One of the trends I've seen in recent months is companies taking more of an interest in building their own in-house development teams. Much of this is in response to market conditions. Finding top-quality hiring talent has been challenging over the past two or three years. Whether on the client or agency side, human resources have proven to be one of the biggest challenges of recent times. However, as you have heard, companies have been downsizing recently, leading to a larger pool of individuals looking for work. As a result, more organizations have considered developing their own in-house teams under the assumption that hiring will be much easier.
Developing an in-house software development team can offer numerous benefits, such as better integration with the company culture, more control over the development process, and potentially improved communication. However, there are also risks associated with this approach. Sadly, those risks can often offset any potential cost savings this approach may offer.
In no particular order, these are some of the challenges that exist when developing your own team:
High Costs: Recruiting, hiring, and maintaining an in-house development team can be expensive. This includes salaries, benefits, office space, equipment, and ongoing training. For small businesses or startups, these costs may not be sustainable. Many companies feel that available talent will be less of an investment these days than over the past few years. This isn't the case. Finding quality talent costs money and a lot of it. Not only are these expensive salaries to carry, but the acquisition cost and finding developers can often dramatically change the mathematics of the strategy.
Talent Acquisition and Retention: Finding the right talent can be challenging, and once you have skilled developers on board, retaining them can be equally difficult, especially in a competitive market. One of the biggest challenges in building an in-house team is that management may not understand how such a team should function and what roles must be filled. I've been running a technology company for over 20 years, and I'm still stressed out hiring tech people because you never quite know what they truly understand. It's much easier to vet an agency than it is an individual.
At the end of the day, unless your company is technology focused, it's unlikely that anyone has any experience in building a technically based team. This makes hiring even more difficult and management nearly impossible. Sadly, when a bad hire is made, it is often noticed for only a few months, leading to lost time, wages, and amassing of lost opportunity cost.
Resource Allocation: If your primary business is not software development, managing an in-house team can divert resources and focus away from core business activities. This is one of the biggest advantages of outsourcing your development needs. Building an in-house team takes time and attention, which may create strain on the rest of your business.
I often tell prospective clients that it only takes one or, at worst, two contacts to interface with an outsourced team. Almost any organization can spare one or two people to oversee a vendor relationship. However, when building an internal team, that team needs to be integrated into your company and its various workflows. It almost always leads to confusion and, in the worst case, chaos, leading to distraction from your core business. Unless your business is completely focused on developing its core revenue models online or via software, consider developing it with a third party who is removed from workflows, distractions, and company politics.
Scalability & Flexibility: Scaling an in-house team up or down in response to project requirements can be slow and cumbersome. It may also lead to either resource underutilization or overextension. This is the largest benefit of working with outsource teams. If one month a project needs to be accelerated or if it needs to be paused for a while, outsourcing organizations are already familiar with these situations. If you have an in-house team, those things become more difficult. If they're underutilized, they'll be sitting around doing nothing, which is not good for morale. But if the work picks up, they may be overworked. Software development is best when it's not too fast or slow. That balance is complicated to achieve when you don't have a flexible model for resource allocation.
Lack of Diverse Expertise: An in-house team may need a broader range of skills and experiences that can be easily accessed through outsourcing. This can limit innovation and problem-solving capabilities. These days, digital agencies work hard to provide various services to their clients. Building digital products requires a diverse workforce specializing across multiple skill sets. I have yet to see a client able to create a diverse team that can handle all aspects of digital production cost-effectively. I've seen them try, but the quality is never there. An agency can always provide diverse experiences flexibly, all under one roof. For clients who need to bridge the gap, it often means hiring an outsourced firm anyway, which creates an integration challenge between the two teams – a problem that would be mitigated if one team was doing the work anyway.
Longer Development Time: Building a team, getting them up to speed, and going through the development process can take longer than outsourcing, potentially delaying time to market. I've seen clients attempt to build in-house development teams, and almost every time, the startup phase is much slower than predicted. Sometimes, it can take more than a year to see actual deliverables produced. One of the problems is simply the business model. Agencies are incentivized to deliver products. If they're not doing so, they're not getting paid. Agency staff are eager to finish a project and move on to the next one - project managers are trained to develop strict timelines to ensure a positive outcome. In-house teams don't have these problems; it's the opposite. In-house teams benefit from projects taking longer and going slower. Because of these diverging motivations, in-house teams have difficulty developing new products quickly and effectively.
Risk of Stagnation: An in-house team may become too entrenched in the company's culture and existing ways of doing things, leading to a need for more fresh perspectives and innovative solutions. Agencies never have a chance to stagnate. There's never a slow time. Things are always in motion, with many projects being worked on for multiple clients. Each project brings with it different challenges and objectives. As agency production experts complete projects, their confidence builds, and their creativity grows. For in-house teams, it's different. They may work on one project or two throughout an entire stint with an organization. This leads to stagnation, best defined as boredom, and in some cases, a lack of confidence. Often, somebody working at a company will tell us that a project should take a long time when we know we can do it much quicker. It's not that we're smarter than the person casting doubts, but that we have confidence because we do it all the time. Stagnation is one of the quickest ways to kill a development team's capabilities. They should be avoided at all costs, but the conditions of being on an in-house team often make avoiding this scenario unlikely.
Training and Skill Development: Technology evolves rapidly, and keeping an in-house team's skills up to date requires continuous investment in training and development. This is an added expense and a time when the team will only be partially utilized. This could also be when product delivery slows down because the team is undergoing training, and there needs to be someone to fill in the gaps. Agencies take the risk and manage resource allocation so that clients rarely bear the burden of this issue. Also, as mentioned, agencies are completing many more projects, thus developing the skills and confidence of their personnel. In-house teams will never be able to keep up with the workflow of agency personnel.
Overdependence on Key Individuals: If the team is small, there might be an overreliance on one or a few individuals. If such a person leaves the company, it can significantly impact the development process. Clients who attempt to build an in-house team frequently will start by bringing in one chief technology officer or a similar role. They will give this individual carte blanche to make long-term technical decisions about what's best for the organization. The problem with this approach is that few staff members can vet the person's recommendation. Companies make major investments in developing software around one person's preference, and often those investments will last much longer than the employment of the individual who chose them.
One trend I've seen more than a few times when working with in-house technology folks is the exuberance around new, trendy technologies. This is worthy of a post all on its own, but clients often come to us asking about trendy technologies to which we push back to more tried and true approaches. There must be some psychological reason why in-house technologists recommend little-known frameworks for building essential tools for their organizations - because it doesn't usually make sense. As an agency, we're always focused on mitigating risk wherever possible, and a big part of that is recommending technologies that have not only proven their worth over time but have a road map toward the future.
Granted, these issues can also happen with a third-party developer. However, the motivations of an outsourced development team and in-house resources always differ. Development teams want to retain business. The Holy Grail of any agency is a long-term relationship with a client over time. That's a different motivation than an employee may have. Employees can move on to new opportunities, sometimes quickly and without warning, depending on their reasons. If anything, agency relationships are much more stable because the chances of an agency firing a client are very low. Agencies don't typically quit. Also, agencies are more stressed and motivated to do a good job because their company's reputation depends on it. It's nearly impossible for an organization to leave a bad review for an employee who left. In fact, that's probably illegal in most states.
Legal and Compliance Issues: An in-house team may need to be made aware of various compliance issues, especially if developing software for a global market or a highly regulated industry. This can pose legal risks for the company.
The largest enterprise companies are pretty adept at understanding compliance issues, such as accessibility, data protection, and so on. However, if your company is not large enough to have a team that understands these issues, most likely, any technical folks you hire won't have any sense of that either.
Outside agencies are used to working with many clients and therefore have a good grasp of what needs to be considered during software development and maintenance and can provide advisement and help ensure adherence to standards.
Wrapping Up…
Obviously, I'm not an impartial party regarding this debate. I run a development agency, so I want to sell our services whenever possible. That said, I have not seen clients succeed by attempting to build their own tech team to manage or build internal products.
I have, however, seen teams hire targeted individuals to perform specific tasks, augmented by agency relationships. This approach is worth considering and will be the topic of a subsequent post.
