In-house Development vs Outsourcing: What to Choose?
Innovation and development are two critical components of long-term success. A new development project requires significant time, personnel resources, and money. Once you have evaluated your needs, choosing whether to keep your development project in-house or outsource it is the first hurdle to overcome.
Luckily, you are not on this endeavor alone, and we will discuss the pros and cons to help you choose your path forward.
What Is Outsourcing?
Before we jump into the meat and potatoes of this article, we thought it might be prudent to go over what outsourcing is. Although it may seem obvious, there are significant differences between outsourcing and subcontracting.
When you outsource a particular function or department of your company, you do so with the intention of permanency. On the other hand, subcontracting involves temporary specialized work that serves a single purpose.
Outsourcing IT Example
If you need to develop a new IT department that will meet your company’s needs, you may outsource that function to a company specializing in providing those services. By outsourcing that department, you bypass the need to invest funds and hire specialists.
Subcontracting IT Example
You may manage your IT department in-house, but you want to develop an App for your company. None of your employees in IT have the skills, training, or equipment to do this. Therefore, you subcontract a software developer to complete this function. Once the App is completed, you no longer require the subcontractor's services.
We hope this summary of outsourcing versus subcontracting helps illustrate how the two serve two different purposes for you. Understanding the difference will significantly improve your ability to define a way forward with your new project.
Outsourcing Pros
- It saves money
- It enhances talent
- It enhances innovation
The most significant benefit of outsourcing is the space it gives you to focus on your core competencies. Your core competencies are a culmination of your company’s Why.
- Why do you exist?
- Why were you founded?
- What is your purpose?
- What is your mission?
The answer to these questions forms the foundation of your core competencies. Outsourcing departments and functions of your business that could be considered weaknesses allow you to focus on your strengths.
Your business can take the next step forward in innovation to accomplish your global mission in this space. As you already know, it is difficult to determine just how valuable this benefit is. We want you to have the right partner, armed with the best information, to choose your path forward.
Here are three reasons outsourcing your development can be beneficial to your company.
Outsourcing Saves Money
In-house development is costly, especially if you do not already have the personnel and equipment requirements. By partnering with an outside company specializing in the area you wish to develop, you can eliminate the bulk of these startup costs.
Developing your IT needs in-house, for instance, requires hiring highly trained software and computer science specialists, purchasing expensive hardware and equipment, and expanding your workspace. These costs will be ongoing and in constant need of resource investment. Outsourcing this development reduces these costs to fractions of their former selves.
When keeping development in-house, cost controls can be challenging to anticipate. For instance, influences on costs such as inflation, fuel prices, chip shortages, and public health are always clear and present dangers. With outsourcing, you agree on a price with your partner company, effectively eliminating these concerns.
Outsourcing Enhances Talent
One of the tremendous benefits of outsourcing is the ability to tap into a global talent network. The digital work revolution made recruiting opportunities unavailable just a few short years ago. Many of the world’s top talent don’t live in your area, and with outsourcing, you can tap into this pool from anywhere in the world.
Let’s say your business is in a rural part of South Carolina, miles away from any major metropolitans or universities. If you want to develop your in-house copywriting and marketing departments, you may find recruiting the right person locally challenging. With outsourcing, you can tap into writers from anywhere worldwide to satisfy this need.
The ability to utilize global talent with outsourcing also comes with other benefits. For instance, you do not have to pay them for their knowledge and skill or expend time and resources on recruitment.
Outsourcing Enhances Innovation
We mentioned above that outsourcing opens up the space you need as a company to focus on your core competencies. Focusing on these strengths after outsourcing your weaknesses leads to your ability to innovate. Innovation keeps your brand fresh, modern, and on the cutting edge of development.
When you built your business from the dream up, you never imagined it would become the success it is today. Therefore, your development problem is good. It signifies that you are on a path of success that demands growth.
Outsourcing Cons
- Loss of control
- Communication issues
- Labor force disruption
Outsourcing is a great way to reduce costs, access global talent, increase innovation opportunities, quickly develop your new project, and many more benefits. However, outsourcing is not without its drawbacks.
When deciding which departments and services to outsource and keep in-house, you must take a systematic approach in your team brainstorming. In other words, take the time to identify your strengths and weaknesses, determine which weaknesses will be the most difficult to overcome, and which you are okay with releasing certain amounts of control over.
We call this Smartsourcing. As part of this process, it is imperative to recognize both the pros and cons of outsourcing. Let’s discuss a few of those now.
Loss Of Control
Perhaps the greatest fear, and therefore con, of outsourcing parts of your business is the apparent loss of control you will have over that area of your business. Reduced managerial oversight is a genuine concern and one that you need not take lightly.
It goes without saying that if you contract with another company to do specific tasks for you that you will lose certain levels of control. This is an expected outcome due to the company being responsible for their employees and the duties they are responsible for performing.
In other words, you would not expect an outside company to come in and tell you what computers to buy or how to manage your employees; the same goes with the company you choose to outsource.
We are spending additional time on this topic because we believe this particular factor needs to rank at the top of your priority list when making your development decisions. Due to the inherent control loss in outsourcing, choosing the right partner is paramount.
Communication Issues
Effective communication is the cornerstone to productive and successful relationships. Regardless of your relationship, be it personal, religious, or business, ineffective communication leads to failure.
Outsourcing presents unique communication challenges for your business. Once you outsource to another company, a communication bridge automatically forms and must be maintained. We build bridges to overcome obstacles.
On highways, bridges help us cross rivers and mountains for free and unobstructed travel. In outsourcing, communication bridges ensure that the mission and vision of your company remain intact.
Due to the obvious communication obstacles encountered when working with an outside company, you must be intentional about maintaining effective communication channels. Again, this is why choosing the right partner is essential.
Labor Force Disruption
Labor force disruption can go both ways. When you choose to keep a function or department of your company in-house, you will hire new employees to help with this development or redirect existing staff to tackle it.
Shifting existing staff will inevitably lead to issues due to added responsibilities they did not have before. Low morale, work-life imbalance, and attrition concerns are the resulting consequences. This is one of the reasons why outsourcing can be so beneficial.
However, if you outsource this in-house development later, you will be forced to redirect staff assigned to that department somewhere else or let them go. We know that your employees are the backbone of your company, and disrupting their lives this way is not something you want to do.
Understanding that you will encounter this peril is something you must recognize when choosing to outsource development. Employees will quickly become unhappy if they are reassigned to do a job they weren’t hired for. What’s more, the cultural morale of your company will be impacted should be faced with eliminating their employment.
We know this may be the best choice for the greater good of your company, but your employees will see it as a misplaced priority. In other words, to them, you value profits over human wellbeing. This can have cascading effects on your productivity and success.
Overcoming this requires proper planning. In other words, before you reassign your employees or hire new people to perform your in-house development, commit to keeping it in-house. If you have concerns about your prospect of success, outsourcing before making labor force changes would be the best way to mitigate these consequences.
Awesome CX
We’re awesome, Awesome CX. Sorry, we had to, but we think we are an awesome resource and partner for you and your company. We specialize in providing high-touch customer experiences for e-commerce and internet companies.
Our mission is to be an extension of your company, not just an outside partner. We understand the enormous benefits you will experience with outsourcing, and we also share and understand the obstacles and challenges it presents.
We excel at maintaining your company culture and promoting excellent communication so that you do not have to worry about those bridges failing.
Contact us today to speak with our team and discover why we believe we are the right partner for your new development project. Outsourcing should not be something you fear; our mission is to ensure you never do.
We look forward to being your trusted partner on your journey to amplify your why and innovate your what!
Sources:
Outsourcing vs. Subcontracting: What's the difference? | Investopedia