In-House Or Outsource: What's Better For A Large Enterprise?
CEO of Intellectsoft, the technology partner of Fortune 500 organizations.
During the economic crisis caused by the pandemic in 2020, software development outsourcing proved its flexibility. Its adaptability helped companies scale resources to achieve quick results and strategic, long-term goals. Gartner estimated worldwide spending on IT outsourcing services would grow by 5.5% in 2021.
Outsourcing a part of the operation or the whole project rather than handling it internally can reduce costs. And it is particularly important as growing an in-house staff typically requires more time. Let’s take a look at the key benefits of hiring a software outsourcing partner.
Why Do Large Enterprises Choose To Outsource?
According to Deloitte, the most common reasons for outsourcing include: reducing operating costs, focusing on core business, solving capacity issues, adapting to talent scarcity and other business needs.
Reducing operating costs: The outsourcing of software development can help you get the resources you need at a low price. At times, hiring offshore staff for some tasks may give greater flexibility and eliminate redundant expenses, such as recruiting and office maintenance. Besides, you are free to choose a local team in a country with a low cost of living and a fixed hourly rate.
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Focusing on core business: Too often, it’s impractical to take on an activity that is too far outside the expertise of your in-house team. Not to mention that team member training is time-consuming. Asking for too much may also cause burnout and, therefore, impact long-term productivity and the health of your team. It might be better to focus on what matters most: growing your business.
Solving capacity issues: Putting in an unsustainable amount of work often ends up with overtime, both exhausting and pricey. Let’s face it, your team’s focus and long-term productivity are much more important. Better go for outsourcing of software development. It won’t be hard for you to find a proficient specialist who works on specialized projects while keeping all sorts of general initiatives in-house.
Adapting to talent scarcity: When you outsource, you are no longer limited by technology constraints or a scarce pool of talents available at the moment. You can deal with a few software outsourcing partners who are proficient in exactly what you need to build or maintain the solution. In addition, you can always engage a global talent with the same level of expertise yet without having it at a premium cost.
Potential Drawbacks
Well, nobody is perfect. Given that an outsourced team does not exclusively work for you, chances are that you will understandably face some disadvantages, including communication barriers, holding only partial control and, in extreme cases, trust issues. Admittedly, getting a reliable offshore development team may be challenging. To take full advantage, you should seek the right fit with the following worst-case scenarios in mind.
Keeping up with communication barriers: Outsourcing to an IT partner halfway across the world means facing the time zone difference. Sometimes language barriers may also become an issue, for example, when the offshore team leader has difficulty understanding specific concerns or your own expectations for a project.
Giving up some control: Unfortunately, you just cannot control the whole development progress or deal with troubleshooting on the go. And this would be perhaps the only situation when a complete in-house team pays off.
In-House And Outsourced: Getting The Best Of Both Worlds
• Both in-house teams and outsourcing require a mix of understanding of skills, patience and diligence. While outsourced software development might be more affordable, in-house staff lays a solid background for longer-term progress.
• Tasks like customer communication or online security can be ideal for engaging an experienced IT vendor to get the job done while you and your team focus on more value-increasing objectives.
• Using a mix of in-house and outsourced approaches is a great way to make a well-balanced model, ensuring you have the right people doing the right things — right when you need them. Though this is harder to do when outsourcing, we try to make it happen when possible.
Examples Of Outsourcing From Big Players
It is one of the major companies that has been outsourcing non-core functions like admin and IT work for years. Even some industry giants have to face it; it is impossible to get all tasks done internally. Some reasons this company outsources likely include talent scarcity, technology constraints, capacity issues, improving quality and reducing costs.
Lessons to learn: There is no such thing as business size when it comes to outsourcing. By understanding what can be handled externally and what functions to keep in-house, companies can achieve an optimal budget utilization rate.
Alibaba
Unlike Amazon or eBay, the project is based in China, making the challenges of outsourcing somewhat different. In the book Alibaba: The Inside Story Behind Jack Ma and the Creation of the World's Biggest Online Marketplace, I learned that Alibaba's reasons for outsourcing were accessing the pool of talents and skills, improving quality and prioritizing core business.
Lessons to learn: You need to have a bigger picture of your project needs. By knowing what tech talents are scarce, Alibaba engages global IT vendors to stay covered.
Remembering that consistency is the key, WhatsApp offers a solid example of outsourcing with strategic engagement from the very beginning. It likely outsources to optimize costs and focus on the core business.
Lessons to learn: When looking for more flexibility in the delegation of resources and talent, geography should not be a boundary. Explore the global pool without paying too much.
Conclusion
Should you consider in-house or outsourcing? The potential benefit of software outsourcing seems out of the question. But to maintain steady growth, you need to find a sweet spot where your in-house and outsourced resources are balanced and well-aligned with goals. While big players like Amazon and PayPal may remain in-house, other famous projects like Slack and GitHub (or even Google!) have always had a part of their job done outside. After all, it’s only up to you to decide.
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