Since the beginning of software development, organizations have struggled with the question: Build or buy? That is, should an organization develop the software internally ("in-house") or should they buy it from third parties, such as a programming consulting company? Today, thousands of consulting companies compete for the millions of dollars generated by the software development outsourcing industry.
Should we develop the app in-house or should we use an outsourcing company for developing our app? It is cheaper in the end, right? Or what are the “plot twists” which might jump out the corner in both variants?
All these questions arise when thinking about what would be the best way to develop a product.
Or maybe there is an alternative such as allocating the developing resources most efficiently?
This is called the right sourcing. Right sourcing means choosing the right source of development. It is a practice in which companies combine external (outsourcing) and internal (insourcing) resources to obtain the best cost-benefit ratio for the execution of tasks. Getting the best product for the lowest price, regardless of where the supplier is located, is what is called right sourcing.
This means that no model is appropriate and therefore a balance will be more advantageous.
To implement the right sourcing model in your company you have to know each of them a little better.
Many executives firmly believe that the organization should focus on the mission of the organization and not waste valuable resources trying to become experts in software development. For example, a school should focus on education and outsource for the software they need, such as developing a new tuition system.
Those opposed to outsourcing believe that the organization benefits most by keeping the software development in-house because the application is critical to the organization's mission. Besides, the organization needs internal experts ("in-house") who fully understand the internal processes of the organization compared to outsourced programmers.
In-house software development will always be somewhat superior to outsourcing. It would be fair to say that the software that a programmer develops for his organization would in many cases be more efficient and more in line with its needs, compared to the software that a programmer could develop for a company for which he does not work and in which he is not involved. This happens to be so because the programmer of a company is familiar with the mission of the company and the products or services it offers, thus, knows its needs from the inside in small details much better. On the contrary, a subcontracted programmer, who is not familiar with the works or projects of the company in question, may make a program that is a bit more generic, with errors, or that does not contain all the specifications that the company requires because he does not understand them in its entirety.
Creating an "in-house" program, depending on many factors, entails higher expenses for the company, especially if the company is not dedicated to this. To some extent, programs that are created "in-house" are much more superior than those made by external companies.
This is since those who develop “in-house” have a lot of insider information from the company and all the needs and requirements for it are known in advance.
Who knows you better than yourself? On the other hand, it is much cheaper at times to subcontract to other companies that are dedicated to this since they have the expertise and the resources and time necessary to entirely dedicate themselves to the development of your software. In this way, you would not have to make major changes to your organizational structure, budgets, and resources, but only an operational expense for your company.
Even though many large software development projects that have been outsourced to third parties have failed due to their lack of understanding of the company's functions. Today, most large organizations use a combination of outsourcing and in-house development, leaving critical projects to the internal team. Still, some organizations rely entirely on outsourcing while other companies never resort to it.
That’s why let’s see when outsourcing might be beneficial for you to make an optimal choice.
What is outsourcing?
Outsourcing is when companies seek to optimize their resources for greater competitiveness.
Labor outsourcing consists of hiring companies that will perform the services that are not related to business activity. By outsourcing services such as Information Technology or maintenance, for example, you can focus your energies on the core areas of your company, increasing quality, and even reducing the final price of the product.
Other advantages of outsourcing are the reduction of the company's labor and social taxes, simplification of the structure, a gain of productive physical spaces, and greater agility in decision-making.
On the other hand, this model can bring some disadvantages, such as increased dependence on people from outside the company, loss of the company's cultural identity, etc.
Other problems that can arise from this choice are the lack of control in the choice of suppliers and the risk in coordinating contracts. Therefore, when the right sourcing is carried out, all these variables must be considered.
The choice of the correct source to obtain a product or service does not depend solely on the price or the location, but on the sum of all the factors already mentioned.
Sometimes it is indeed a bit difficult for us to decide whether to make our software or allow third parties to do so. However, this can be evaluated in different ways. To evaluate the decision to make, we could easily carry out a cost-benefit analysis because we must remember that our goal, as a company that we are, must be to generate profits so that we can have software that meets all our needs at the lowest possible cost. The alternative that satisfies this should be the one chosen. Another way to make this decision would be to determine what the company's needs are and what specialists you have within it to satisfy them since if you don't have the right people within your company, it would be best if you hire someone else.
In our opinion, the decision to outsource or create your software depends on the purpose of the company. Those in charge of this decision should ask themselves what benefits they will obtain from outsourcing, which will be more cost-effective, will the operational objectives of outsourcing be affected and if employees will be less efficient with a language and a culture they do not understand. The decision to outsource is an extremely risky activity since it can bring future benefits or sacrifices to avoid bad experiences, you should experiment with both options to see which is the most beneficial.
So we advise you to consider the next parameters when considering one of the options:
If you want to stick to the in-house development, consider if you have personnel trained for creation, costs of creation, costs of training or staff training, maintenance costs, and implementation costs.
On the other hand, if you want to use a third party to create software, take into account the following factors:
Creation costs, product warranty, company support, employee training, company experience, and location.
Finally, the decision to outsource to third parties or stick to the internal software development should be decided after measuring the pros and cons of each option, selecting the one that brings the most benefits for the company.