In-House vs. Outsourced Software Development Team

When building software, an App, or maintaining an IT business function, companies have two main options for assembling their development team: in-house or outsourced. In-house teams consist of software developers employed directly by the company, usually working together in an office setting. Outsourced teams are contracted agencies or freelancers usually working remotely.

Both approaches have pros and cons, and there is no one-size-fits-all solution. Factors like budget, control, security, scalability, and access to talent all play a role in determining if in-house or outsourced is better for a particular project. For example, small companies and startups usually begin with outsourced contractors to get MVPs built quickly without long-term commitments and employment complexities. While larger enterprises tend to maintain sizable in-house teams for core products and internal IT departments.

This article will provide an in-depth examination of in-house and outsourced software development teams, including key differences, benefits, and downsides of each approach.

Definition of In-House Software Development

Members of an in-house software development team work directly for a company as a permanent employee. As a rule, they sit together in an office and collaborate directly with each other. With an in-house team, the hiring company has complete control over the developers and their employment.

They are on the company payroll and get benefits like health insurance and parental leave and their sole responsibility is to the business that hired them. An in-house software development team works on projects that support the company’s goals and business objectives. At the same time, they don’t take on work from other clients.

In-house teams use the hiring company’s equipment and infrastructure. They have access to internal networks, servers, and databases needed for their projects. All work products (IP) they produce belong to the employer. With an in-house staff, the hiring business has complete oversight of development operations. They dictate the standards and processes their software development team uses. There is full transparency into the team’s progress and productivity.

Pros of In-House Development

Developing software in-house offers several benefits:

More control. Complete control over the culture, project vision, timeline, code, and quality standards. You don’t have to compromise or conform to an external agency’s processes.
Aligned priorities. An in-house team works solely on your company’s projects and priorities.
Proprietary knowledge stays internal. Any proprietary algorithms, data, or IP remains protected within your company. You don’t have to worry about an outside team misusing sensitive information.
Easier communication. With an internal team, communication tends to be faster and less formal using in-house communication tools and styles.

Cons of In-House Development

In-house software development teams can have key downsides compared to outsourced teams:

Higher overall costs. Maintaining an in-house team means carrying the burden of overhead costs like salaries, benefits, equipment, company off-sites, perks and office space for every team member.
Lack of flexibility in team size. It’s difficult to scale an in-house team up and down. Adding or removing team members involves hiring and firing. Depending on the hiring jurisdiction, either can be expensive and complex.
Access to fewer specialised skills. In-house teams are limited to the talent pool available locally, and hiring cycles for senior tech professionals can take 6-12 months in many cases.
Lack of outside perspective and diversity. In-house teams lack perspective from outside the company culture. Furthermore, a limited hiring pool can limit diversity and inclusion.

Definition of Outsourced Software Development

Hiring an outsourced software development team means contracting work to an external third-party vendor. It provides more flexibility, as the relationship can be terminated or scaled back as needed.

The main advantages of outsourced development are lower commitment to the individuals, quicker talent access and higher flexibility. Companies can tap into talent and expertise without the overhead of hiring and managing an internal team. The outsourced partner handles recruiting, salaries, equipment, and other operational factors.

Outsourced models allow companies to have work completed promptly without the need to hire specialised staff. It allows for greater agility and the ability to ramp up or down based on project needs.

Depending on the type of outsourcing partner, contractors may be working across several projects, which can impact productivity.

Pros of Outsourced Development

Outsourcing software development teams offers several key advantages compared to keeping development in-house:

Cost Savings. Outsourcing can significantly reduce costs. You avoid expenses related to hiring, training, HR management, and benefits. Mostly, outsourced teams get paid per project, so costs scale up and down as needed and can in some cases be agreed ahead of time.
Flexibility & Scalability. The ability to quickly add or reduce team members is a major benefit of outsourced development. With outsourcing, you can rapidly adjust the size of your team to match needs as outsourcing companies usually either have a pool of developers available or can quickly recruit for fresh talent.
Access to Specialised Skills. Outsourced software development teams provide access to specialised technical skills that may be scarce or absent internally. This versatility allows them to effectively take on a wide range of projects.
Risk mitigation. External partners often have established processes, methodologies, and quality assurance measures in place, reducing the likelihood of project delays, cost overruns, and technical issues. It allows companies to focus on managing strategic risks within their core areas of expertise.

Cons of Outsourced Development

Outsourced software development has some potential drawbacks to consider:

Communication Challenges. Outsourced teams are often located in different countries and time zones, which can make communication more difficult. Language barriers and cultural differences can also hinder effective collaboration if not managed properly.

At Ivy Tech, we don’t just find talent; we find the RIGHT talent. Our rigorous vetting process ensures seamless integration and a perfect cultural fit for our client.

Less Control. With outsourced development, you have less oversight and control compared to an in-house team. You rely on the vendor to manage their team, processes, and timelines. However, good project management and SLA agreements can help mitigate this.
Potential Confidentiality Risks. Intellectual property, source code, and sensitive data are exposed to third-party vendors. Security practices, policies, and legal contracts are essential to protect confidential data and IP. Vet vendors thoroughly regarding security and legalities.

We understand the importance of safeguarding your intellectual property (IP). That’s why we have implemented contractual measures to ensure the security and confidentiality of your IP throughout our partnership.

Vendor Dependency. Once systems are built, you are partially dependent on that vendor for ongoing maintenance and support. There is more risk if the vendor goes out of business. Transition plans help reduce this dependency.

Confused? Overwhelmed? Unsure?

Fret not! At Ivy Tech, we have created a solution that brings you the best of both worlds!

We give our clients the experience, security and stability of an in-house team with the flexibility and cost benefits of an outsourced team.

Our recruitment team taps into a global hiring market with your unique candidate or team requirements. We assemble a team that fits culturally and technically. This team is solely dedicated to you and works within your existing team and operational structures. It also means IP always sits with you and never gets handed to us.

Based on our experience of embedding remote teams with Startups and Scaleups, they will live and breathe your company culture and product quickly.

In the background, we will manage the payroll, tax, health insurance and equipment as well as ensure psychological safety.

The notice period is 1 month, and our hiring takes 1 to 8 weeks, depending on technical skill sets and budgets. Either way, we can scale up and down very quickly.

Too good to be true? Take a look at our case studies and find out how well-funded Startups across the globe have been benefiting from our dedicated engineering teams since 2018.

If Ivy doesn’t sound like the right hiring partner, keep reading for supportive insight into how to choose between.

When to Choose In-House

Choosing an in-house tech team is a strategic choice. Some companies put a lot of weight on the togetherness within an office, at least some days a week. For other companies, they want to retain complete control over the hiring, employment, and management process. Furthermore, in-house teams are best to create a strong culture and to extend retention options such as share options, increased parental leave and company offsites.

If recruitment speed, costs and talent market limitations are not an issue, consider putting your own in-house team together.

When to Outsource

Outsourcing is a great option for companies like Startups and Scaleups who want to move fast, stay flexible and agile and are cost-conscious.

Here are some scenarios where outsourcing makes sense:

Building your first MVP (minimal viable product) to present to early customers and investors.
Feature releases of an existing product to fulfil client demands and progress competitive advantage.
Lack of technical skills internally. For example, API integrations or e-commerce plugin specialists can be outsourced.
Bootstrapped Startups that need to watch every dollar leaving their bank account benefit from a nearshore or offshore tech team.

Conclusion

Choosing between an in-house and outsourced software development team is a decision that requires careful consideration of various factors. In-house development offers more control, alignment, and proprietary knowledge. However, it comes with higher costs, limited scalability, and a narrower talent pool. On the other hand, outsourcing provides cost savings, access to specialised skills, flexibility, and scalability, but it entails communication challenges, less control, and potential confidentiality risks.

Also, keep in mind that one does not exclude the other! Many of our clients have their own in-house tech team plus an Ivy team plus a project-based outsourcing partner.

In-House vs. Outsourced Software Development Team