What is Better for Your Business: In-house Development vs. Outsourcing
The technological world is becoming more complex every year, and the needs of large companies are growing. To keep up with innovations, some businesses build internal development teams, while others outsource development. Stfalcon IT company is confident that both ways can be a profitable solution. To choose the best option, you need to take into account the goals and long-term business strategy, as well as the specifics and subject matter of the project.
Yulia Kondratiuk, CBDO Stfalcon, and Oleksandr Zozulia, CTO Stfalcon, spoke about the global trends in the market, the needs of large companies, and the advantages and disadvantages of both in-house development and outsourcing.
What Large Companies Choose in 2024
According to Zippia statistics, the biggest supporters of outsourcing are large international companies. Among the companies on the Forbes Global 2000 list, the vast majority - 92% - outsource IT operations, according to ISG Research. This allows businesses to save time and resources required for development and focus on their core tasks and competencies.
The trend towards IT outsourcing has been steady in recent years, which confirms the annual growth of this industry. According to Statista, while the global software outsourcing market was estimated at $430 billion in 2023, it will reach $512.50 billion in 2024.
Gartner predicts that in 2024, spending on IT services in Europe will grow by 11.8% and globally by 8.7%, reaching $1.5 trillion. This is partly due to a lack of staff in IT departments, as well as the desire of companies to invest in organizational efficiency and optimization.
According to Oleksandr Zozulia, CTO at Stfalcon, IT development services are sought by both companies that do not have their own IT departments and those that do have such teams but lack the expertise, free resources, or sufficient experience to implement their projects. Often, large businesses have tight deadlines and are looking for suggestions on how to develop certain functionality on time.
"At the same time, outsourcing is not for everyone. We have had cases when, at the negotiation stage, we realized that the best option for the client would be to form their own development team. Both outsourcing and in-house development have their strengths and weaknesses, which need to be taken into account and an individual decision made for each business," says Yulia Kondratyuk.
Outsourcing: Speed and Scalability
According to Deloitte, the most common reasons for outsourcing are to reduce operating costs, focus on the core business, solve scaling problems, adapt to staff shortages, and other business needs.
If a company does not have experience in technical hiring, it is difficult and risky to create its own in-house development team. After all, recruitment involves a number of related processes: onboarding, providing everyone with hardware, software, and licenses, organizing a social package, legal and accounting support. This incurs high overhead costs, both in terms of time and money.
"If a business is not engaged in software development and does not plan to implement a large volume of projects, it makes sense to outsource some of the work. This way, the company gets access to qualified developers and established processes. If one of the engineers suddenly drops out of the process, the vendor will quickly find a replacement. The client does not have to dive into technical or personnel details, so they can focus on the result and the implementation of the project in their business," explains Oleksandr Zozulia.
Another factor in high-quality development is the experience and cohesion of the team. To do this, the team must have implemented at least a few successful projects in a particular domain, and then it gains niche expertise.
For example, Stfalcon has been developing custom web services and mobile applications for logistics, transportation, travel, delivery, healthcare, and fintech projects for 14 years. After dozens of projects, the company knows all the possible standards of these industries, pitfalls, and common mistakes. This means that it can help clients get from idea to result, avoid unnecessary costs, and find ways to optimize certain solutions.
"We have a separate segment of projects where we increase the efficiency of the client's business processes. For example, for a logistics company, we created software that allows optimizing work schedules of staff in branches. And our solution for a heavy industry company helps the client save time and fuel by optimizing courier delivery routes," says Oleksandr Zozulia.
He emphasizes that for large businesses, the timing of a project is often crucial. Outsourcing allows you to get started quickly, which would be difficult to achieve if you built your own in-house development team from scratch.
In-house Development: Control and Security
Several large companies, such as OLX, lifecell, Vodafone, NOVUS, Eldorado, OKKO, and BlaBlaCar, prefer to work with outsourcing companies. While organizations such as Uklon, Kyivstar, Rozetka, MEGOGO, EVA, and PrivatBank are developing their own software development teams. Often, companies that are not related to the IT industry but need to implement or support certain IT products follow the same path.
"Sometimes, a project requires special developer skills or compliance with strict security rules due to working with sensitive data. For example, sometimes this may be a requirement of the project's investors. In this case, it makes sense to develop your own expertise in order not to depend on a third party and avoid information leakage," says Yulia Kondratiuk.
Another advantage of in-house development is fast communication. When there are no intermediaries between developers and customers, it is easier to resolve certain misunderstandings and balance opposing views, especially if all participants in the process physically work in the same office.
Another case is when it comes to project support. If the priority is the response time to incidents that may occur during the service operation, and the amount of work does not allow to load the development team with full-time work, then building an in-house support is the best option. This will significantly optimize support budgets and allow you to fully manage the work schedule of your staff 24/7.
Hybrid Approach: Flexibility and Experience Exchange
Even if a company decides to build an IT team internally, it may not refuse to outsource at the same time. For example, Google develops key products in-house and delegates non-core functions, such as administration and IT work, to vendors, as it is impossible to perform all tasks internally.
"We have companies among our clients that prefer a hybrid development format. As a rule, these are really big businesses. They have their own IT department, but they often lack their own engineers, expertise, and time. That's why they outsource part of the development to us," says Oleksandr Zozulia.
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Client Manager
According to him, the hybrid approach combines the advantages of both in-house teams and outsourcing. The client has the opportunity to look at the development from a different angle, as well as compare the speed and quality of their IT team's work with the results of the outsourcers' work and draw conclusions.
Such cooperation also allows developers to exchange experience. Outsourced development teams are usually used to working at a faster pace. Unlike product teams, they have more diverse experience in using technology. Stfalcon has had cases where clients' in-house teams have adopted some of their approaches and started using them in their own practice.
"In addition, a big plus for the client is the ability not to increase the size of the in-house team in circumstances where the workload has temporarily increased. In this way, the company gets rid of additional costs associated with the search, hiring and retention of new employees, but achieves its business goals with the help of an outsourced team," adds Stfalcon CTO.
How to Make an Informed Decision
If a business has an understanding of why it needs an in-house development team, it makes sense to invest in building it. In other cases, when a company needs one-time IT services, seeks to optimize costs, or does not want to deviate from its core specialization, outsourcing is worth considering.
"Developing your own team can take years. If there is a need for a quick result, there is no alternative to outsourcing, in my opinion. This is how the economy works: delegation of certain types of work to a contractor as opposed to developing in-house expertise," says Oleksandr Zozulya.
Yulia Kondratyuk warns that it is important to choose a service company carefully. She cites examples of clients choosing other vendors because of cheaper prices and a quicker promised deadline, and then returning to Stfalcon. Therefore, you should not chase unrealistic estimates. Instead, quality service will be the key to successful long-term cooperation.
Stfalcon has experience in software development cooperation with various businesses: both enterprise and medium-sized companies. Enterprise companies usually develop with their own in-house team, but often need additional resources. In this case, Stfalcon offers outstaffing cooperation, strengthening the client's team with developers with the appropriate expertise.
Medium-sized companies are more likely to choose outsourcing. Having an idea and funds, they seek full-cycle implementation and expertise: from R&D to the release of a finished product.
"When working with such clients, we conduct a Discovery phase before the start of development, which allows us to test the idea, outline it, and prepare documentation with which to move forward. Our approach to development is based on flexible management methodologies so that our clients can maintain control over the project at every stage and get the highest quality results," says CBDO Stfalcon.
A mix of outsourcing and outstaffing is also common when working with one client - the best option for cooperation is selected for each client individually, depending on business goals.
The Stfalcon team is ready to share its experience in developing and launching your business. The company's portfolio includes more than 325 completed projects, and the rating on Clutch, the leading platform for ratings and reviews of the world's leading IT service providers, reaches 4.9. Therefore, if you are interested in getting advice from an expert team, finding out the cost of your project, or ordering development, let's get to know each other better.
