Software Development Outsourcing Pros And Cons - MPC (2022)

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Like all business development methods, outsourcing software development has its pros and cons. Most company owners look for companies to support them with product development when their trusted team of in-house developers is not enough anymore. But this is a major decision to make, so before you dive right in, learn how it can help your company succeed and what risks you need to consider.

In this article, we’ll cover the most significant advantages of this software development process, including cost-cutting, a wider range of skilled developers, optimized resources, and flexibility. We’ll also guide you through the risks of these services, such as communication problems, data security, and the impact on your in-house team.

The Pros & Cons of Software Outsourcing: Making the Right Choice for Your Business

Software Development Outsourcing Pros And Cons - MPC (1)

Outsourcing key operational tasks to third-party organizations is becoming common practice in the United States, particularly in the software development industry. In 2021, the revenue in the Application Outsourcing segment is projected to reach $108,748.6m.

Outsourcing projects that would require you to sacrifice loads of resources can support your business growth in many ways – more on that below – but moving your software development elsewhere does have its cons as well. You need to understand both aspects if you’re to make an informed choice for your business.

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The Pros of Outsourcing Software Development

Cutting Expenses

While the budget cannot be prioritized over the quality of results, reducing costs in a careful and considered manner helps businesses take care of that all-important bottom line. According to Deloitte, reduced costs are the primary factor that drives companies towards outsourcing, beating such critical aspects as ‘new technology‘ and ‘no in-house resources’.

Outsourcing key technical tasks, such as software development, will help you save quite a lot of money. What’s more, you can implement the same model for other, non-developer roles (like designers, quality assurance officers, or even management) to further reduce costs. MPC’s clients outsource key roles like Engineering and Product Managers or even Lead Product Designers to us with great success.

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How is it possible to cut your budget? This is partly because of the relatively low labor costs in global markets. In the US, the median salary for a software developer is around $107,500 per annum, compared to a median of about $20,000.00 for a software developer in India and around $48,000 in Poland – both of these locations are very common for outsourced teams.

No Compromises On Quality

Software development companies are professionals with a great experience. Their developers work up to the most recent standards and leverage the most modern technologies on a daily basis. By carefully assessing the market and selecting an outsourcing partner with a great track record, you’ll have your pie and eat it, too.

Outsourcing software development can give you more cost control. Investing in hiring and training in-house developers is unpredictable and can quickly spiral out of hand. Working with a vendor on a managed service basis means regular billing and straightforward budgeting in the long term, even if you suddenly need to scale it up or down. This, however, doesn’t mean you won’t get trained specialists: at MPC, we have an in-house recruitment and training team carefully selecting the best developers and supporting their growth. If you choose wisely, you’ll get a longtime partner who understands your business and works towards the same goal.

Direct Access To High-Level Skill Sets

Training an in-house team means exploring one of two avenues: either you impart the expertise you already have through an internal training process, or you hire more developers. Both of these options cost way more than outsourcing and are not feasible for most businesses.

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Outsourcing enables you to bypass this dilemma. By partnering with a professional company, you get direct, hassle-free access to all the skills and competencies your company needs to succeed in its software development projects – and more. It’s important to remember that outsourcing doesn’t mean settling for second best. If handled correctly, it can mean achieving a higher level of developer expertise that you couldn’t hope to accomplish in-house.

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What’s more, one of outsourcing’s greatest advantages is that you get to meet experts with an international base of clients and an unbeatable background in many different industries. This gives a fresh perspective which can put you ahead of the competition.

Labor and Resource Optimization

For a company owner, management represents a confluence of passion and prowess – you love what you do, and you’re great at doing it. For your teams, it’s the same – you hired them because they are engaged, conscientious, and good at their roles. But when you begin to add auxiliary roles, duties, and projects, this well-oiled machine may not work so well anymore and pile up costs.

For particularly this reason, it is essential to accurately calculate labor cost percentage, expenses on office supplies, and other expenditures.

Choosing to work with an outsourced partner allows you and your teams to remain focused on core competencies. There is no need to spread your human resources thinly across multiple tasks and (most likely) experience a marked reduction in quality across all areas.

Your partner will also be able to manage their own resources with greater efficiency and efficacy while you focus your internal resources on more pressing or valuable tasks like gaining new clients or training your team.

Flexible Options to Suit Your Business Case

We’ve only discussed outsourcing in general terms up to now. But, in fact, this is an umbrella term that encompasses several different aspects. In a basic sense, outsourcing means working with any team external to your in-house personnel. This could, of course, mean working with developers located just a few blocks down the street.

However, many businesses are now choosing to work with partners outside of their country. This could involve nearshoring – working with a team close to your own national borders – or offshoring (finding service providers in a far-flung location, such as a different continent).

Outsourcing domestically might help you achieve a closer relationship with your development partners, although this is not always the case. Modern communication and collaboration solutions make it much easier for remote teams to work together. Nearshoring might suit businesses wanting to work with a company within the same time zone, while offshoring is likely to reduce costs even further and may suit businesses with a more international scope.

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Corporate Agility

If you pour a great deal of investment and time into a software development project and divert crucial working hours from your in-house team, an operational failure, even as simple as a budgeting shortfall or a change in corporate direction, could be catastrophic.

Working with an outsourced team makes a major difference in terms of flexibility. Your vendors will have the expertise required to deliver the project on time and within budget, significantly reducing your time-to-market and helping see a return on investment much more quickly. An outsourced team will have one more great advantage over any in-house team: it allows you to quickly add developers as needed or get people with very specific skills. If you were to hire them yourself, you’d be in for an excruciating recruitment and hiring process that still wouldn’t guarantee satisfying results. When looking for a software development partner, you can choose from various IT outsourcing models that may suit your business case better than others.

Headache-Free Management

One thing that is a pain point for many teams is „personal drama”. You can’t avoid them, and in most cases, they drain the energy out of you. I won’t tell you that these won’t happen at your vendor’s company. Software engineers are no different than any other employees, but if your vendor is solid, you will never hear about any issues of this sort.

Actually, this is what a lot of our clients ask us about. “How come we never have to handle any personal issue or even hear about them?” Through the years, we have worked with many clients and many other off-shore developers, as a lot of big companies do not put all the eggs in one basket. We saw first-hand how easy it is for some relationships to strain over some personal or cultural differences. That is why and how we learned how to avoid these mishaps.

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The Cons of Outsourcing Software Development

Communication Concerns

There is an understandable concern regarding communication when it comes to working with a software development company, especially one based in non-English speaking countries. Business owners may be worried about a language barrier, especially within the technical terms that require a high-level precision. However, these worries can be easily put at bay with tools such as The English Proficiency Index. Most Eastern Europe and Western Europe countries rank high there, with Poland currently at #16.

Another popular outsourcing myth is time zone differences that might make it difficult to build the right kind of close working relationship. On the other hand, a standard development team uses modern technologies to erase these differences. At Massive Pixel Creation, we have sharpened these skills while working long-term with a partner 6 hours behind our time zone. IT companies located in Eastern Europe are a perfect fit for most international markets, as their standard work hours are reconcilable with their clients’. There is always at least a bit of overlap for meetings and planning, and your software development vendor can work during your offline hours and have the results ready for review first thing in the morning.

As you can see, both of these concerns can be easily avoided by choosing the right provider. The right team of developers will have a demonstrable track record of successful projects in your native language and a decent skill set in modern communication techniques. If they look for new ways to achieve mutual understanding, offer workshops to fine-tune your future software solution, and make it seem like language barriers are pretty much nonexistent, that’s probably a good sign.

Cultural Misalignment

Different countries have different habits regarding their work time and celebrate different holidays that may interfere with your release schedule. Unexpected breaks and mid-day siestas may cause problems and put a strain on your business operations.

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Again, it all comes down to choosing the right team and discussing these factors beforehand. Software development vendors are experts – they will be able to recognize deadline-sensitive factors and address them early on. Also, they may bring a fresh perspective and energy to your project. Our biggest clients have coined the term “The Polish Way”, which means that if we don’t know how to do something today, we’ll learn and do it tomorrow.

Data Security

Businesses in the US are governed by stringent data protection and cyber-security regulation. Not all locations across the globe can boast these same legislative protections, which may leave business owners uneasy about working with overseas partners. Over 1.47 billion data breaches were recorded in the US in 2019, up from 1.26 billion the previous year and 784 million in 2015. So these feelings of uneasiness are justified.

This is a concern for outsourced software development teams, too. But, a good software house recognizes these concerns and knows how to minimize them, as they don’t want their clients to lose confidence in their data safety and work quality. As such, they should be able to show you the practices and solutions they’ll be deploying to keep you and your project safe. What’s more, they will look for potential risks in your existing software and help you aid them.

In-House Employee Morale Drop

We saw first-hand that outsourcing is always a thorny issue within an organization, particularly when factors like costs reduction are mentioned. Your employees may feel that they are being replaced or that their teams are being downsized ahead of corporate restructuring. This can quickly become problematic if let out of hand.

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Internal communication is a crucial aspect here. You need to be transparent and honest throughout the entire process of looking for an outsourced development partner; your employees need to know straight away that outsourcing companies will complement their efforts and make their work easier – not replace them.

Pros And Cons Of Hiring a Software Development Company: A Summary

Outsourcing software development has its pros and cons. But, for companies who lack the resources to hire, train, and deploy an in-house development team, it seems that the upsides outweigh the downsides. By choosing this option, you gain a competitive advantage, agility, optimized resources, cost savings, and access to a large pool of talented developers.

Still, outsourcing these services can result in communication and cultural issues, data security risk, and low employee morale. Good news is that the disadvantages of outsourcing can be effectively bypassed by adopting a savvy approach.

Choosing a Software Development Team Carefully

Take your time as you search for an outsourcing partner. Speak directly with outsourcing teams and receive concrete guarantees on the delivery parameters you can expect. Look for trustworthy customer reviews and case studies that prove the credentials of each candidate.

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Aim for a company that does not only meet your minimum standards but also goes above and beyond in terms of results. Never settle for the lowest price – a few of our clients turned to us after cheap software solutions had backfired. If you invest some time at the very beginning and conduct a ‘due diligence of sorts, you will begin to leverage the key benefits of outsourcing, such as:

  • Increased flexibility,
  • Better cost efficiency,
  • Accelerated time-to-market.

FAQs

What are the pros and cons of outsourced development? ›

The Pros and Cons of Outsourcing Your Software Development
  • Control over costs and predictable billing. ...
  • Attention to core competencies. ...
  • Access to relevant set of skills and experience. ...
  • Flexibility. ...
  • Quality and reliability. ...
  • Communication restrictions. ...
  • Different business philosophy. ...
  • Risk of data theft.
25 Jul 2022

What are three cons of outsourcing? ›

Disadvantages of outsourcing
  • service delivery - which may fall behind time or below expectation.
  • confidentiality and security - which may be at risk.
  • lack of flexibility - contract could prove too rigid to accommodate change.
  • management difficulties - changes at the outsourcing company could lead to friction.

What is the importance of outsourcing in software engineering? ›

The availability of resources

Being in a large-scale talent market, you can save your time on forming a team that implements all your ideas. Time is crucial for modern software development. Therefore, the key advantage of using outsourcing is saving vital time for own rapid development as a company.

What are the advantages of using outsourced developers? ›

Saving time

Working with an outsourcing partner allows you to delegate a lot of the recruitment process, enabling tech leaders to allocate their time and energy to more high-value initiatives for the company. The Accelerance advantage: We do all the legwork to vet developers, so you can focus on your business.

What is outsourced software development? ›

Software outsourcing takes place when companies choose to have custom software solutions developed by a third party. Outsourcing software development has many advantages including cost reduction, improved efficiency, mitigated risk, and enhanced security.

Why is outsourcing important? ›

Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm itself. This strategy may also lead to faster turnaround times, increased competitiveness within an industry, and the cutting of overall operational costs.

What are 2 negatives of outsourcing? ›

So, what are the disadvantages of outsourcing?
  • loss of control.
  • negative impact on staff.
  • data protection and confidentiality risks.
  • lack of consistency.
  • financial and reputation risks.
  • less flexibility.
3 Feb 2022

Is outsourcing positive or negative? ›

Outsourcing Can Increase Company Profits

Companies might outsource and/or offshore to a country that has lower labor costs. While some might see the local job loss as a negative effect of outsourcing, the increased profits that can result are hard for companies to resist.

What are outsourcing risks? ›

(1) Outsourcing risk is the risk posed to an insurer's business by non-performance, or poor performance, by a service provider of a function transferred to the service provider under a material outsourcing arrangement (within the meaning of CTRL).

What are the main three reasons for outsourcing? ›

Reduce and control costs of operation (this usually the main reason). Improve the company's focus. Liberate inner sources for new purposes. Increase efficiency for some time-consuming functions that the company may lack resources for.

What are the 4 types of outsourcing? ›

A few of the main categories include:
  • Professional outsourcing.
  • IT outsourcing.
  • Manufacturing outsourcing.
  • Project outsourcing.
  • Process outsourcing.
  • Operational outsourcing.

What are the Top 5 reasons companies use outsourcing? ›

Why Do Companies Outsource? Top 7 Reasons From Business Leaders
  • Cost Savings. “Cost savings is the main advantage that outsourcing brings in. ...
  • Scale Quickly. ...
  • Network Security. ...
  • Focus on Growth. ...
  • Remain Competitive. ...
  • Grow Business. ...
  • Delegate Tangential Processes.
15 Jan 2019

Is outsourcing software development a good idea? ›

The benefits of outsourcing software development go beyond just cost cutting. Many businesses outsource because it saves their internal team valuable time and energy. By delegating extra tasks to an outside company, you enable your in-house team to focus on long-term goals, customer service, and business growth.

What are the benefits and risks of outsourcing IT services? ›

Hiring an independent third-party provider has profound benefits – from cost-optimization, increased efficiency to an ability to reach out to a larger talent pool. Yet, many people often associate risks, such as lower quality, security threats, and loss of control with outsourcing.

What is outsourcing short answer? ›

Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another.

What are the two types of outsourcing? ›

The Two Most-Popular Types of Outsourcing in Software Development. IT Staff Augmentation and Dedicated Teams are the two types of outsourcing that have revolutionized software development.

Why outsourcing is the future? ›

With a red hot job market, remote work boom, and technological advancements, the outsourcing industry is due for expansion in 2022. The difference in this year's prediction is that the growth in the outsourcing industry is most likely to happen away from the typical outsourcing hubs like India and the Philippines.

When should you outsource? ›

Here are the 7 glaring signs it's time to outsource your business tasks:
  • You can't keep up with the demand. ...
  • Your employees are performing multiple roles. ...
  • Mistakes are costing too much. ...
  • Budgets are getting tighter. ...
  • You can't find the right talent. ...
  • Routine tasks take too much time.

What is another word for outsourcing? ›

Outsourcing Synonyms - WordHippo Thesaurus.
...
What is another word for outsourcing?
sourcingdeploying
redistributingsubcontracting
utilisingUKutilizingUS
1 more row

Why is outsourcing a weakness? ›

Disadvantages of Outsourcing

Risk of losing sensitive data and the loss of confidentiality by outsourcing activities or processes to external parties. Loss of management control and the inability to control operations of activities or processes that are outsourced.

What are the most common mistakes of outsourcing? ›

Here are some of the most common and costly outsourcing mistakes to look out for:
  • Outsourcing Without Assessing your Needs and Budget. ...
  • Prioritizing Cheaper Labor over Quality. ...
  • Choosing an Outsourcing Partner Without Thorough Research. ...
  • Skipping the Interview Process. ...
  • Not Setting Clear Expectations for the Outsourcing Partner.
10 May 2022

Is outsourcing good or bad for employees? ›

Outsourcing is the simplest way to get work done and save cost while you're at it. The best part about outsourcing is the fact that you do not have to stress about how the work will be done and you can focus your energy on other tasks that might be higher on the priority list.

Does outsourcing benefit employees? ›

Having an employee is much more of a burden on your business than outsourcing staff would be. This is because you generally gain more benefits from outsourced staff at a significantly lower cost. Choosing to outsource a department of your business offers value for both you and your employees.

What is an example of outsourcing? ›

Advertising, office and warehouse cleaning, and website development are the best examples of outsourcing. Most business owners delegate authority to outsourced specialists when it comes to bookkeeping, maintenance, recruitment. This helps enterprises to focus most of their resources on the main activity.

Is outsourcing high risk? ›

More formally, risks associated with outsourcing typically fall into four general categories: loss of control, loss of innovation, loss of organizational trust, and higher-than-expected transaction costs.

What are the two features of outsourcing? ›

Outsourcing benefits and costs

lower costs (due to economies of scale or lower labor rates) increased efficiency.

Which outsourcing is best? ›

Feedough Recommends
  • For every outsourcing need : Fiverr. A freelance marketplace to let you choose from millions of freelancers with gigs starting from $5.
  • To find creative freelancers: 99Designs. ...
  • The best freelancers on planet: Upwork. ...
  • Find a complete development team: Gigster.

What are the 5 outsourcing strategies? ›

5 Outsourced Strategies An Organisation Must Consider
  • Customer Service Outsourcing. ...
  • Finance & Accounting Outsourcing. ...
  • Catalogue Management Outsourcing. ...
  • Outbound Sales For Growth. ...
  • Back Office Outsourcing.
11 Oct 2021

What are 5 major drivers of IT outsourcing? ›

Here's an overview of the key drivers of outsourcing:
  • Core Competencies. ...
  • Need for Specialized Services. ...
  • Quality of Product or Service. ...
  • Internal vs. ...
  • Internal Capacity Constraints. ...
  • Strategic Process. ...
  • Delivery Time. ...
  • Regulatory Requirements.
17 Jul 2020

What are the three 3 most common outsourcing types practiced by companies? ›

Types of Outsourcing Strategies
  • Local Outsourcing. Contracting a provider within your country is called local outsourcing or onshore outsourcing. ...
  • Offshore Outsourcing. Another option is offshore outsourcing. ...
  • Nearshore Outsourcing.

What are the advantages of software outsourcing? ›

Advantages of outsourcing software development include access to a wide consulting package you may need and a full-cycle software solution. It means gathering requirements, estimating tasks, design, project delivery plan, development services, and software maintenance and support.

How outsourcing can reduce risk? ›

Investing in partial outsourcing reduce risk, as you can leverage the following benefits:
  • Focus more on your core business activities.
  • Save on cost and efficiency.
  • Reduce overhead expenses.
  • Benefit from business continuity and risk management.
  • Enjoy better staffing flexibility.

What are 5 benefits of outsourcing? ›

If you're like most executive leaders you're looking to improve performance (62% of respondents), reduce errors (53%), streamline existing processes (52%), gain access to new technology ideas and innovation (51%), and lower costs (44%).

Why is outsourcing better than in house development? ›

Easy Scalability

If there are varied requirements in your product, the hired outsourcing company can easily scale the teams up or down, matching the changing needs of your product. Thus, there will be no roadblocks in scaling up or down your project. This flexibility is next to impossible with in-house development.

What are the pros and cons of inhouse vs outsourcing the service? ›

Consider these pros and cons.
  • Pros. Investing in new skills pays dividends. ...
  • Cons. Higher ongoing costs. ...
  • Manage contractors more easily. ...
  • Pros. ...
  • Get our free Responsibilities Agreement template here. ...
  • Cons. ...
  • You want to have complete control over a project. ...
  • You need long-term support.
18 May 2021

What is the main problem with outsourcing? ›

Based on TPI's interviews and analysis, the #1 problem in outsourcing implementations is a lack of understanding of post-contract processes and decision rights. Simply put, clients and service providers are not operationally prepared to work together after contract signing.

Will outsourcing improve performance? ›

Outsourcing helps increase productivity in many ways, both directly and indirectly. Simply put, it allows employees to focus on what they do best. In the long run, outsourcing also helps increase efficiency, and job satisfaction for employees.

Why is outsourcing good and bad? ›

So by outsourcing some tasks and services, organizations can cut costs and increase their profits and the quality of products at the same time. However, many employees in outsourcing companies complain about poor working conditions. Often, they receive low salaries and work more than eight hours a day.

What is outsourcing and its disadvantages? ›

This is known as outsourcing. Outsourcing allows a company to focus on its core aspects by delegating less critical functions to the third-party outside organization. Insourcing brings new employees into the company rather than farming out tasks to third-party companies.

What are the solutions for outsourcing? ›

Golden Rules to Avoid Problems of Outsourcing
  • Keep track of the documentation.
  • Establish direct communication channels.
  • Be aware of cultural differences.
  • Always conduct thorough research before deciding on a vendor.
  • Clearly define requirements, duration, and costs of the project.
5 Mar 2021

What are some barriers to outsourcing? ›

They break down into four potential barriers to outsourcing: cost, control, commitment and risk. The issue of cost is especially critical, because of the very nature of the modern-day omnichannel.

What is a huge negative to outsourcing? ›

Outsourcing has caused high unemployment, loss of income and loss of competitive advantage, leaving people without financial support and employment.

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