When choosing between them, the CTO should consider the financial side, the product\u2019s features, the marketing strategy, the desired involvement level, etc. In this article, we\u2019ll discuss these factors in detail, describe the difference between in-house and outsourcing<\/b> development, and list the benefits<\/b> and disadvantages<\/b> of both so you can make the right decision. Let\u2019s start with the difference between the two and how each of them might affect the entire business.<\/p>\nThe Difference Between In-house and Outsourcing Models<\/h2>\n
While both in-house and outsourcing teams\/professionals work on the same thing \u2013 developing a software product \u2013 they differ drastically in their approach toward the company, its business model, and the end goal. Let me explain.<\/p>\n
The In-house Development Model<\/h3>\n
The in-house software development team is an integral part of the company. The team members know all about the company’s internal processes, strategies, and the market they\u2019re developing products for. The internal client principle is what makes every team member well-organized, motivated, and deeply involved in the project. Furthermore, the model offers the benefits of high flexibility, simplicity in organizing an agile workflow, and decreased response times when something needs a quick fix.<\/p>\n
Advantages:<\/p>\n
- \n
- High level of responsibility;<\/li>\n
- Quick error correction;<\/li>\n
- Personal devotion to the process and the end product.<\/li>\n<\/ul>\n
Disadvantages:<\/p>\n
- \n
- High investment, often with no returns (especially if it\u2019s work on an MVP and not the ready-to-market version)<\/li>\n
- Potential lack of specific niche knowledge (someone with skills\/experience in fintech will provide a better product within a shorter time than a developer with expertise in gaming software)<\/li>\n<\/ul>\n
Read also: How to build a fintech product successfully<\/a><\/p>\n
Outsourcing Development Model<\/h3>\n
Outsourcing might be a perfect solution, since it allows you to hire a team\/specialist to tackle a very specific task within a certain time. This works well when you have a one-time project and the product or service won\u2019t require 24\/7 maintenance.<\/p>\n
Advantages:<\/p>\n
- \n
- Cost-effective and tax-efficient<\/li>\n
- No need to rent an office and equipment<\/li>\n
- Recruitment available worldwide<\/li>\n<\/ul>\n
Disadvantages:<\/p>\n
- \n
- Project-orientedness over product-orientedness;<\/li>\n
- Hired help may have poor knowledge of marketing nuances;<\/li>\n
- Few possibilities for effective management and control<\/li>\n<\/ul>\n
I\u2019ll discuss the pros and cons of both models in detail later on, but you should know that they\u2019re not the only options. There is a golden middle solution that puts an end to the in-house software development vs outsourcing<\/b> battle: a tech partnership.<\/p>\n
A tech partnership is a type of outsourcing that includes the benefits of in-house software development<\/b> (like high involvement and management capability), minimizes the risks associated with classical outsourcing, and is a perfect solution money-wise.<\/p>\n
Companies that position themselves as tech partners are usually better skilled in the niche industries (fintech, delivery, travel, etc.) and are well aware of market trends, customer demands, and competition.<\/p>\n
But before you agree that tech partners offer the best of both worlds and are the most efficient options on the market, let\u2019s move back to the in house versus outsourcing discussion.<\/p>\n
NB: Hereinafter I\u2019ll distinguish the terms \u2018software vendor\u2019 (the classical outsourcing model) and tech partners.<\/p>\n
What Outsourcing Really is: Types and Opportunities<\/h2>\n
When we say \u201coutsourcing\u201d, what we often mean is different levels of involvement, commitment, technical expertise, and responsibility. Let\u2019s review the three key types of outsourcing arrangements and what the differences among them mean to you as a customer.
\n![\"key](\"https:\/\/djangostars.com\/blog\/wp-content\/uploads\/2021\/05\/key-types-of-outsourcing-providers-1.jpg\")
\nWhen setting up a new team, the person responsible for the technical implementation \u2013 the CTO<\/a> \u2013 has to make a crucial decision that will define the company\u2019s future. Simply put, the CTO must choose between (1) staffing an in-house team, and (2) outsourcing the work to an external team. However, it\u2019s not all about choosing between inhouse or outsource<\/b> development. Instead, it\u2019s about the possibility to partner according to different conditions, terms, and levels of commitment and trust. All this defines whether you should work with a vendor<\/b> or a tech partner<\/b>.<\/p>\nIn this part, I will briefly describe each of the partnership types, their challenges, and when it\u2019s best to opt for one or the other. I will conclude by explaining how working with a partner can be similar to having an in-house team.<\/p>\n
Working with a Software Vendor<\/h2>\n
Outsourcing to a vendor means hiring<\/b> a team for a specific task. Such companies have solid, cohesive teams and, as far as I\u2019m concerned, are best at delivering fully functional products. Software vendors, also called software houses, assume full responsibility for gathering the requirements and managing and delivering quality software. Outsourcing to a software house presupposes giving them the requirements specifications and letting them define their approach, the tools to use, and the implementation of the software. Such a partnership excludes most micromanaging activities because you\u2019re hiring a team, not a few developers \u2013 and in most cases, a team consists of business analysts, software developers and testers, and project managers. Vendors carry full responsibility for the quality and performance of the parts they develop. Here\u2019s why.<\/p>\n
Besides the well-known issues associated with software vendors \u2013 like the risk of data theft or cultural issues \u2013 the one I would like to emphasize is the level of engagement in your business<\/a>. A vendor will do what you ask them to do, even if the requested solution is not optimal or doesn\u2019t meet industry standards or best practices. This is not because they don\u2019t care, but because there may be more effort put into achieving the goal stated in the contract than into achieving what the market demands. However, companies have been working with software vendors for decades, and by now, we\u2019re well aware of how to mitigate problems<\/a> that might arise.<\/p>\n
Outsourcing software development to a vendor is not a bad solution, though. It just works best when you know exactly what your end-product should be. If you\u2019re uncertain about the desired outcome or need expertise in matters besides the implementation of a software product, I suggest you consider a tech partner.<\/p>\n
Working with a Tech Partner<\/h2>\n
A technological partner is also a service provider, just like a software vendor. Cooperation with a technical partner is often defined as \u201cCTO as a service\u201d. This reflects the difference in approach to solving business problems in comparison to the software vendors, as well as the level of engagement the tech partner has in your project. Unlike a vendor, a tech partner or outsourced CTO can challenge your ideas and stand up for their suggestions and approaches to solving this or that problem. Partners can also manage other vendors \u2014 by setting up processes, strategy, and frameworks \u2013 and provide technical advice on how to configure a particular part of the resulting application.<\/p>\n
Imagine there is a system being developed that requires a phone number input. There are different ways to implement this feature, and one of them is shown in the picture above. Based on criteria like your brand positioning, the UX flow, current UI trends, the tech stack, and so on, a tech partner is more likely to suggest building a drop-down list with a country flag and code that detects the user\u2019s country and provides input validation. With a plain outsourcing vendor, there are no user experience guarantees unless you specified them upfront.<\/p>\n
While a technical partner\u2019s solution may contradict what you had initially hoped for, they will always have a supporting rationale for their idea.<\/p>\n
![\"The](\"https:\/\/djangostars.com\/blog\/wp-content\/uploads\/2021\/05\/The-Pros-of-In-House-Development_-1.jpg\")
<\/p>\n![\"The](\"https:\/\/djangostars.com\/blog\/wp-content\/uploads\/2021\/05\/The-Pros-of-Outsourcing-Development_-1.jpg\")
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