In-house vs Outsourcing: Factors to Consider When Outsourcing Development

Companies looking to develop their own IT products often hesitate to delegate tasks to outsourcing firms. However, risks can be minimized if collaboration with contractors is optimally organized. Artem Palamarchuk, Technical Director of Neotech, believes that outsourced development requires careful consideration.

Understanding In-house and Outsourcing

In-house development refers to using a company's internal team to create software. In-house developers receive salaries and benefits provided to company employees, including VMI, insurance, and vacation days.

Outsourcing involves partnering with an external contractor who has specialized skills for project development. This allows you to hire professionals on an hourly or project-by-project basis with a fixed fee.

Outsourced Development: Pros and Cons

Deciding whether to outsource depends on each company's individual circumstances, such as company size, budget, deadlines, and the presence of an in-house development team.

To better understand the implications, we have categorized companies considering outsourcing development into two types - those with their own development team and those without.

Companies will have different relationships with contractors based on their type: the first group outsources the entire development process, while the second can outsource the whole project or just a portion of it.

Case #1: Companies without an In-house Development Team

A company without an in-house team may need or desire to develop a technology product. For instance, a startup that lacks confidence in the project and resources to hire a team of developers or a business unrelated to IT that doesn't want to build a department from scratch. Such companies are frequent customers for outsourced development.

Let's examine the pros and cons of outsourcing for these companies.

Advantages of Outsourcing for Companies without In-house Development Teams

• Time savings in forming an in-house development team
  Companies lacking an in-house team face a lengthy process of organizing developer work from scratch. It can take months for employees to adapt and work cohesively. Instead of forming a team, a company can find contractors with established work processes and experience in creating similar products or developing solutions.
• Faster market entry
  Outsourcing teams are already working together and can immediately start on the client company's project. If it's essential for a company to quickly launch a technical or technology product, working with contractors will be faster than creating an in-house team.

Disadvantages of Outsourcing for Companies without In-house Development Teams

• Difficulty in properly defining tasks
  Even experienced developers struggle to detail requirements for a finished product, which can change during the project. Companies lacking development experience might not know how to set a technical goal, reducing their chances of getting the desired product.
• Challenges in client company's control over team's work
  It's difficult for the client company to monitor the final development project's quality, as it usually lacks technological expertise. For example, the company may not detect flaws during testing, and "pitfalls" may be revealed only during the project. Later, it may become challenging to make changes to the system, and improvements could be costly.
• Damage resulting from contractor changes
  If a company parts ways with a contractor and lacks in-house experts to maintain a custom solution, it must hire new developers to review the old code. These developers may refuse, saying, "We can't support this system; it's easier to rewrite it." Thus, the development process starts all over again.

Rewriting code multiple times is financially and time-consuming, so a company might continue working with the same contractor throughout the project, even if unsatisfied. In this respect, companies depend on outsourced developers from whom they order custom solutions.

Case #2: Companies with In-house Development Teams

Suppose you have an in-house team or even multiple teams of developers but feel the need to delegate some tasks to outsourcers to save time and resources. Consider the pros and cons of this situation.

Advantages of Outsourced Development for Companies with In-house Teams

• Ability to outsource side projects
  Larger companies tend to have more contractors because, in addition to developing a key product, ideas for side products or internal startups emerge. The in-house team prioritizes the core business, potentially neglecting side projects. Outsourced teams can handle those projects, ensuring both the main product and side projects, such as IT products or internal startups, are developed efficiently.
• Manpower management
  With outsourcing, a company can regulate hiring volumes. For example, a company might have a year-long project and need to quickly ramp up resources, knowing they won't be needed afterward. In this case, hiring a contractor for a year is a cost-effective solution.

Disadvantages of Outsourced Development for Companies with In-house Teams

• Differing visions of the final result
  Every developer has a unique perspective on code quality, often leading to problems. For instance, a client company may receive development results from contractors that don't pass internal review because the in-house team believes they don't meet their high standards.
• Lack of project documentation
  A company might not have project documentation outlining functional, architectural, and technical solutions for software development. Often written after service release, this documentation may be inferior to the code itself. An external contractor may struggle to work without clear instructions, affecting the final product's quality.
• Challenges with integrating in-house and outsourced developers
  When an in-house team hires outsourced developers specializing in a specific field, the technical task might be poorly defined and lacking detail. This occurs because the client company may not fully understand the project's nuances. The contractor should assume this responsibility: working through the technical study with the client and maintaining open communication.

Factors to Consider When Outsourcing Development

We advise against outsourcing a company's key processes. In other cases, clients should be prepared to collaborate with contractors. Although all teams differ, there are general rules to follow when outsourcing, based on our experience.

Recommendations for working with an outsourced team include:

• Inform the contractor about project changes
  Designate someone in the company for constant communication with the contractor, keeping them informed of all work processes. Otherwise, you risk receiving a project that's no longer relevant.
• Provide examples when preparing the terms of reference
  If you cannot articulate all project requirements, give the contractor at least an internal study from the in-house team, supported by examples.
• Break work into parts
  Obtain regular interim design deliverables. Reviewing a large chunk of completed material is difficult, and the in-house team might not catch flaws and shortcomings until the launch.
• Integrate the contractor into internal processes
  Try to involve the contractor in team processes as much as possible to increase their project engagement. For example, outsourced developers can participate in task evaluation or product discussions.
• Discuss the business side of the product with the contractor
  The outsourced team should understand the system's use, not only from a technical standpoint but also from the user's perspective. This enables outsourced developers to write their own tests and reduce the in-house testing workload.

Conclusion

Outsourced development presents advantages and disadvantages for companies with or without in-house teams. To assist you in making a decision, we've provided a quick comparison chart.

When choosing outsourced development, consider our advice:

• Keep the outsourced team informed about project changes;
• When preparing terms of reference, provide examples rather than requirements;
• Divide the work into manageable parts;
• Involve outsourced developers in the company's internal processes;
• Share information with the outsourced team on how to test the product.
• By following these guidelines, your collaboration with contractors will be more productive and enjoyable.