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In-House vs Outsourcing: Which IT Services Model Is Right for Your Business?

In-House vs Outsourcing

As almost every business today goes digital, the need in high-performing and secure software solutions is as high as ever. Hence, one of the most acute questions is where to find a reliable IT service provider and should you really hire one instead of assembling an in-house team?

While both models have their benefits, there are also several hidden rocks and challenges that each model brings to the table. To help you understand the topic and facilitate your choice, we’ve compared in house vs outsourcing and explained the strengths and drawbacks of each. 

What is IT Outsourcing?

Let’s start with the basics: IT outsourcing is the use of IT services provided by a third-party (external provider). These services may include software development, IT consulting, QA testing, or project management.

The main benefit of outsourcing development lies in its flexibility. Whether you need just several specialists or a whole IT outsourcing team, a reliable provider will offer a suitable solution.

Also, compared to the inhouse IT, outsourcing can be more affordable in the long run and doesn’t require extensive management from the client’s side.

Main pricing models of IT outsourcing

There are three main pricing models when it comes to outsourcing:

  1. Fixed Price: as the name suggests, this model implies that the client has a fixed budget and the outsourcing company proposes solutions and services based on that budget. This model also implies strict deadlines and clear milestones with minimal changes.
  2. Time & Material: with this model, you pay for the requested time and materials (services) so you can easily scale your project up and down by adding or removing team members. This model is great for long-term projects with unclear deadlines and fluctuating deliverables.
  3. Dedicated Team: this model can be called a mix between fixed price and T&M. While it is perfect for long-term and complex projects, it also calls for a high level of clarity and organization.

The main benefits of IT outsourcing

When comparing outsourcing vs in house development, the first one has several significant benefits:

1. Access to global talent pool and specific expertise

One of the biggest advantages of outsourcing is the fact that it grants you access to a wide pool of international talents. On top of that, you can find highly specific expertise that may not be available in your local talent pool.

Hence, outsourcing greatly increases your chances of assembling a perfect team with exact knowledge and skills that your project requires.

2. Flexibility

Another big benefit of outsourcing is high level of flexibility. Whether you need to implement any changes on the go, scale the team, or adjust business goals, the outsourcing team can effectively adapt to your requirements. 

3. Affordability

When comparing inhouse vs outsource, outsourced services usually come out more affordable than in-house development and here is why.

With inhouse development, you need not only to assemble and hire a team but also invest in training and other additional costs. When obtaining outsourcing services, you pay only for them – and the company takes care of other issues, like licensing, for example.

In short, IT outsourcing is affordable, flexible, and rich in IT expertise. Now, let’s overview the in-house development and its main challenges and strengths.

What is in-house development?

In-house development

In opposite to outsourcing, in-house development means that you hire and assemble a team of professionals who work as employees in your company. The biggest challenge with in-house teams is the hiring process.

First, your local talent pool may be lacking needed expertise and skills. Second, the cost of managing an in-house team is much higher than the cost of outsourced services.

Of course, in-house development also has its benefits:

  • Full control over the team and over the development process
  • High level of transparency
  • High level of motivation and investment

As for the cons, they are:

  • Potential lack of expertise or limited experience
  • Higher costs in long-term run
  • Limited flexibility

The hidden costs of in-house development

If you consider in-house development, you need to be aware of potential costs that are often overlooked by business owners. These costs include:

1. Maintenance and training

It’s not enough to just hire employees – you will also have to train them and invest into team maintenance. This is critical to maintain high retention rates and ensure that your team always has relevant skills and knowledge.

2. Hosting costs

When talking about software development, many business owners tend to ignore hosting. While with outsourcing an IT provider takes care of these aspects, the in-house team will have to select and set up the most suitable hosting solution.

Also don’t forget that your hosting solution should support your growing business needs and be secure and reliable.

3. Software maintenance

Post-launch maintenance is another expense that is sometimes forgotten yet makes up a significant part of your costs. Even if the software is completely bug-free upon the release, you will need to regularly update it.

Also, don’t forget about unexpected issues and crashes that might happen. All this adds up and results in quite big costs.

4. Compliance

One more critical aspect of software development is regulatory compliance (GDPR or HIPAA being the most popular examples). To ensure that you process and store sensitive data in a secure manner, you need to adhere to industry standards and industry-relevant regulations. Achieving this often requires massive financial investments.

In house vs outsourcing: comparison table

After we’ve learned more about each software delivery model, let’s review inhouse vs outsource one more time in brief via this table below:

In-houseOutsourcing
CostsHigh due to the need to hire, assemble, train the team plus additional expensesMedium since most of the costs are already included in the pricing plan 
FlexibilityLow or mediumHigh since it’s very easy to scale up or down with an outsourced team
ExpertiseMight be limited depending on the available talent pool in your regionA variety of specialists to choose from, including specific skills and knowledge; access to a global talent pool
Control over processesHigh since you will be fully setting up and managing the development processMedium since the development process is most often managed by the IT provider
SecurityHigh or Medium but you will be the one fully responsible for itHigh since the IT provider takes all necessary measures to ensure security and compliance

Outsourcing or in-house: what to choose? 

Now that we’ve looked at the in-house vs outsourcing pros and cons, let’s answer the big question: what to choose for your business?

While there is no ultimate answer to that question, more and more companies start recognizing the benefits of outsourcing and working with IT providers. This partnership brings flexibility, efficiency, and scalability without requesting you to monitor the project 24/7.

If you have questions left, you can always contact the company’s representative to have them answered. To select the most suitable IT provider, we recommend both asking your network and checking the company’s rating on Clutch.

You can also directly contact the company and ask about its experience in your specific industry and whether it worked on similar projects in the past.

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