossible to communicate face to face. You’ll need to resort to emails, which doesn’t bode well for any issues that demand immediate action.

2. Working hours

If you do manage to find specific hours when you can reach each other, you may still find it difficult to communicate due to different energy levels. If it’s the early hours of the morning where you are and the late hours of the evening where they are, you’re not going to be on the same wavelength while talking.

3. After-hours availability

Since email is the only viable form of communication in this case, both parties may need to check their work email after hours. This can understandably put a serious damper on their work–life balance.

Because of all this, if you’re seriously considering offshore outsourcing, you need to be ready to both set boundaries and compromise. However, respecting each other’s time and working toward an optimal solution is definitely worth the effort, since offshore outsourcing can yield many new, otherwise unavailable opportunities.

The C-Level Guide to Software Development Nearshoring

IX. Best practices for outsourcing software development

If you’ve decided there are more pros than cons to outsourcing and you’d rather go in that direction, here are some tips to get you started:

1. Find the right outsourcing partner

Make sure that you pick a partner that not only meets your profile best, but also has a history of reliable projects to their name.

The best way to go about this is to conduct your own research—check listings, such as Clutch.co, and see if the company has what it takes. Be on the lookout for their experience, level of transparency, and scalability, just to name a few.

2. Figure out what form of outsourcing you need

Do you need a partner that will act as an extension of your team? Or maybe you need someone to offer you end-to-end solutions, including product design, frontend and backend development, as well as code deployment?

3. Make good use of project management tools

With your project either being split between your headquarters and a third party or handled entirely outside of your office, a good project management tool will come a long way in helping you retain control of the situation.

There are plenty of high-quality tools available on the market. Which one works best for you depends solely on your individual needs. Give Trello a shot if your process is lighter in scope. However, if you have money to spare and a project that’s more demanding, Jira would most likely be better for the job.

4. Make your expectations clear and always, always communicate

This cannot be stressed enough! Since your team will be working independently most of the time, you need to make sure both your time and theirs isn’t wasted.

Be available for questions and make sure your team isn’t afraid to ask them. Everything should work out just fine then.

X. Summary: Final thoughts on in-house development vs. software development outsourcing

It’s fairly clear why outsourcing is such a big deal nowadays: it’s a cost-saving measure that can yield very solid results in a short amount of time. Any setbacks inherent to this approach can be pretty effectively combated with the right software and good communication.

There’s an ocean of untapped talent at your fingertips, no matter the physical distance, that just a few years ago would have been out of your reach. Still, there’s always something to be said about the close control you have over the projects carried out by in-house teams.

What you lose in the sheer volume of talent, you gain in reliability, loyalty, and communication. Those are hard things to replace, and they might just prove more important than talent in terms of delivering great projects.

In the end, it’s up to you to decide which approach works best for your project. Just be mindful of the opportunities and limitations each one carries with it.


Thank you for reading our comparison of in-house development and software development outsourcing. STX Next specializes in the latter, so the subject is particularly close to our heart.

Over the years, we’ve published a wide selection of further reading materials on outsourcing. Feel free to dive in if you wish to learn more about:

We also offer longer, more detailed guides on:

Finally, we’d love to give you a hand with outsourcing itself. Don’t hesitate to contact us with any questions you may have!

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Patryk Stefanowicz

Content Writer

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Adam Stempniak

Content Specialist

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