In today's high-tech world, every business needs an online presence or a digital product development. Тhese are not luxuries, but necessities for companies to survive in today’s reality of tough market competition. At the same time, it is quite challenging to choose among the various solutions available. Should you focus on building an in-house capacity, outsource the whole development to an external party or with a dedicated team that offers full control and flexibility?
What is an in-house development team?
Let's start at the beginning - what is an in-house development team? An in-house team refers to a group of consultants, who work directly for you. These consultants are part of your team, directly employed and managed by you as any other departments your business has. This would mean the company takes full employment responsibility and control of the team’s operations, from the choice of technologies in the software development processes to the right career management of the consultants.
Here are the main pros and cons of hiring (and expanding your) in-house tech team:
Pros of an in-house team
- Your own company culture: When hiring an in-house team, you manage directly the recruitment process and decide who matches best your company culture and shares your values. Furthermore, the team members undergo your own induction process and report directly to your line managers, absorbing your corporate ethos and philosophy.
- This leads us to the next benefit of having an in-house tech team - direct management and project control. With an in-house team, your company has direct control and oversight over the work of the team members. The direct management allows real-time communication and immediate feedback, which guarantees the projects will stay on track and in line with the company's goals.
- Intellectual property and know-how stays with you: By keeping your software development in-house you don’t face any of the IP-related risks you’d encounter when using a third party provider. It’s your own team, so it’s up to you to implement strong privacy measures and strict rules to protect any confidential information, innovations, know-how and intellectual property.
Cons of an in-house team
- Lacking the needed tech resources and expertise: Often companies may struggle to find talent with specific expertise and experience, that are required for certain projects or tasks due to limitations of the market (small talent pool size) or inability to properly compete with other employers (not being recognisable as an employer of choice, lack of recruitment expertise or others). This can lead to unsatisfactory, poor results or missed opportunities for the company to stay competitive in the market.
- Overhead costs: Maintaining an in-house team often involves substantial overhead costs. These include the charges associated with infrastructure and office space, equipment, employee benefits, recruitment and onboarding of new employees and others. Such activities can further incur expenses related to hiring extra HR and admin staff.
- Lack of flexibility: Depending on the project requirements, you may face challenges when it comes to scaling up or scaling down effectively. The rapid growth in employee numbers can trigger resource-intensive processes such as recruiting, training and onboarding new members. In parallel, reducing the workforce size could have significant consequences not only for the affected individuals but also for the entire team. It can negatively affect the reputation of the company as an employer, its productivity and even its future prospects.
What is outsourcing?
In its traditional understanding outsourcing stands for engagement of an external agency to execute specific tasks or projects on behalf of the company. These third-party providers are typically located in different geographic regions. The reasons behind such business decision could be the need for reduction of operational costs, the lack of in-house expertise, tight deadlines on various projects or a combination of these.
Let's take a look at the most common positives and negatives companies are likely to face if they choose to outsource a project.
Pros of outsourcing
- Additional expertise in another location: By partnering with a specialized tech provider in a different region tech companies can take advantage of a wider range of highly specialized professionals or get access to niche technology experts that can offer innovative solutions to challenging business problems.
- Fast to assemble: Outsourcing companies often keep a “bench” of skilled professionals who are ready to work on your projects. These experts have already been selected and employed by the vendor. As a result, the outsourcing partner can quickly assemble a team with the necessary skills to meet your requirements. Depending on your services agreement, however, in the long run there may be a risk of these being replaced by less experienced consultants due to the vendor’s need to place the most experienced personnel in another project.
- Does not require much involvement from the client: The traditional outsourcing model minimizes the level of client involvement. The service provider takes care of managing the day-to-day tasks, project execution, team management and coordination and ultimately – is accountable for the end result. Of course, this would mean you need to make sure your agreement clearly defines the expected KPIs and deliverables.
- Suitable for short-term projects: While assembling, inducting and training your own in-house team requires certain lead time and won’t make much sense for the propose of a short-term (less than an year) project, there’s no limitation when using a third party provider. Needless to say - the shorter the engagement, the higher the expected costs.
Cons of outsourcing
- Personnel is chosen by the outsourcing partner thus there may be serious differences in the company culture. When a company outsources its projects to a third-party service provider, the outsourcing partner is responsible for selection the personnel who will work on your project. This can lead to discrepancies in the work practices, company culture and even values between the outsourcing partner's team and your own.
- No project control, intellectual property and know-how-related risks: By outsourcing a project, the client relinquishes direct control over the development process and decision-making. This lack of control can lead to issues in project management and the inability to meet deadlines. In addition, gaps in the services agreement can create intellectual property risks. At the same time, as the know-how remains with the outsourcing team, the client can become highly dependent on the outsourcing partner, making it difficult to bring the project back in-house or switch to another vendor if necessary.
- Lack of transparency of the costs: Often, outsourcing agreements lack transparency in cost breakdowns, making it difficult for the client to fully understand how their funds are being utilized. Hidden costs or unexpected expenses may arise during the project, leading to budget overruns. Lack of transparency can also hinder the client's ability to optimize costs and negotiate effectively with the outsourcing partner.
What is a dedicated team?
This is a hybrid model the combines the characteristics of an in-house and an outsourced team. Under this model the company engages a service provider to help them assmble and co-manage a team of skilled professionals. The dedicated team’s provider takes care of anything related to recruitment, HR and administration, office facilities and infrastructure, while the client directly manages work of the dedicated consultants. The main aim of this approach is not just to optimise budgets, but to access a new pool of talented individuals and achieve better efficiency, quality, and subsequently – better end results through close project management and long-term collaboration.
Some of the key advantages and disadvantages of the model include:
Pros of the dedicated team model
- Additional expertise in another location: The lack of (or inability to hire) local resources can be a significant restraint for the growth of companies that are looking to expand their businesses. The dedicated teams model allows companies to identify and recruit (from scratch) through their local partner a team of proven professionals according to their specific requirements. The team is engaged full-time and long-term and is a part of the company's organizational structure and shares the same business culture.
- Direct project control, IP & know-how stays with the client: One of the most significant advantages of the dedicated team model is the ability to keep direct control of the process. This allows the integration of the dedicated team members into the internal structure of the company in the long-term, reducing the risk of losing corporate know-how (the consultants are solely designated to you and won’t be “moved around” to other vendor’s clients). In addition, the model ensures that the local service provider doesn't intervene in the communication between the company and the dedicated team. This aspect guarantees that intellectual property stays tight under control, as there is no third-party interference that could compromise the confidentiality and ownership of valuable information.
- Transparent pricing model: Transparency and open communication are at the heart of the partnership between your company and your local vendor. This guarantees that you have visibility over your costs and how these are structured, allowing you to maintain control of the operations. In most cases your local services provider will offer a transparent pricing model under which the consultants’ employment costs and the supplier’s fees will be separate.
- The team can be transferred to your own entity: The dedicated team model is relevant to different business areas, including software development, QA, technical support, finance, marketing and others. When the size of the team grows and the business expands, reaching a point where it makes sense to establish its own legal entity or there is an external event (M&A, public listing and so on) that calls for it, some service providers offer spin out options. These include assistance in the process of transferring the already hired consultants and facilitation the transition to an independent entity.
Cons of the dedicated team model
- Requires active involvement from the client: In the dedicated team model, the client has a higher level of active participation compared to other outsourcing models. This involvement requires direct communication and the ability to manage the operations and the overall development of the project.
- Suitable for mid-to-long term projects: The dedicated team model is in fact suitable for mid to long-term projects due to the required level of participation in the operations. You woundn’t want to invest your team’s time in the selection, induction and training of these consultants just for small two-month project, right?
In conclusion, depending on the nature of their needs and capacity, businesses choose the most appropriate development model. Each has its benefits and drawbacks that company executives should consider in the selection process.
A dedicated team seems like the best solution for your business? You’re not alone - many high-growth companies already chose Questers - check out their stories here. Interested to learn more? Get in touch with us.