Weighing the opportunity costs of in-house development vs. managed services
With any business decision, there’s a trade-off. In assessing each decision’s opportunity cost, you weigh the pros and cons of each option while analyzing what you’re gaining versus what you’re giving up.
One common opportunity cost many IT organizations consider is whether to build an in-house delivery team or partner with a managed services provider. Many IT organizations would prefer to build their own full-time, in-house software delivery team. Although there are benefits to building an in-house team, it’s also incredibly costly—significant up-front hiring costs, overhead, and of course, time. These costs increase exponentially for large and complex IT enterprises that must frequently scale projects up and down.
Given the costs associated with building an in-house team, many IT organizations instead outsource or supplement their technical resources by investing in staff augmentation or managed services. In this article, we will provide an in-depth look at how and why your organization should weigh the opportunity cost of in-house versus managed services.
Managed Services: An Alternative Approach to In-House Hiring
Most IT executives or project leaders assess the opportunity costs of hiring internal in-house resources or adopting an external staffing model during the startup phases of the department or company, but the shift can occur at any stage in a company’s growth.
Here are some primary benefits of managed services:
Finding the Right People
U.S. News and World Report ranks “software developer” as its top job for 2019—and for good reason. Many IT companies struggle to meet the demands of hiring while “doing more faster.” In fact, 44 percent of IT executives report that they struggle with finding exceptional engineers.
As a result, the need for skilled developers and engineers has never been higher. Quality engineering talent is difficult and expensive to attract and retain, particularly for organizations that lack adequate technical maturity.
But finding the right people is essential in an agile business environment. Collaborative teams staffed with people who are skilled, experienced, talented, and adaptable are key to the success of an IT department, as well as the overall organization.
If agile teams aren’t growing, learning, adapting, and collaborating throughout the process of building software, then they’re falling behind—and innovation inevitably suffers. But in the ever-changing, fast-paced, and highly competitive IT landscape, it’s essential to remain current on the latest technologies, methodologies, and platforms, and to also create environments that spark creativity and innovation.
Hiring an internal team requires hiring an experienced product leader to offer guidance, support, training, and encouragement to the team. Yes, consistent development and growth of an internal IT team can be a significant investment, but one that often pays off with increased productivity, quality, and value.
Even if an IT company is willing to make a financial and time investment in building an in-house IT team or department, hiring and onboarding an internal team can take months. When considering the in-house option, it’s important to note the significant impact this hiring timeline will have on time-to-market and time-to-value.
Building an in-house team can cost millions before an ounce of value is created. If assembling and onboarding a team takes several months or longer, what’s the total opportunity cost of that lost time?
Next Steps: Moving to Managed Services
The decision to move to managed services is important, but choosing the right managed services partner ensures the success of the model. A truly effective managed services model should emphasize collaboration, transparency, and the sharing of knowledge and discoveries. This is with this model that organizations will see the most value from their investment.
So, what are the next steps for moving to managed services? The first step is to ask a potential managed services partner the right questions, which can include the following:
- Does this company’s price, industry knowledge, and experience fit with our expectations and budget?
- Is the company capable of successful delivery within our industry?
- Will this company work with us to improve a method of building software that helps our business?
- Are leaders from this company educators or implementors?
- How does this company define value?
- Will we be paying for hours or output?
At a minimum, a managed services partner should be able to:
- Help define a value proposition and align product behind that value
- Establish a path to predictable, sustainable delivery
- Establish a roadmap that identifies and prioritizes high-value features
- Emphasize and ensure quality in the delivered product and the system that builds it
- Accelerate and evolve the maturity of internal product and engineering teams
- Validate assumptions with data, quality assurance, and user testing
- Create a system in which the organization is empowered to innovate beyond competitors
When weighing the shift to managed services, consider which partner will make the greatest impact on accelerating valuable delivery and successful project outcomes. Managed services models are easier to scale than in-house teams and can help IT companies and enterprises improve estimating practices and budgeting accuracy.
Can You Afford Not to Move to Managed Services?
In summary, when weighing the costs (as well as opportunity costs) of managed services models versus hiring and developing an in-house IT team, consider how either would affect your organization’s IT maturity and value production over the long term.
If you’re interested in learning more about how a managed services model can help evolve your organization, download our white paper, Overcoming Software Delivery Stagnation, today.
Which engagement model works best for me?
What’s the best path for your organization? We created an interactive tool that matches you with the engagement model that best suits your business need. You can check it out here.
Looking for a deeper dive? You can get in touch with one of our solutions experts for a free 15-minute consultation.