by Charles Fenton
SMEs looking to scale their business to deliver revenue goals or fast track their software development face the choice of insourcing or outsourcing. But is there a 3rd way?
Outsourcing is easier to start and more flexible. It can be expensive and challenging to retain the best resources focused on your project.
Insourcing gives you greater control. Though, it can be slower and more challenging to manage if you don’t have the right capacity and expertise.
A third way might be "Offshoring" where a 3rd party employs your staff locally. If done well, can deliver the best of both worlds with reduced risks and lower set up cost.
What are the advantages of Insourcing vs Outsourcing for SMEs?
Outsourcing is flexible, fast, and gives you resources on tap. It is easier to find the capabilities you need at the right seniority levels.
This works well for defined projects, but is less effective for ongoing work where costs can balloon.
On a like-for-like resource basis, outsourcing is a lot more expensive than insourcing. However, you do not have to carry the cost of more senior BAs or project managers meaning this can be cost effective – providing you can accept a loss of control.
In my experience, the main disadvantage to outsourcing is the tendency of outsourcers to reassign key resources to other projects to match their own priorities not yours.
Is Insourcing any better?
Insourcing gives you greater control over your projects, as you may be uncomfortable relying on a third party to produce your core IP. You may prefer developers who only prioritise your business.
However, what you gain in control, quality, and security, you may compromise in flexibility and speed.
Insourcing is usually cheaper than outsourcing but can take longer to recruit permanent resources. The risk of staff attrition and the loss of key staff on a small team leads to significant delivery delays.
This is especially true in the current, candidate-led market. Senior staff may also balk at working for a small business without the higher salary packet and a clear career path.
A Third Way: Offshoring
An alternative to insourcing is offshoring. Companies such as Google and Microsoft have successfully built their companies on offshore resources in cost-effective locations. But, for SMEs, the cost and hassle of setting up their own offshore team can be prohibitive.
However, with the right offshore partner SMEs can build their own dedicated inhouse team supported by the third party's offshore infrastructure.
Offshoring opens a deep pool of international talent. With the right offshoring partner, you have the level of control you need without the heavy set up costs. Offshore specialists find the right capability with the right cultural fit. Offshoring allows you to scale much faster and deliver your revenue objectives faster.
This can be transformational to your business if you can get it right. In my prior business, we were able to deliver our 5-year software development plan in 2 years.
Choosing to offshore on your own carries more risk.
There are start-up costs, and labour laws and regulations to navigate. You may also struggle to find the right resource without the right local presence. It takes time and capital to set up a remote location yourself.
How do you choose the right way for your business?
The choice is not simple. Programming languages change fast. Expertise in the most in-demand languages can be eye wateringly expensive. In these circumstances, an outsourced solution is attractive – offering flexibility and guarantees around delivery.
Outsourcing is good for a short-term fix, but it is rarely a good fit over the long-term. Control increasingly becomes important.
The right approach depends on a company's individual set of circumstances.
Potentiam's strategic framework assists companies in determining the optimal offshore strategy based on their need for cost, flexibility, control, cultural fit, speed, or capability availability.
Offshoring helps you scale faster. You build in greater resilience and can pivot into new markets and services.
Potentiam's offshore model provides you with total control of your staff supported by our infrastructure. We take the risk out of establishing remote offices by hiring your dedicated resources in our locations.
Scale your team faster by tapping into global capabilities in key skills – such as technology, data analysis and finance.