Three Staffing Strategies: In-House Team vs Individual Contractor vs IT Service Provider?

When starting a new or extending an existing project, one of the most important questions is how to find relevant IT talents. A business owner has a few options here: recruit an individual contractor, hire an IT service provider or build your own in-house development team. This depends on your project size, its complexity, domain focus and more. Ultimately, this decision will influence the success of your project. 

As there are pros and cons to each option, let us figure out the best option for your business and help you make the right decision.

Choosing Between a Freelancer and IT Service Provider

Let’s walk through the main factors to consider when choosing between hiring an IT partner and a freelancer.

Recruiting process

Talent acquisition requires time and resources, especially if you consider a candidate from another country. To effectively recruit top IT talent, you need to understand the specificity of a local labour market, properly organise a process of searching tech talent and have the strong technical expertise to evaluate a candidate’s knowledge and experience.

There are two options for the business owners: entrust the talent search process to the in-house recruitment team or rely on the IT service provider. 

Hiring an individual contractor requires the business owner:

  • To have an experienced recruitment team following an established recruitment strategy. Even a skilled recruitment team can face challenges when searching for tech talent outside the domestic labour market. Also, recruiters should clearly understand the candidate requirements to review the applicants, do interviews and recommend shortlisted candidates to the business owner.
  • To have the strong technical expertise to distinguish a specialist from a non-specialist. It is known that 60% of employers have spotted inaccurate information on resumes in the past. Moreover, according to the survey of talent acquisition leaders, 52% confirmed that the most challenging part of hiring was identifying the right candidates from the wide pool of talent. That is why technical interviews, completing the technical assignment, and availability of certificates may help to check candidate qualification level. However, a business owner without a specific technical background will find it challenging to evaluate the candidate’s potential.
  • To have enough time. The process of searching and recruiting an individual contractor may take a few months. Additionally, if a hired contractor doesn’t pass the trial period, you must to re-start the recruiting process from the beginning.
Recruiting Process

On the other hand, the IT service provider can offer candidates within no time if available specialists have the relevant skillset. If there are no relevant specialists in the remote team, the IT company undertakes each step of the talent acquisition process, including internal technical interviews with in-house IT experts.

Recruiting funnel

As a result, the client gets shortlisted candidates with the right skillset and relevant experience for the final interview. If the dedicated developer doesn’t pass the trial period, the IT service provider guarantees to replace the IT consultant as soon as possible. 

Business processes

The IT service provider has established corporate business processes that cover every stage of software development. Following the generally accepted guidelines and software development standards that cover project management, quality assurance and security issues allow IT companies to ensure the final software product quality. 

Another essential issue is how to make a remote employee as efficient as an in-house one. It is quite challenging to measure workforce productivity beyond office locations. When a business owner cooperates with a remote independent contractor, he doesn’t have control over the contractor’s schedule and work environment, can’t track his productivity. IT companies can guarantee a high level of employee productivity and have tools for its control. 

Security

Security is a crucial issue on every project. IT companies have secure physical offices with access control systems, CCTV, monitoring and alarm systems and so on to eliminate unauthorised access by third parties. Additionally, the client can count on an in-house data centre for development purposes, a secure development environment, licensed and up-to-date corporate software and, high-performance hardware and equipment. If something breaks down, the IT company has the resources to renovate and update it promptly. 

In addition, certified partners of Microsoft, Adobe and other technology leaders have access to innovative software products within the partnership programmes. Thus, cooperation with IT service providers allows businesses to get additional benefits for their future products.

If the client needs compliance with HIPAA, GDPR, ISO or, SOCK standards, an IT service provider is the only option. Working from home, freelance software developers can’t adapt to client’s security and compliance requirements.

Furthermore, the IT company pays attention to financial security and provides employee background checks to ensure the client’s project security and intellectual property protection. 

Technical and domain expertise

The collective experience and knowledge sharing. The primary benefit of working with an IT service provider is the collective experience. The software developer is not an isolated element. They are a part of a project team and particular department. If the specialist faces some new challenge, it is not necessary to solve it alone. It is common to consult with more experienced colleagues, provide code review and, use in-house accelerators and enhancers to speed up the development process. The collaboration with other technical departments and knowledge sharing within internal meetups allow the IT specialist to grow professionally and get valuable technical insights that can be implemented in future projects. The individual freelancer can’t count on any help or advice from outside.

Education and Certifications. The IT company is motivated to invest in its employees’ further education, English proficiency, certification and professional growth. The primary reason is to gain a competitive advantage above other service providers. Companies organise training and courses needed to obtain certifications and compensate financial costs for passing the exams. IT specialists can confirm the level of their knowledge and skills and increase the seniority level through professional certification. On the contrary, an individual contractor has no motivation to spend time and costs on training and passing the certification exams.

It is a common practice to conduct regular employee appraisals and develop personal development plans that describe the pattern of professional development for each IT specialist. SSA Group has implemented the matrices of competence to track the professional growth of tech talent and determine an employee’s seniority level. 

Full-cycle software development. Big projects from scratch require the deep expertise of more than one IT consultant. Full-cycle software development includes preliminary requirements analysis, research and prototyping, requirements definition, design and development stages, quality assurance, product deployment and post-release support. In summary, it requires the expertise of the project manager, designer, software developers and systems architects, QA and DevOps engineers. It is simpler to form a development team with an IT service provider who already has in-house specialists ready to join each stage of the software development process.

Hiring an individual contractor can be a good option for minor development tasks or to become a part of the client’s in-house development team. 

Full-cycle development

Consulting services. An individual contractor is always limited by their area of expertise. In contrast, an IT service provider can offer consulting services regarding market research, business analysis, product viability assessment, user experience, user testing, and so forth. Case studies in a specific industry can help determine the maturity of the outsourcing vendor. 

HR activities and employee retention

It is difficult to build a common culture, generate social cohesion and build shared trust when working remotely. According to the McKinsey research, remote employees experience difficulty connecting to colleagues and managing work-life boundaries, which affects productivity. 

The IT service provider cultivates corporate culture by providing team building, anniversary celebrations, corporate events, and other HR activities to establish interpersonal connections within the teams. In addition, IT companies provide a number of employee benefits and compensation such as health insurance plans, office perks, wellness programmes, corporate discounts and so forth. 

All these corporate activities contribute to increasing the level of work performance and employee retention. Teams make work more efficient since teammates learn from each other and observe the quality of each other’s work. The innovation and creative process become faster, too. When a team tackles a challenge, the project benefits from multiple perspectives and skillsets.

To deal with the foreign contractors, the client needs to be familiar with the country’s legislative framework, taxation laws and undertake the signing of all the contractual documentation with the freelancer. The IT service provider takes over all the agreements with the client and employees regarding the project, including a non-disclosure agreement. 

As business entities, IT companies guarantee legality and reliability. Contracts with clear intellectual property clauses are already available and can be expanded according to the client’s requirements. Moreover, the client can sign a non-disclosure agreement at any stage of the project. IT companies have in-house lawyers and finance departments responsible for taxation and financial reporting of their employees, and dispute resolution if needed. The client doesn’t need to be involved in these issues.

Rates and cooperation models

Hiring a freelance software developer can be a cost-effective option. There is no need to pay for office management, health insurance, corporate activities, team building and so on. 

cooperation models

IT solution providers offer flexible cooperation models suitable for all kinds of projects depending on project duration and the level of client involvement in the development process. Their rates already include an administrative fee that covers all corporate activities, administrative expenses and employees’ perks in addition to the monthly salary. A comfortable workspace, team building, gifts, and congratulations are part of the corporate culture that helps retain employees and build long-term partnership. As a result, the client receives a motivated team of experts who follows mature business processes and guarantees product delivery. 

Risks

The primary risk in cooperation with an individual contractor is hiring unskilled and unreliable employees who will not finish the project within deadline and budget. Freelance developers lack commitment in most cases and are free to stop cooperation at any project stage.

A good market reputation is crucial for the software development company. Signing an agreement, the IT partner commits to take on the project and get it done. In case of project failure or some issues with IT consultants, a reliable IT service provider agrees to bear risks and offers certain warranties for its clients. Therefore, IT companies pay special attention to IT talent acquisition and checking the candidate’s background and technical competence. In case of problems, the company is fully engaged in resolving them at the legal level. 

Scalability

Before deciding on cooperation with an individual contractor or an IT service company, keep your business growth plans in mind. The individual contractor does not have the ability and resources to help scale the business in the future. On the other hand, cooperation with IT service providers automatically implies business growth and scalability. At any moment, the client can request increasing the number of experts to accelerate the development process, whether to reduce time to market or launch an additional project.

Building an In-House Development Team

Hiring in-house employees is another strategy that businesses tend to incorporate. Software product development by your own in-house team has the following advantages:

  • Teaching the internal team the required skills and technologies;
  • Knowing the culture and goals of the company from the inside;
  • Direct communication between a business owner and the development team;
  • A better understanding of the project requirements and business goals.

In a post-pandemic world, a lot of non-technical companies are starting to use this method and develop software applications using the team that already works for the company. But there is a catch – the staff you work with might not be competent in the area of software development. 

By choosing an internal development team, a business owner cannot count on external assistance, so the success or failure of the result depends only on an entrepreneur and his in-house developers.

The realities of the economy and the rapidly changing IT industry have transformed perceptions towards hiring in-house teams. Today, hiring your own development team is fraught with risks and drawbacks. Countless organisations spend more time and resources building and managing an internal team than they spend on actual software development.

Let us discuss the main myths of hiring an internal development team for a software project and reveal the drawbacks of this staffing strategy.

The recruitment process is easier to implement

Building an internal team and training it to work effectively takes time. According to a report prepared by Glassdoor, it takes at least 30 days to hire a programmer, and it becomes harder and harder each year. Thus, building an in-house IT team from scratch requires a business owner to spend a lot of time and resources while going through the process of recruiting, interviewing, and onboarding.

The shortage of local talent and lack of talent versatility is considered the first element that slows down the talent search and hiring process. A business owner needs to make sure he gets employees with relevant experience. This is hardly possible if there is no expert who can evaluate a candidate’s technical skills.

Some projects need experts from different fields such as backend and frontend developers, mobile developers, data specialists, UI/UX designers, project managers, etc. on the different stages of the software development life cycle.

In-house teams are cost-effective

Building an in-house IT team includes the visible and hidden costs. The employees need full-time salaries, health insurance, benefits, retirement plans and social perks. Moreover, they need advanced hardware, software licenses, office space, etc. to properly fulfil their tasks.

By hiring in-house employees, it will be difficult to scale up or scale down the team. For example, unlike outsourcing when you scale by going for the talent you need, scaling a team of in-house developers is costly and slow. 

First, the business owner will have to start the entire recruitment process all over again – from advertising the job posts, going through CVs, shortlisting and inviting qualified talent to interviews, hiring, onboarding, etc. The time that will be spent on recruitment alone, might be enough for an outsourced team to get the job done.

Second, the specifics of software development require different specialists at different project stages. So, a business owner must decide what to do with in-house employees once they complete their tasks within the project. It is difficult to fire or transfer a full-time specialist to a support model since the contract is arranged and signed. Therefore, it is the responsibility of the business owner to decide what to do with employees and how to build a cost-effective project timeline.

Moreover, upskilling the team is the responsibility of the business owner. The IT industry undergoes constant change, with the introduction of new technologies, tools, and languages. A business owner must ensure that his team keeps up with the changes, as it affects the product quality and growth.

There are no risks with in-house teams

While hiring an in-house team, a business owner should be ready to face the following risks:

  • The project might not be completed on time or within the budget. At this point, the role of the project manager is to estimate the project and minimize the potential risks, so the project will be successfully completed. This turns out to be a grave concern for the company as it also prolongs actual project completion time.
  • A specialist may leave in the middle of a project. Once you hire an in-house developer, your whole work becomes dependent on him. If the developer decides to quit his job, the company must initiate the recruiting process all over again to find new talent. It is more difficult for a company to find a replacement compared to the IT service providers, where relevant specialists can be available to start working on the new project.
  • Security risks. A secure software development environment, software licenses, access control systems and other precautions against unauthorised access by third parties are up to the business owner. It is essential to ensure the project security and intellectual property protection as well as compliance with such standards as HIPAA, GDPR, etc. if it is needed. 

The retention of an in-house employee is easier

When hiring in-house tech talent, an employer also must consider the turnover cost. Employment turnover statistics indicate that an employee’s leaving costs companies on average 33% of the employee’s annual salary. 

It is crucial to understand that the IT market is the most competitive of all. A recent Robert Half International survey reveals that roughly a third of more than 2,800 IT professionals said they plan to look for a new job in the next few months. According to Harvey Nash / KPMG CIO Survey 2019, technology professionals value innovative projects and learning new skills above salary, job security or international career opportunities. 

The competition for tech talent is fierce. In June 2021, U.S. employers posted more than 365,000 job openings for IT positions, according to IT trade group CompTIA. Software developers, IT support specialists, systems engineers and architects are among the most coveted workers by employers. Getting the best talent in the company is the smallest problem. It is a challenge to ensure high-performing employees stay with the company.

Summary

To summarise the primary pros and cons of each staffing option, we have compiled the following chart.

Conclusion

Forming an in-house development team, involving individual contractors or outsourcing partners on projects may become a competitive advantage for businesses. However, the business owner needs to consider the pros and cons of every option carefully before deciding. For small projects or minor support activities with clear specifications, the help of an individual contractor can be enough.

On the other hand, if you need to implement a complex solution from scratch that requires the technical expertise of several IT consultants or request audit services for the existing solution, you may benefit from involving an IT service provider. IT companies have the resources to evaluate the project from different aspects and cover the full cycle of the software development process, gradually involving the relevant IT specialists at each stage. 

Thank you for getting to the end of this article. If you have any questions, please, feel free to write to us. We appreciate your feedback and will answer you in the clearest and most precise way. Consider the experienced IT consultants from SSA Group to support your software development plans and business growth.

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