Insourcing software development has turned out to be an effective way for tech firms to boost business (to learn more, refer to Insourcing – A Breakdown). It is the exact opposite of outsourcing with similar intents (to know more, refer to Insourcing vs. Outsourcing). But like any business strategy, preparation and execution is necessary and are crucial for a successful endeavor. Choosing an insourcing partner requires as much meticulous planning and careful observation as in the case of outsourcing. Following are the tips on choosing the right insourcing partner for your business.
Establish insourcing goals
This is the most critical step a company can take while choosing an insourcing partner. The scope of work, the billings, and the project requirements have to fall under the insourcing partner's capability. The responsibility of the partner is to maintain a high standard of quality.
The Right team size
Many companies overlook this consideration while looking into insourcing options, but it's one of the most crucial factors in completing an in-house project. Make sure the vendor partner has the right blend of expertise and number to cater to your requirements.
Find out if the vendor-supplied workforce has the right experience and expertise in delivering services similar to the one you plan for insourcing. This includes several projects executed, types of clients worked for, and function expertise for knowledge-intensive tasks. Assess the management team's experience and qualifications, project managers, and other team members of the vendor company. Before entering into a long-term or substantial contract, interacting with the proposed team members before the commitment ensures fitment between the requirement and the team chose to execute it.
This factor is also overlooked to a great extent. It is essential to make sure that the vendor partner has sufficient working capital and is financially secure. There have been cases where the insourced workforce is not paid correctly by their employers, which affects their productivity. It is a classic case of ergonomics.
Privacy and Confidentiality
Numerous projects emphasize the confidentiality factor. There might be instances where a task cannot be outsourced merely because of the sophisticated nature and business goals entangled with it. But then, lack of workforce and budget issues drive a company to go for the insourcing route. It helps in keeping the work in-house and private while supplying it with necessary measurements.
There might be a variety of other factors out there depending upon client preferences and conditions. Irrespective of the vendor one chooses, starting a pilot project with a small team is always feasible to assess the outcome's scope in the long run and scale-up with time seeing the vendor's fitment with the business objectives and culture.
When outsourcing projects or insourcing tasks, organizations face a very crucial question about billing. Working with outsourced development team means that there are a few elementals that need to be sorted out from the beginning. It is because each project is different in its regard and comes up with its own set of requirements.
When a customer signs a deal with a software development company, they sign a billing agreement. The pricing model used depends mainly on project requirements. Two popular billing models are — Fixed-price Contract and Time and Material Contract. Selecting the right contract agreement is a vital step when outsourcing software development. Consequences of a wrong choice may yield unexpected outcomes.
Each type of contract has its pros and cons; hence, choosing any one of them may be a complicated task. The option that is well suited for one project may not be the ideal for another one. This article emphasizes on the advantages and disadvantages of these pricing models and explains which is better in what condition.
Fixed Price Contract
The fixed-price agreement is a type of contract where the service provider is accountable for completion of the project within the agreed sum in the contract.
In a Fixed Price model, the total budget on the project is set before development starts and remains unchanged. Plus, the exact deadline must be approved before the development starts. The contractor will bear the risks for late execution of works.
It is a practical choice in those cases, where requirements, specifications, and rates are highly predictable. The client should be able to lay down his clear vision of the project with the contractor to ensure appropriate final results.
When to use a fixed price contract:
- Clear requirements and deadlines
- Limited or fixed budget
- Limited project scope
Fixed Price advantages
- Usually requires clear deadlines and figures to be set to the budget. Planning expenses 1 to 3 months provide accurate statistics.
- Regular project management communication with the contractor ensures scope compliance and eliminates the possibility of surprises.
- Payments to the service provider count on the percentage of work performed. There is little involvement in such workflows since expectations are transparent and preset.
Time and Material Contract
Time and material (T&M) contract is the type of contract where the contractor is charged for the number of hours spent on a specific project, plus costs of materials.
Time and material contracts are much different from Fixed-Price because they involve billing clients for what they get. A time and material contract charges clients based on an hourly rate for all labor, along with the costs of materials. This type of arrangement might present some risk to the budget, but factors such as flexibility and opportunity to adjust requirements, shift directions and replace features prove to be very beneficial nonetheless.
In this model, the customer has a more significant role in the development of the software solution and bears all risks related to the project. The length of responsibilities that the client carries through the whole development process with time & materials is much higher than with fixed-price projects.
When to use T&M price contract:
- Long-term projects
- Full project scope not established
- Flexibility to modify the range with varying requirements
Time and Material advantages
- T&M contracts allow businesses to modify the scope of work, revise materials or designs, shift the focus or change features according to project requirements.
- There can be an established general goal that can be achieved, however knowing how it’ll be achieved is not so important beforehand.
- Opting for T&M contract process helps to save time and start projects immediately.
Outsourcing has remained an integral aspect of striking deals between engineering and design firms. While it has been growing at a solid pace each year, several companies have taken the route to insource a part of their formerly outsourced services portfolio.
Insourcing is the practice of assigning a task to an individual or group inside a company. The work that would have been contracted out is performed in house.
Insourcing is entirely opposed to outsourcing where the work is contracted outside. Insourcing encircles any work assigned to an individual, team, department or other groups within an organization. It is a task or function that a firm could also outsource to a vendor, being directed in-roads. It often involves getting specialists with relevant expertise to fill temporary needs or train existing professionals to execute tasks without the need to outsource the same. The group of professionals could either be direct employees of the organization or hired expertise from outside third party vendors.
A perfect example can be put in this way – a company based in India opens a plant in the United States and employs American workers to work on Indian products. From the Indian perspective, this is outsourcing, but from the American perspective, it is insourcing.
Causes of Insourcing
The leading reasons for insourcing include:
- A management mandate to make changes in corporate sourcing strategy
- To provide a remedy for a turbulent outsourcing relationship
- To obtain the right mix of in-house and outsourced services based on current business goals
- Mergers and acquisitions can also influence insourcing decisions. A decent post-acquisition integration plan should include a common sourcing strategy between the two companies, which may ask for the outsourcing of functions that are in-house at one company and the insourcing of a task that was previously outsourced at the other
- Insourcing enables companies to have control over decision-making and the ability to move more quickly and precisely
Reasons to Insource
- Boosting business agility
- Transformation needs secure integration with the business
- Knowledge is now available and increasingly democratized
- Cybersecurity threats
- Providing a platform to nurture talent
While executing an insourcing project can be achieved, it is essential to know that insourcing a service can be more complicated than outsourcing the same. The transition may require rebuilding services and leveraging capabilities from ground level that were once wholly owned by the service provider, which can turn out to be more complicated than expected.
Both insourcing and outsourcing are feasible ways of bringing in labor or specialty skills for a business without hiring permanent employees. When it comes to selecting between outsourcing and insourcing, several entrepreneurs cannot decide what is best for them. Before jumping on to the differences between these two business practices, we need to check the definition of the terms.
Insourcing is the practice of assigning a task or function to an individual or group inside a company. The work that would have been contracted out is performed in house.
Outsourcing is the act of assigning a task or function to a third party vendor instead of having it performed in-house.
Differences between Insourcing and Outsourcing
- Insourcing helps to track the development process and puts control over the quality of the work, while in the case of outsourcing, it becomes difficult to trace the quality of work.
- There is very minimal risk in insourcing, as one can have complete supervision over intellectual property (IP). In outsourcing, the entire task is in the hands of an outside third party. In case IP is leaked, it proves awful as investments on research, people and development work go in the vain and outside party claiming the idea as theirs.
- Insourcing helps in evading intermediaries’ costs like fees and commissions. Insourcing also drives to point other cost exponentials such as incorporating and utilizing third-party vendors who offer value-based pricing.
- As insourcing helps in keeping track of task and workforce, it runs hand in hand with development squad which in turn helps in keeping an eye on every move in the business, finding problems and resolving them. While in outsourcing, one lacks to track when the problem arises and how it’s fixed.
- In outsourcing, there are possibilities of miscommunication as the outsourcer and outsource vendor are in different places. The information goes from head management, and then, they commune it to outsource provider’s managers, who will lastly convey it to employees. This arduous and lengthy process has a risk of miscommunications. However, insourcing cancels out such possibilities. The miscommunication aspect is reduced in insourcing, as there is direct communication with employees.
- Outsourcing a project overseas might face a few issues due to the different time zone and cultural factors. A vendor might have varying physical outsources, various techniques, design, and engineering. There is a big chance of communication problem due to different time zone. In insourcing, the assigned team will easily decipher the requirements, design, and engineering to produce a product as per nativity.
- Various projects require complete confidentiality of data, which cannot be outsourced to a third party vendor. In that case, it is feasible to bring in their resources over to the project location, keeping the confidentiality intact while introducing expertise.
Insourcing is more preferrable when the business requirement is for a limited time or temporary or involves little investment. Outsourcing weighs more when businesses need to cut costs while still in need of expert professionals.