Outsourcing Software Development vs. Developing In House

More and more companies are choosing to outsource over in-house development, but each method comes with its list of pros and cons.

by Andrew S., April 7, 2020

With the rapid advancement in digital technology over the last decade, software development has become one of the most profitable areas of business. The number of people using smart or connected devices grows daily. As the new demand continues to rise, it opens the door for innovation and design to keep up with the level of demand. 

Because of the lucrative nature of the software industry, there is no shortage of firms willing to develop your new software or app, but quality comes at a cost. Having a full team of the industry leaders is a dream situation until it comes down to paying for a full roster of developers.

 This budget-conscious mindset has resulted in many firms outsourcing their development projects. Many of these firms rely on external teams to ensure the completion of their whole projects or particular tasks within a larger project. The global market for outsourcing software development is projected to reach over $220 billion by the end of 2020.

 More and more companies are choosing to outsource over in-house development, but each method comes with its list of pros and cons.

Table of contents

  1. What is in-house development?
  2. Advantages of in-house development
  3. Disadvantages of in-house development
  4. How to build an in-house development team?
  5. What is software development outsourcing?
  6. Advantages of software development outsourcing.
  7. Disadvantages of software development outsourcing.
  8. What are the differences between nearshoring, offshoring and outsourcing?
  9. Best practices for outsourcing software development.
  10. Summary: Final thoughts on in-house development vs. software development outsourcing.

What is in-house development?

In-house development, also known as insourcing, is simply the act of developing software with the experts that you have on hand within your company. This means that the company does not get any additional help from developers who are not employed by the company. In-house development also encompasses using other company resources that are owned from within the company. While this is a simple way to develop new software, success or failure depends solely on the company.

After selecting the development team from within the company, each member is assigned specific tasks. It is important that all members of the team can work together and understand their role to ensure production continues at a smooth pace.

Assembling a successful in-house team can be a long and grueling process. But if assembled correctly, you will end up with a team that is committed and loyal to their job. 


II. Advantages of in-house development

It is important to establish the goals before establishing a new Development team. A company that establishes their team well can expect to see many advantages to keeping their projects in-house.

Full control

After assembling a team, it is up to you to train them and clarify what the task is that they are trying to accomplish. It is up to you to make sure they have the knowledge and skill to use the tools and resources available to them per the team objectives. As permanent members of the development team begin to establish themselves, they will begin to recognize situations that occur frequently and find ways to move past them more quickly. Because of their familiarity with the company, these established leaders within your team will be able to assess and address situations much faster than an external specialist would.

Direct communication

Once you have established your team you will be able to work with them more closely than you would with an outsourced specialist. The ability to work with them face to face and regularly can make interacting with your development team much more efficient.

Hand-picked team members

Because an in-house team member is your employee, there is a far greater level of investment that is required compared to an outside contractor. This can lead to a larger investment in the development is necessary to ensure that you find the right fit for your company.


III. Disadvantages of in-house development

High Costs

Assembling a team to develop software in house can be an expensive investment by a firm. Creating a productive and positive work environment comes at a cost. Firms need to purchase equipment, train their employees and budget for their salaries. A management system for the new department will also have to be established which comes with additional costs.

It’s a time Sink

To build a successful team takes time to recruit the right people. There is a long process of screening and recruiting to make sure that you are setting the department up for success. Otherwise, there was no point in starting the development team in the first place. It will also consume time and resources with additional meetings, logistics, goal setting, training and so much more…..

Without frequent access to premium talent, this type of endeavor typically requires a large commitment by the company.


In an attempt to conserve resources, companies typically have to devote resources away from another department when starting a new division like a development team. This limits the talent that pools available to most companies without taking on the additional financial burden of hiring more full-time employees.  

Facing the challenges between recruiting from within and limited hiring capability to bring on new employees are all things to consider when starting a new department.


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

When making the decision to start an in-house team compared to looking outside of the company, it is important to look for ways to minimize the risk, while capitalizing on all of the benefits associated with it. 

Your team will not appear overnight. It requires time and effort to build, hiring the right people, and establishing a clear structure and objective. It also helps substantially if the management of the team has a sound understanding of what the team is doing, and this knowledge and experience do not come cheap. Some companies without previous experience in digital projects often hire out or recruiting agencies. This is a sound option but in most cases, you get better results, the more direct involvement the company has with the hiring process. This can take time and energy away from other important areas in the company.

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

When deciding to move forward creating your in-house development team, there are several ways to go about it. Either a company is going to actively reach out to potential applicants in an attempt to recruit them, or by putting the word out and letting the applicants come to you.

The outbound way.

The outbound way of recruiting is where you as a company, are actively reaching out to potential applicants. This is commonly done by messaging promising leads on Linkedin, Facebook or other websites where you can start a conversation with someone.

Hosting conferences, workshops or other professional networking events is another great way to vet potential new employees as well as showcase your company's strengths and goals. It also can provide applicants with a chance to make personal connections with your brand which could lead to beneficial relationships down the road.

The inbound way

The inbound way of hiring talent is to put the word out by posting job offers and letting the applicants come to you.  

Online job hunting portals are a great place to start, considering that most people knowledgeable in development are likely to spend large amounts of their time huddled around a computer. Linkedin, Glassdoor, Angelist, and Indeed are a few well-known job posting sites to start your search.

Generating a social media post to promote your company to potential recruits is another strategy some companies employ. Because most people spend a fair amount of their time scrolling on social media, promoting a post to “apply today” could always attract your next best employee.

The last Inbound recruitment path that companies use is a career page built into the company homepage. Applicants who make it to the company’s page can learn more about the opportunities available or even reach out and apply through the website. This streamlines the process and reflects positively on the company image.

2. Send out the offers

Once you have put your name out there and sent out job offers it is time to see what type of talent you’re attracting. When setting up a development team you will want to plan out your goals ahead of time so that you hire the talent that can best accomplish those objectives.

It is also incredibly important to respond to all of the applications you receive. Ignoring an application or resume that someone took the time to send in can reflect poorly on the company and affect your ability to recruit premium applicants in the future.

3. Screen the resumes

All of the resumes need to be screened and assessed to determine who will be the best fit for this department and within the company as a whole. Once you have selected the top candidates, move forward scheduling interviews. It is best to provide some flexibility when setting interview times. You wouldn’t want to lose your best candidate because they had other plans at a specific date and time.

4. Conduct the interviews

Now it's time for the main event, the interviews. Typically when it comes to software development you interview with IT and HR separately.

The interviews with HR are intended to determine who would be a comfortable fit in your particular work environment and to eliminate any applicants that do not meet company standards. The IT interview is where you draw out more technical knowledge and make sure that they can complete the job they are being hired for. Once again it is important to respond to all of the applicants with feedback, either positive or negative. This tells them why they were being hired or the reason you decide to go with another candidate.


V. What is software development outsourcing?

When a company decides that building an in-house team is not the right decision at this time, another option is outsourcing its development. This is hiring another company, team or freelancer to handle your development needs. This creates a business opportunity for the developers and saves you time, money and stress.

Thanks to the connectivity of the internet, it is easier to find the right developer today than ever before. Not needing the developers to physically be there in person means that you are free to hire people who are specialized in a particular skill.

While there are many clear benefits to outsourcing your development, there are some practical disadvantages that are associated with it as well. Just don’t let your expectations get unreasonably high.  

Establishing a clear outline of what your development goals are will improve your results when outsourcing development. Defining clear lines will help make sure that everything goes as planned.

Some developers will choose to work for a flat fee and others will work with a sliding scale that is dependent on how much time and resources are consumed by the project. A fixed price model can offer more stability but limits the control from the outside firms. A time and materials pricing method offers more flexibility but can increase costs dramatically if significant revisions need to be made.

When it boils down to it, there are three major components to ensure that your projects get completed on schedule.

  1. A competent project manager to oversee the project.
  2. An initial plan of action, so your team can begin working right away.
  3. A well-structured management system in place. This will allow your team to focus on the project instead of the internal political hierarchy.

VI. Advantages of software development outsourcing.

Outsourcing development is so popular because it does have many advantages associated with it. These advantages include...


Outsourcing software development can be much more efficient than developing software in-house. You don’t have to worry about maintaining a workspace, maintaining equipment or taking care of employees. Another reason that outsourcing is so efficient is that you have the ability to scale the project up or down easily depending on the need at any given time. This gives you easy access to a large team when needed and a smaller one when the budget dictates cutbacks.

Wide talent pool

The internet provides virtually limitless possibilities when choosing a firm to develop your software. If a particular project requires more specialized expertise to accomplish specific goals, simply find a firm that specializes in that technology. You are also not tied down to a particular group of employees for all of your projects so you can hire one team for your current project and a different team for your next one.

Increased efficiency

When outsourcing, the person or firm that you take your project to are likely going to be people who are specialized in their field. This will cut down training time and other costs associated with an in-house team. Since they can get started on your projects immediately it will streamline the whole process, making it much faster.


VII. Disadvantages of software development outsourcing.

Outsourcing comes with many positive benefits, but like anything, it has its own set of challenges to go along with it.

Potentially unreliable communication

Since you don’t work with these people day in and day out like you would in an office environment, communication can become more of a challenge. Most of your communication will occur via email, phone call or other means of digital communication. While this may work for some, it can be a challenge for others and should be considered when appointing a liaison or point of contact with your outsourced team.

Another factor to consider is the language barrier if the team you are working with speaks another language or even broken English. This can lead to miscommunication which can hinder the project.

Higher security risks

When working with an outside party, sharing data and information has to occur to get the job done. An NDA agreement can help prevent leaked information but it is far from adequate protection when dealing with sensitive information. 

Be sure to protect yourself by thoroughly researching any company before signing the contracts to work with them.  

One size doesn’t fit all

Finding the right firm is important when outsourcing a project. Some firms are exceptionally talented in particular areas and lack the skill or knowledge to work in other areas.

Choosing a firm that can understand your project at an intimate level will ensure the process is completed on time and without significant delays.


VIII. What are the differences between nearshoring, offshoring and outsourcing?

When you decide to outsource your development projects you will have to choose between nearshoring or offshoring the development process. There are many talented development teams overseas that will be more cost-effective than a domestic development team. Working with someone overseas will come with its own set of challenges.


If you are dealing with an overseas company to develop your software you will need to establish a clear channel of communication. Typically this is done through email. Unfortunately, email has its own set of communication errors before factoring in for different countries, cultures and possibly languages. This can create issues when problems come up that require immediate action to be taken.

Working hours

When off-shoring your development there is going to be a time factor to accommodate. When a firm is 8-12 hours ahead or behind, they will be working completely different hours. If you have to take a call in the early morning and they are at the end of a long day, you will likely be in totally different emotional states and this can lead to more miscommunication. It is also difficult because there may only be a few hours every day that your office hours overlap which can slow the entire process down.

After-hours availability

The final thing to remember when dealing with an overseas team is that you will likely have to work strange hours to get the project done. This is especially key when projects near completion and communication are critical. Making room after hours to take calls with your team will increase efficiency and speed up the process but it can cause strain on your work/life balance. If this is not something you’re ready and willing to do then Off-shore development is not the route for you.

IX. Best practices for outsourcing software development.

Once you’ve weighed the options and decided that the right move for you and your company is to pursue your software development needs through outsourcing, there are a few key steps you'll want to take to make sure you get the most bang for your buck.

Find the right outsourcing partner

With so many different options at your disposal, it is important to choose the right partner for your development needs. This might just be an experienced specialist to add to your existing team or a full-service company that handles everything from initial design to launch. Finding the right partner to work with can make all the difference between a pleasant and productive investment and a stressful and costly one.

Once you settle on a company, assess their communication style, expertise, transparency and scalability to make sure that working with them will be a good fit. If you do not feel that they are the right fit for the job don’t be afraid to keep looking.

Figure out what form of outsourcing you need.

If you can establish clear goals before starting a new project, you will be able to better determine your outsourcing needs before deciding who you are going to take your business to. One outsourcing company may be a great fit if you want to be handed off and have them deliver the software to you. Now, the same company might not be the right fit for a project that requires more back and forth communication to maintain control over the final product.

Determining the requirements of the project for front-end and back-end development, design and coding development will point you in the right direction.

Make good use of project management tools

Team management tools are going to be invaluable in maintaining control over your project. Using a project management system like the Google suiteTrello or Jira is going to prove invaluable once you start working. These systems help you to improve your communication with your remote team as well as your speed up your workflow to help make sure your projects are completed on time. This will become even more important the more you are involved in the process.

Communication is key in clarifying your expectations

No team has telepathic abilities. This means you are going to have to deliver your vision to whoever you work with so you don’t waste your time and theirs with wasted communication. Knowing to lay out a plan so your team can follow it is a very important skill when deciding to work with an outsourced development team.

Making sure your team knows they can come to you for questions will improve your working relationship and improve productivity.


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

When it comes to software development there are so many different options available that there is no definitive right answer to deciding on the right course of action. Outsourcing your projects comes with a long list of added benefits associated with it. It can be a cost-effective solution to developing your digital programs, as well as giving you access to a wide range of talent around the world that come with their own specialized skill sets.

While choosing from a diverse talent pool outsourcing gives you, there is something to be said about the loyalty and commitment that comes from having an in-house team. This also solves most communication issues by having the ability to conduct business face-to-face rather than via email or another digital communication medium.

There is no single right answer when it comes to deciding to outsource vs. developing software in-house. You need to consider the scope and scale of the project as well as thinking about the time it will take to complete and other projects that are coming down the road. Also, consider the time and resources that you have available to help you determine the best approach to take to accomplish the goals set out by your company.

When it comes right down to it, it is your decision. So weigh the pros and cons of each opportunity and make the decision that makes the most sense for your project.

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