michaela-damm.jpg
blocshop
October 01, 2021
0 min read

In-house development vs outsourcing software development

In-house development vs outsourcing software development.png

What are the advantages and disadvantages of in-house development?

Start-up businesses face unique challenges. From the beginning they must decide how to handle software development. Do they hire developers directly or do they outsource? Many start-up businesses find it difficult to find enough talent locally. They have to consider administrative expenses. They must count costs associated with having in-house employees. The company must pay rent, taxes and equipment expenses for in-house employees. They face a large number of “soft” costs with in-house employees. 

Every business starting software development must ask themselves what will serve them better, in-house or outsourcing? There is not a simple answer to the question. Each start-up has different needs and requirements. Making the choice to develop in-house or to outsource will have long-term consequences.

First, a closer look at in-house development.

In-house development begins when the start-up business builds its new team. They hire for skill sets needed to complete their project. They will have to recruit, interview, hire and onboard new team members. They will also need to train these team members on emerging technologies.

What are the advantages and disadvantages of in-house development?

Advantages of in-house development 

  • The team hired in-house only focuses on one software development project. The team does not have other clients to distract them. They also likely work in closer geographical and physical proximity, allowing for faster communication.

  • The in-house team also shares a culture and the values of the company, being recruited with this in mind. This enables smoother workflows and synergies.

  • In-house teams enjoy immediate feedback and support. In-house teams respond immediately to bugs and roadblocks. External teams will not respond with equal speed. 

Disadvantages of in-house development 

  • In-house development costs more. Between overhead costs and salaries, in-house teams need a bigger investment than outsourced teams.

  • When the team waits for new projects to begin, they still need to get paid. Unlike an outsourced team, their salaries don’t pause when they are not active on a project.

  • Training and upskilling in-house teams falls to the start-up. Your employees will not pay to train themselves. In software development change is constant. They will ask you to pay for tools and training so they perform their jobs at their highest level.

  • Turnover rates for in-house teams also cause trouble. Start-ups hire the best talent, but that’s only the beginning of the journey. They must nurture their development teams so that they thrive. Developers are in high demand everywhere. If a developer doesn’t like a job, they will leave.

When does it make sense to choose an in-house development team?

Some start-ups will choose to hire an in-house team. The reasons a start-up makes this choice might include the following:

  • A start-up that has a lot of capital and a large budget would choose an in-house team. An in-house team makes sense for a company with vast resources. Most companies outsource to save money. If that’s not a concern, then in-house would prove the most effective way forward.

  • The start-up needs full control of the project. With an in-house team, the company can precisely control workflows. They can spot trouble sooner and work to fix bugs faster than an outsourced team. 

Now let’s take a closer look at outsourcing development. 

Outsourcing development means hiring an outside agency to build your project. Typical outsourcing involves a contract where the start-up lists its needs and requirements. Outsourcing allows for great flexibility and scalability.  Start-ups choose to outsource to save on headcount and overhead costs. The demand for IT outsourcing grows every year.

Advantages of outsourcing development 

  • Better control of costs and budget. Outsourcing often means you can find talent in a country with lower employment costs. You will pay less for the same level of skill.

  • Greater breadth of knowledge. If you outsource, you hire an agency that employs experts in many fields. If you hire in-house, you will have to hire an expert for every specialty you need.

  • A larger pool of talent. Outsourcing means you can search the whole world to find the talent you need. You are no longer constrained by who can physically come to your headquarters.

Disadvantages of outsourcing development

  •  Not as much control over the project. If you outsource, you cannot control every detail. The team you outsource to will have other clients and projects. Bugs will take longer to fix.

  • Outsource teams take longer to communicate. If your team physically resides in India or Ukraine, you will only have certain hours of overlap for meetings. If you discover a problem at 4pm in California, the development team will wake up and learn about it hours after the close of business. Language barriers could also cause trouble when communicating with non-native English speakers.

When does it make sense to choose an outsourced development team?

Most start-ups choose to outsource when they face the following situations:

  • Limited budgets. If your budget is small and your ability to commit to permanent monthly salaries, outsourcing makes more sense. Rather than tying up capital in employees, the company can use funds elsewhere.

Read our breakdown on Software development budget estimation to get more insights.

  • Tight deadlines. If the project would require a large team initially to meet deadlines, outsourcing makes the most sense. Instead of hiring 100 people that you only need for six months, you can outsource.

  • Fresh insight. If a start-up has a great idea an outsourced team lends an important perspective. The outsource team sees issues that internal stakeholders have overlooked.

Finally, we should examine a hybrid approach. A company might find that it cannot choose between in-house and outsourcing. If they do not see a clear advantage in either approach, they opt for the hybrid approach. The hybrid approach combines some on-site staff with outsourcing to an external agency. This gives companies the best of both worlds. 

Read also: Outsource web development in 2021 and beyond

The start-up chooses essential stakeholders to hire in-house. Then they hire an outsourcing agency to fill gaps in the skills of the in-house team. This gives the company access to a wide talent pool while also keeping fixed costs low. 

Software development at Blocshop

 Here at Blocshop we specialize in partnering with companies looking for talent and expertise. We harness the power of Agile development processes to keep costs down. We help our customers reduce their costs by up to 30%.  Blocshop has a custom software cost calculator to help you plan your budget. We also offer a software development cost guide so you know exactly what to expect. If you would like to learn more about how Blocshop works, check the case study on how we developed a mobile app for our client, Fairphone.


Learn more from our insights

roro665_data_transformation_from_one_format_to_another_with_g_91332f66-93b0-48d8-9d5e-a8609529cbb7_3.png
September 25, 2024

Generative AI-powered ETL: A Fresh Approach to Data Integration and Analytics

ETL meets generative AI. See how AI-powered ETL redefines data integration and brings more flexible data processing and analytics across industries.

roro665_uk_pensions_dashboard_reform_magazine_cover_collage_-_1888e056-80f6-4aac-958c-bf02b128a7d3_1.png
September 03, 2024

UK Pensions Dashboard Compliance: Deadlines, Transition Steps, and the Use of AI-driven Data Mapping

How AI-driven data mapping can support UK Pensions Dashboard compliance. Understand key deadlines and steps for efficient data conversion and transition to the UK Pensions Dashboard.

roro665_a_cover_image_depicting_data_conversions_and_compliance_c8ddf35a-cc0f-447a-abb7-0f4b1f14bb64 (1).png
August 23, 2024

Using AI for data conversion and compliance in the banking sector

Discover how AI transforms data conversion and compliance in the banking industry, optimizing processes while managing risks.

ai_applications_in_banking_and_banking_technology_blocshop.png
August 14, 2024

AI Applications in Banking: Real-World Examples

Explore how major banks are using AI to enhance customer service, detect fraud, and optimize operations, with insights into technical implementations.

20221116_153941.jpg
July 31, 2024

From Concept to MVP in Just 12 Weeks with Blocshop

Blocshop delivers your MVP in 12 weeks, solving real pain points with agile sprints, daily scrum meetings, and fortnightly reviews. Here's the process explained.

chatgpt4_ai_integration_blocshop-transformed.png
July 19, 2024

ChatGPT-4: An Overview, Capabilities, and Limitations

The technical aspects, usage scenarios, and limitations of ChatGPT-4, including a comparison with ChatGPT-4o.

roro665_depict_a_data_sample_thta_completely_changes_its_form_725a4f20-ea40-4dd1-a68d-5c4327c9bf24_1.png
June 20, 2024

Generative AI used for data conversions and reformatting

How to use generative AI for data conversion, addressing integrity, hallucinations, privacy, and compliance issues with effective validation and monitoring strategies.

DALL·E 2024-05-30 09.37.01 - An illustration suitable for an article about ISO 20022. The scene should feature a modern, sleek representation of the ISO 20022 logo in the center. .webp
May 28, 2024

ISO 20022 Explained: A Comprehensive Guide for Financial Institution Managers

What is ISO 20022? How does it affect companies and institutions in the fintech and banking industry and how to prepare for its adoption? All explained in this article.

DALL·E 2024-05-22 20.55.08 - A detailed and high-quality DSLR photo of a person using a laptop to shop online, showing personalized product recommendations on the screen. The back.webp
May 16, 2024

Key AI Trends in E-commerce and Overview of AI integrations for E-commerce Platforms in 2024

Transform your e-commerce platform with AI tools for personalization, analytics, chatbots, search, and fraud detection. Boost sales and improve customer experiences.

eIDAS mark.png
May 09, 2024

Digital Identity and Payment Services in the EU in 2024: Key Updates

eIDAS 2.0 and PSD3 are set to enhance how digital identities and payment services are managed across the European Union in 2024. Here’s an overview of how each framework contributes to the digital landscape of the EU, what to expect, and how to prepare.

eIDAS 2 in fintech and open banking EU market.png
May 06, 2024

What is eIDAS 2.0 and EU Digital Identity Wallet and how will it change the EU digital market

Learn how eIDAS 2.0 and the EU Digital Identity Wallet will transform digital transactions and identity management across the European Union.

best large language models for ERP systems.png
March 31, 2024

Language Models Best Suited for Integration into ERPs

Four prominent large language models stand out for their compatibility and effectiveness in ERP system processes and automation. See what they are.

PSD3 in open banking Blocshop.png
April 23, 2024

PSD2 vs. PSD3: The Evolution of Payment Services Regulation

What is PSD3 in open banking? See how PSD3 compares to PSD2 and what should banks and fintech businesses do to ensure regulatory compliance in the EU market.

roro665_hands_working_with_a_laptop_in_a_modern_office_there_is_20dca307-c993-4539-99d7-fd5ca264248c.png
April 14, 2024

Enhancing ERP Systems with AI Chatbots

Explore how AI chatbots can transform ERP systems, enhancing efficiency, decision-making, and user interaction.

eIDAS in fintech and open banking EU market.png
April 29, 2024

eIDAS: The regulation helping secure Europe's digital future

See how eIDAS enhances EU digital transactions with secure identity verification, supporting e-commerce and public services across Europe.

hybrid ERPs.png
March 21, 2024

Hybrid ERP: An Innovative Approach to Enterprise Resource Planning

Hybrid ERP is a blend of cloud and on-premise solutions. With expertise in both, Blocshop is uniquely positioned to help you with hybrid ERP development and implementation.

0-4 cover.png
October 03, 2023

IT Staffing: Individual Hiring vs. Specialized Developer Teams

Should you hire individual developers or go for a specialized, custom-built developer team?

chatgpt-35-limitations.jpg
July 17, 2023

ChatGPT-3.5: An Overview and Limitations

In this article, we'll take a closer look at the capabilities and limitations of ChatGPT-3.5, providing you with a comprehensive overview of what it can do and what its boundaries are. So, let's delve into the inner workings of this large language model.

gpt4 vs gpt3-5 and the key differnces.png
June 15, 2023

A Deep Dive into GPT-4 vs GPT-3.5 Differences and Ability to Revolutionize Software Development

There are key differences between ChatGPT-3.5 and ChatGPT-4 that software developers and companies procuring software solutions alike should be aware of. Let's see how these differences affect the output generated by these models on specific examples.

ai-development-cto-2023.jpg
May 09, 2023

AI-powered software development: What CTOs need to know in 2023

As technology continues to evolve at a rapid pace in 2023 and beyond, CTOs must stay ahead of the curve by utilizing predictive analytics, automated testing processes, and deployment solutions.