Insights | IN OR OUT? The Benefits of Software Outsourcing vs. In-House Staffing

IN OR OUT? The Benefits of Software Outsourcing vs. In-House Staffing

By Kayla Hammerberg | February 5, 2021

Like a lot of people with a background in recruiting, I used to have some preconceptions about the value of outsourcing, and I hadn’t looked too deeply into the advantages it has to offer over hiring in-house. Since joining Accelerance three years ago, I’ve been introduced to the company’s global network of certified software development partners and realized the breadth of technological and innovative talent that’s available around the world – if you know where to look.

I knew that there was an established outsourcing industry offshore in regions such as India and Eastern Europe, but I quickly discovered there are outstanding engineers in many other global regions that still fly under the radar. On research trips to vet potential nearshore software development partners in Latin America, it was enlightening to meet teams in Mexico and El Salvador and see how sophisticated and sharp they are, and witness their passion for developing high-quality software. 

For many years, in-house staffing has been the default way of doing things. And it’s not easy for companies to step outside their comfort zone and embrace change. That requires a leap of faith. Traditionally, businesses believed the best way to manage and motivate their team was to have them on staff and usually working onsite. 

I had no reason to question that belief either until I got to see first-hand with Accelerance how the suite of virtual communications and project management tools available today remove the necessity for companies to have their development team co-located in the same office space.

That paradigm was already starting to change before the pandemic forced companies to rapidly adapt to having a large number of their staff working remotely from home. A Gartner survey in December found 90% of HR leaders plan to allow employees to work from home remotely even after the COVID-19 vaccine is available. 

Big tech companies, such as Google and Twitter, have already told many staff they can stay away from the office indefinitely. And CompTIA’s IT Industry Outlook for 2021 predicts 29% of companies will have an even split of in-house and remote workers looking ahead, compared to just 7% pre-COVID. See our recent point of view about the outlook for remote work.

Being required to manage distributed teams has shown organizations what’s achievable and that there are some real advantages. That’s especially true when it comes to software development and the intensifying drive towards digital transformation. As the business sector looks to recover after a tumultuous 12 months, innovative companies want that competitive edge, and many turn to outsourcing to quickly and cost-effectively deploy next-gen technical skills.

Let’s take a closer look at the benefits of outsourcing versus hiring in-house in five key areas:

  • Access to talent
  • Cost effectiveness
  • Flexibility and scalability
  • Core competency
  • Working across time zones

Access to talent: Bypassing the shallow domestic talent pool

There’s no doubt the United States has outstanding tech engineers. The question is: Can you attract them and afford to pay what they can demand? There’s just not enough of them. For most companies, the reality is they can’t compete with the big, high-status companies that can afford the premium compensation that these engineers command. 

You can go looking for up-and-coming developers and may get lucky, but the same problem applies. There are simply not enough graduates to fill demand. Microsoft predicts that by 2025, the global workforce will need around 149 million new technology-oriented jobs – with nearly 100 million of them in software development alone.

It’s very difficult for recruiters to find the right talent for clients and when they do, there’s no guarantee the developer will be interested or that they’ll have the high-level engineering skills that you need. The technology skills shortage is a problem that isn’t going away. While the pandemic struck a blow to employment in most sectors, the tech industry is rapidly rebounding and U.S. companies’ need for technical talent continues to outpace supply. Unemployment in the IT sector fell to 3% in December – less than half the national rate, according to CompTIA’s latest report.

The pandemic-induced boom in remote work hasn’t eased the technology-talent shortage on the domestic market because the emerging trend is for Big Tech to soak up talent beyond state borders as the requirement to have staff in-house is relaxed. The good news is that smart outsourcing software development teams do exist – but they may be in another part of the world.

 

Cost effectiveness: Making the numbers stack up

Lower costs is something that inherently follows with offshore and nearshore outsourcing. The total cost of engagement can be reduced by up to 30 percent compared to staffing, with much of the savings coming from reducing overheads such as rent, office equipment and staff benefits.

The other significant saving is in the hourly rate you’ll be expected to pay. In cities such as New York or San Francisco, for example, senior developers charge up to $150 an hour. 

On average, going offshore should at least double the value of your money. At Accelerance, we have an equivalence benchmark of $50-$55 per hour to find a senior engineer with the level of skills and expertise that cost $100 per hour in the US.

Costs are substantially lower in South and Southeast Asia than any other part of the world – and Accelerance has high-performing partners in the region. If you have budget restraints, and are comfortable working across time zones, then you’d do well to consider them.

 

Flexibility and scalability: Adjusting to your changing business needs 

One of the great advantages of an outsourced team is being able to quickly scale your software project. Once you’ve chosen a partner with core competency in the technology stack you’re looking for, they’ll have a pre-screened pipeline of engineers with the right skills and experience ready to bring on board in weeks. That’s a big advantage compared to recruiting on the US domestic market, where the process can take months.

Scaling down once a project is completed, meets a development target or goes into a different phase is also much easier with an outsourcing partner than reducing headcount in-house. Some of our clients took advantage of this flexibility last year, cutting back their nearshore or offshore team while they grappled with the uncertainties associated with COVID-19.

An exciting new trend is co-sourcing to multiple offshore partners, which opens up even more opportunities for speed and flexibility – an approach explored in a recent article for InfoQ.com. “I have spoken to several companies that have been outsourcing IT services, product development, or web development for a long time,” writes Swati Sharma, an executive with global web development company Classic Informatics. “The majority of them plan to explore the multi-vendor approach, especially for IT outsourcing,” 

Co-sourcing also diversifies your risk, and makes it possible to divide your software development between different teams according to the specialist expertise required, whether it’s in artificial intelligence (AI), cloud computing or robotic process automation (RPA).

 

Core competency focus: Freeing up resources to concentrate on strategic skills

Having all your engineers in-house - including those brought in through staff augmentation for a specific project - is like having all your eggs in one basket. It means your internal leadership needs to be well versed in the skills required for each strategic project. 

You (or your designated project manager) is responsible for assigning tasks, setting deadlines and overseeing the work. It’s a risk if the technology you want to build is not part of your company’s core expertise. You need to ask yourself whether you have the knowledge required to ensure your project stays on track, and the skills to manage the process so your staff achieve the standard required. 

The right partner can provide not only the developers needed but the strategic advice to build your project in the best possible way, explains Accelerance CEO Andy Hilliard. 

“It’s human nature to want to control your assets and micromanage everything, but organizations that acquire knowledge and then let go of it when it’s no longer useful are able to pivot more effectively,” he says. “It used to be possible to be a jack of all trades when there were only a few trades and those trades were simple. In today’s world, there’s too much to know and things are changing too quickly. 

“Software development is a science and it’s an art. It’s about living and breathing what you do, versus doing it as a side project. You can choose to be mediocre and micro-manage, but you’ll soon be out of business.”

The shift from head count to skill count has been flagged as a global megatrend. As Andy says, “When you factor in the time and cost of ramp-up and ramp-down, getting into areas that are not core to your company is a lot of wasted effort and that means you can’t be agile in the competitive landscape. You have to be more like a speedboat than an ocean liner.”

 

Working across time zones: Getting in sync

The wide range of efficient communication tools now being widely used mean it's never been easier to work with offshore and nearshore partners. This week, I’ve been on calls to the Philippines, Australia and India. No matter what the time zone, it’s easy to jump on Zoom and talk to people all around the world.

Many of Accelerance’s clients work with nearshoring firms in Latin America, because of the work-day overlap. Being able to connect virtually at the same time creates an agile work environment that’s similar to running an in-house team. Other companies choose to partner with offshoring firms in South Asia or Eastern Europe to benefit from double-shift “around the sun” development – with the offshore team picking up where the domestic team leaves off at the end of their working day.

This option requires great communication, a strong relationship and a degree of trust, but it can dramatically speed up the development process – an ideal solution for projects on a tight deadline. Of course, there’s the risk of rework costs if the project derails, so doing thorough due diligence on your outsourcing partner is critical. It’s important your development partnership is built on a strong foundation with clear boundaries and expectations. 

That’s something Accelerance can help you with. All the premium certified partners in our global network have been fully vetted and selected from the top 1% of more than 8,000 software development providers in 40-plus countries. We’ll not only match you with the right partner for your needs, but our experienced team of management consultants will be right there with you every step of the way. To find out more, get in touch with one of our trusted advisors.

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