Why Outsourcing Software Development is a Good Idea
Updated: Jun 11, 2020
Outsourcing software development to a third-party provider is a great way for companies to maximize their return on investment and get the business software they need. While it seems like it would be cheaper to hire software developers to work internally, oftentimes, outsourcing software development is a better option.
Whether it's big data analytics, warehouse management, data management, native cloud apps, manufacturing measurement, or process optimization, many businesses need custom software to manage these crucial day-to-day operations. The business can hire internal software developers onto their payroll, or they can work with a third-party vendor to fulfill their needs.
Good Software Development Isn't Easy
One of the biggest problems with software development is that you can spend a lot of money on it and not get the expected returns. Budgets burn fast, and if your team isn't well-calibrated and good at what they do, you can find yourself in an unhappy place very quickly. One of the reasons software development is hard is that there are so many different ways to solve any given problem. There are a thousand different ways to implement a solution, and while there is normally no one right way, there may be plenty of wrong ones.
If you don't have great teams and stellar technical management, you can end up with software that doesn't do what you need it to do or what you expected it to do. Your software may be over-engineered or under-engineered. Your software may be unreliable and buggy. And in the worst case, your software may allow bad data to be created. And that just ruins everybody's day; if your data is bad, everything else can go down the drain.
For example, bad data can lead to faulty decisions, and the results of those faulty decisions can be devastating. Bad data can lead to unhappy customers or unhappy employees. One leads to lost sales and the other leads to higher turnover and increased costs. The list goes on, but all of it leads to lower profits.
Building custom software well requires a lot of experience, industry knowledge, continuous training, and a team that gels well together. It's hard to do because software developers are notoriously finicky and temperamental. And if you are not an expert at managing them, you could run into a lot of problems.
You could experience high attrition. You could find yourself with extra features and capabilities you’ll never use. Or your team may cut corners, incurring technical debt that never gets repaid, so that they can meet an arbitrary deadline. There are a hundred more examples, but each of these things will cost you more time and money in the long run. If you're hiring senior software developers for $100,000 – $200,000, you're spending a lot of money on software development. You need to make sure it's being done right.
If you're not used to working with software developers, or if you don't have someone on your leadership team who specializes in managing software developers, you could easily spend $1 million and never realize your investment.
Software Developers Should be Software Experts, not Industry Experts
Software development, especially the work we do at Elegant Software Solutions, doesn't require vertical expertise. We don't have to be experts in inventory management, supply chain logistics, or healthcare systems. It may help, but as long as we have expertise in our own skills — and study the latest developments in our world of technology— we'll be able to work across any vertical.
Many companies get hung up on looking for developers or vendors with industry expertise instead of software development expertise. They'll favor hiring a developer that has 20 years' experience in the business field instead of focusing on what's more important, which is their programming skills and their ability to adapt to varying business situations.
For the most part, data is data, and good developers can work in any vertical. In fact, working across many industries and many projects helps keep a developer's skills sharp and gives him or her a much wider breadth of experience from which to draw upon. Companies should be placing more value on finding those types of developers-- ones with broad experiences, who actively keep up with the latest and greatest technologies, and that know how to apply those technologies to their business appropriately.
Hiring Full-Time Employees is Expensive and Time-Consuming
There are very high costs associated with hiring software developers as full-time employees. A lot of A-team software developers can earn upwards of $200,000 per year (Atlanta, GA). Add 30 to 40 percent to those costs to hire a recruiter to find them. Then add the benefits, onboarding costs, and other intangible costs of bringing on new people.
If things don't go as planned and you cancel your project or change course, you may be facing the need to lay people off. There are all kinds of HR and administrative considerations and even lawsuits if you don't handle things correctly.
You could hire 1099 contractors, but there are a lot of IRS considerations to handle. Oftentimes companies manage their 1099 workers the same way they manage their FTE teams. That seems pretty normal... until the IRS says it’s not. And that you’re liable for employer taxes. Don’t think that happens? Ask Microsoft or any number of other companies that have paid out back taxes and penalties for doing this and "avoiding" employer taxes. Whether it was intentional or not doesn't really matter when you're writing a check to Uncle Sam.
Outsourcing software development means hiring an agency to complete a project: You hire them, and they're responsible for all their staffing, HR costs, onboarding, and so on. As long as they can deliver the product on-time and on-budget, you don't have to worry about any of the headaches of hiring full-time employees and 1099 contractors.
If you have to stop a project, or you need to expand or even add a new project, the outsourcing agency can more easily pivot. These are the joys of a variable cost model that comes with outsourcing. They can expand and contract their development team as they need, and grow and change with your organization as needed. Stopping a major project with in-house staff often means layoffs or reassignments; expanding projects means hiring even more staff.
Furthermore, outsourced software developers tend to have more expertise and knowledge about software development because they work on a number of different projects. In-house developers tend to focus only on their situation at hand and their own set of code. They're not stretched to learn about new techniques and technology developments, and they're only updating and maintaining their own code without building anything new.
By the time a dedicated in-house team gets around to modernizing, they've been adding features to their software for the last 10 years, they don't have the latest and greatest and they may not understand what these latest developments can do for them.
A full-time software development agency is constantly working on new projects, adapting new knowledge to new problems, and continuing to grow and stretch themselves. So they're able to create new solutions and adapt them to a client's system.
Bottom line: Outsourcing software development can give you more flexibility, greater expertise, lower costs, and faster development time than trying to hire and onboard in-house developers to manage a number of different projects for you.
To learn more about outsourcing your software development in the Atlanta area, visit the Elegant Software Solutions website or call us at (855) 449-4649.