The outsourcing vs in-house subject has been debated for the last two decades in almost all industries, including agencies. Some companies prefer to expand their networks, reduce overheads and outsource, while other companies prefer in-house for native language skills and easy timezone management. There are plenty of reasons to choose between in-house vs offshore, so it’s best to get informed before making the call for your agency. No one wants to have to make a mistake on this one. It’s costly.
The key question is pretty straightforward. Do I need in-house or offshore development teams for my agency? The reasons for deciding on one or the other are unfortunately a little less simple. Looking into the pros and cons of each option can help to find the gaps and reach the solution that works for your needs.
To start with, take a thorough look into your specific delivery requirements and identify activities that can be ‘bundled’ as McKinsey terms it. Bundling is the systematic analysis of business processes in scope at a business, client, and project level. The objective is to discover activities that can be combined under the same ownership and location model. Each agency will be unique in terms of its bundled activities and the sourcing strategies that it will need to follow based on those requirements. Things to look out for when doing your analysis are:
A change from the core vs non-core activity approach, bundling allows a more flexible strategy that can mitigate geopolitical or currency rate risks, in addition to being purely a cost reduction or margin increasing exercise. Apple bundles all R&D, product development, and design in-house while keeping all manufacture offshore with their partner in China, Foxconn.
When you have the overall approach to defining your sourcing strategy needs in place, you can look at the pros and cons of outsourcing and in-house to select the best combination for your agency.
For those of you who are start-ups on a bootstrap budget, this first one’s for you.
The Deloitte 2016 global outsourcing survey reports that 59% of companies consider outsourcing a cost reduction tactic. A large portion of savings comes in the form of salary differences between a developer team in India and one in the US, for example. The difference between salaries listed by Deloitte shows that an agency could outsource its development and save ¾ of its salary costs a month.
Added to the salary savings are the other overhead savings that can be gained.
A key advantage for agencies that have some project-based clients that have future retainer potential is the ability to quickly onboard an expert team for a short-term project.
There are several options for hiring a project team:
Offshoring can allow your agency to take on projects outside of your core expertise, leaving you free to do what you do best in-house. With the number of new technologies launching and the depth of specialization required for many types of digital projects, it is not always feasible to team up internally to deliver a broader range of projects.
With offshoring, you can follow Warren Buffet’s advice to ‘stick to your knitting” without losing out on additional revenue-generating business that can be delivered in partnership with an expert vendor. This approach can help to expand existing retainer accounts as well as build currently project-based relationships into more long-term and predictable revenue streams.
It is worth mentioning that your core competencies are not necessarily your core activities, which have been used to determine offshore strategies. McDonald’s core competency is probably standardization, while one of its finance function’s core activities maybe sales.
For businesses, risk mitigation is an important thing to consider. Offshoring, through SLAs and legal contracts, shares your project risks with another company that has expertise in the field that your project requires. Win!
Lack of control
You need to be able to trust your outsourced partners to do their job without the need to micromanage. If you find yourself needing to manage the tactical details of an entire scrum team, you are not saving time or money and probably have the wrong vendor in place.
Good outsourced partners will be able to understand the key project documentation or requirements and implement them, all while regularly collaborating and keeping you up to date.
Offshoring does represent a delegation of control vs in-house teams but should you have a good partner that does what you can’t do in-house, the risk is well justified and mitigated.
Communication and time zones
Multinational teams soon become masters of the ‘meeting time optimization’ but if you add language barriers to your team’s time zone hurdles, you are reducing the benefits of outsourcing.
Having a local team in the same space can help build comradery, good communication, and streamline processes. Changes often get done in real-time. Agile teams can display visual artifacts and project information in a shared space.
Whether your company’s social culture is centered around food, drinks, sport, or charity, local teams can build out of work social bonds that keep them with your company long term.
With in-house teams, you have total oversight and more immediate control over your projects.
Especially with agile projects, in the long-term, your in-house team’s velocity increases over time as they become more accustomed to working together, improving cost efficiency.
Being able to offer top local talent a stable environment with long-term prospects and career growth, will always ensure that you have good people and low staff turnover rates. Those hidden rehire and training costs are not worth it.
You can combine in-house roles with outsources roles. For instance, your single point of contact can be in-house, in the same city as the client. The delivery and development team can be outsourced to a city or country with skilled people, better salary rates, and global network opportunities. There is no need for black and white in-house vs outsourced solutions. Do what works for your business.
Teams of local professionals can be expensive depending on where you are based.
Recruitment, training, benefits, office overhead, and career progression costs all add up to the cost of running an in-house team.
Finding and hiring top talent is not easy or cheap. While you spend time building up a great team, your company is operating at reduced efficiency. In a fast-paced and competitive marketplace, this puts your agency at a distinct disadvantage. Deliverables need to be on time and of high quality. Projects tend to go to the agency that can deliver quality, quickly.
Each agency is different. Do your analysis, assess your requirements, and use hybrid models as needed. Doing your due diligence will make sure that your unique sourcing strategy is informed by sound business logic. Lastly, your sourcing strategy can and should be fluid and adapt as your agency and project’s needs develop.