In-House vs. Outsourced Software Development: Which Is Right?

9 min read


When hiring developers for a new tech project, you have two options: in-house developers or outsourcing the work to external developers. Depending on your business goals and needs, both options can be great. In-house development is typically better suited for long-term projects with larger budgets, while outsourcing is often the best choice for short-term projects about to scale up.

With software outsourcing trending in the development world, it’s important to learn about in-house vs. outsourcing software development. In this article, you’ll learn how in-house development differs from outsourcing, the advantages and disadvantages of each, which is best for you, and how Flatirons can help overcome the challenges of in-house software development.

What Is In-House Software Development?

In-house software development means hiring and employing full-time employees to create software. In-house software developers usually live in your area or can commute or move to your area.

Assembling an internal team can be time-consuming and expensive. It requires you to write job descriptions, review applicants’ resumes, test and vet prospective employees’ hard and soft skills, and onboard them onto your team. However, if you know what you’re doing and hire talented developers and project managers, you will have a loyal, dedicated team you can rely on for all your software development tasks.

Advantages of In-House Software Development

Hiring developers to create in-house developed software can offer several advantages that outsourcing cannot. To determine if in-house software development is right for you, consider the following advantages.

Greater Control and Flexibility

In-house software development offers greater control and flexibility over the software development process. Since the developers physically work in your office building, you can ensure that the development process aligns with your business objectives and that the software meets your specific requirements and needs. 

Additionally, having an in-house team allows you to make changes and adjustments at any stage of the software development lifecycle. This can be particularly important if you have evolving business needs and must adapt to changing market conditions.

Improved Morale and Team Building

Collaborating on internal development projects often involves developers working near one another, whether in the same room, space, or building. This proximity allows teams to organize and participate in team-building activities, celebrations, and social events in person. These activities can foster stronger bonds among team members.

Stronger Communication

Finally, in-house software development can improve team communication by promoting closer physical proximity, real-time collaboration, and shared workspaces. Direct face-to-face interactions can enable prompt decision-making and open communication channels, building trust and understanding among team members.

Disadvantages of In-House Software Development

Although in-house software development offers many advantages, adopting it has several disadvantages. These include higher expenses, a limited pool of talent, and diverted focus from core business activities.

Higher Expenses

Developing software in-house can be expensive. You must pay for office space and infrastructure and invest in finding, hiring, and training skilled developers. Additionally, you must pay your in-house developers regularly, regardless of whether they have a lot of work.

Limited Talent Pool

Organizations may find hiring and retaining highly skilled employees challenging, especially in specialized fields like artificial intelligence (AI) and machine learning (ML). This talent shortage can result in understaffing, overworked staff, and reduced ability to stay up-to-date with new technologies and innovate.

Diverted Focus From Core Business Activities

Hiring, training, onboarding, paying, and coordinating an internal development team can be a costly and time-consuming process. This is particularly true for small businesses. Hiring an in-house team can take your attention away from more important tasks, such as day-to-day operations and strategic planning. This diversion can lead to a lack of agility and responsiveness to changes in the market, hindering the growth of your company.

What Is Outsourced Software Development?

Outsourced software development means hiring an outside service provider to handle software development projects. Essentially, you hire a freelance contractor, a software development team, or a hiring process provider from another company to work for you to save time and money.

The services provided by outsourced software developers vary depending on your preferences and needs. They can range from developing software for your company to developing and maintaining software for your customers and managing your business operations.

There are three types of software outsourcing: onshore, nearshore, and offshore. Each has vastly different costs and benefits, so be sure to evaluate which one is right for your organization.

  • Onshore development will be the most expensive option.
  • Nearshore development provides many of the benefits of onshore development, at a fraction of the cost
  • Offshore development will be the least expensive option

Advantages of Outsourcing Software Development

Partnering with outsourcing software development companies has several benefits, including cost savings, access to diverse talent and specialized skills despite budget constraints, flexibility, exposure to new technologies, and reduced infrastructure investment.

Reduced Operational Costs

When it comes to paying software developers, it’s important to remember that in-house developers must be paid regularly, even if they don’t have any assigned work. On the other hand, outsourced developers can be paid according to your needs. If you only have limited work for them, you can pay them by the hour or project. However, if you need them for multiple long-term projects that take a lot of time, it’s best to pay them monthly. 

Additionally, salaries are lower if you hire software developers from regions where the cost of living is lower, such as Latin America. This is a huge benefit of nearshore outsourcing.

Faster Access to Talent and Broader Skill Set

Thanks to the Internet, you can access a vast pool of specialized talent from any part of the world. Unlike the traditional hiring method, where you are limited to the local talent pool or people willing to relocate, hiring online allows you to find someone to do a specific task much faster.

Suppose you need to hire a software developer who has Rust programming expertise. However, even after spending a month looking for the right candidate, you cannot find someone suitable in your local area or willing to relocate. In such a situation, you can search for a skilled Rust software developer online and quickly find a suitable candidate. Collaborating with an outsourcing software development provider can help you expedite the process.

Increased Scalability, Agility, and Adaptability

One of the greatest advantages of working with a third-party outsourcing partner is scaling up and down at will and quickly. 

If you need more developers for a project, you can hire more developers either by yourself or through a staff augmentation partner. This approach allows you to give your team temporary support. It can help you fulfill project objectives and deadlines and address gaps in skill sets. 

On the other hand, if you don’t need that many developers for your team, you can scale down by letting some developers know that you don’t have any work for them — no need for firing.

Exposure to New Technologies and Approaches

Outsourced developers can bring diverse skills to your team that may not be available locally. For instance, an outsourced developer may have specialized knowledge in AI/ML, which is a rapidly growing field in software development. This expertise can be particularly valuable if your project requires AI and ML technologies. 

By working with outsourced developers, your team can benefit from the latest tools and approaches in this field, leading to better project outcomes. Additionally, outsourcing can help broaden your team’s skill set and can lead to new ideas and approaches that may not have been considered by your local talent pool.

Reduced Infrastructure Investment

Outsourcing can significantly reduce infrastructure investment costs. First, you don’t have to rent a physical office for your workers as they can work remotely. Second, you don’t need to purchase equipment for your team members as they will use their own. Moreover, if your current outsourcing partner is too expensive, you can switch to a cheaper option by hiring new developers.

Disadvantages of Outsourcing Software Development

There are many benefits of outsourcing software development but also certain drawbacks. These include having less control over the development process, limited focus on business knowledge, and dealing with time zone differences. Remember to consider the disadvantages of in-house developed software before you pick software development in-house vs. outsourcing development.

Reduced Control Over Development

Outsourcing software development reduces the level of direct control you have over the development process. 

The physical distance between your internal and external teams can lead to difficulties in monitoring and managing the day-to-day progress of the project. This can lead to potential misunderstandings, delays in communication, and difficulties in enforcing immediate adjustments or changes to the development strategy.

Limited Focus on Business Knowledge

Although outsourced teams often have specialized knowledge, they may have a limited understanding of your operational goals, company values and industry-specific nuances. This lack of deep business knowledge can lead to a mismatch between your objectives and the outsourced team’s work. 

Time Zone Differences

Dealing with time zone differences is a common challenge when outsourcing work. If you hire developers from countries with vastly different time zones, such as India or Poland, coordinating work can become difficult. This can lead to delayed responses, prolonged feedback loops, and scheduling difficulties for real-time meetings and collaboration. The misalignment of working hours can lower the quality and efficiency of work as well as the bottom line. It’s often better to stick to the popular nearshore countries like Colombia and Brazil.

Software Outsourcing with Flatirons

In-house software development has its benefits but also poses challenges, such as high expenses, a limited pool of skilled professionals, and a diversion of focus from core business activities. Although working with an outsourcing company may seem like a viable solution, issues such as time zone differences can negatively affect collaboration.

Fortunately, Flatirons offers nearshore software outsourcing services that combine the advantages of in-house development with outsourcing. Nearshoring enables you to hire budget-friendly remote developers in nearby time zones, such as certain U.S. cities as well as some of the best countries to outsource software development, such as Colombia and Brazil. Our developers have ample experience designing, creating, and testing custom software and creating memorable user experiences.

To learn more about how we can help you, fill out this form. We have offices in Boulder, CO, São Paulo, Brazil, and Barranquilla, Colombia.

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