AI Development: In-house vs. Outsourcing

The success of any business project is inextricably related to the work of the technical team. Depending on the scale of the project, its goals, and features, as well as financial capabilities, the company chooses the most convenient model for AI development.

AI development is speeding up, which will push more businesses to adopt the technology. But it is important to remember that artificial intelligence is not a short-term investment; it is long-term expertise. As a result, it is necessary to find expert help to understand how to use this technology in your company.

So, what is the most effective way for companies to effectively begin AI projects? Some companies strive for their development in-house team, others turn to outsource – the expertise of IT companies. Is it better to outsource or keep everything in-house? Keep reading to find out what will help your business grow faster.

In-house AI Development: what is it?

In-house development involves having your team with the necessary IT skills and abilities. And everything would be fine, but often the maintenance of such a team is a serious load on the company’s budget. Although in some cases, in-house development will be cheaper in the long term than attracting external resources.

In-house development is most often suitable for small companies where a full-time IT department can handle both the support and development of internal information systems.

Benefits of in-house AI development

It has both advantages and disadvantages, and knowing them will help you understand whether this option is right for you or not.

Better customization

Because of the customization, many businesses choose the in-house option. By developing their own AI solutions, businesses may cut costs by just providing the product they need, removing unnecessary features and complicated settings. The in-house method eliminates the need for your company to describe the desired result to AI vendors.

Ownership of intellectual property (IP)

It is well known that investments in the developing field can add value through intellectual property and patents.  Intellectual property rights can be a competitive advantage and a powerful tool for your company.

Cultural Conformity

Hiring a local development team means collaborating with individuals who share your culture and values. Employees are better able to integrate with the organization and bring value to their job as a result of this.

Disadvantages of building AI in-house

Creating your own team can certainly be a great method for AI development, but before choosing such a model, let’s look at the disadvantages.

Lack of expertise

In-house AI developers may not have the interdisciplinary perspective required to develop AI-based ideas, as well as meaningful models for business decisions. They are more likely to focus on long-term research initiatives that spend money but do not make a profit. An AI business consultant, on the other hand, is more likely to provide faster communication and results.

High cost

Employing in-house developers is significantly more expensive than hiring outsourced developers. Because infrastructure, overhead, additional employee benefits, training fees, and so on are all included in these spendings. As a result, you may be able to devote much more time to your project than you planned.

So, having your team is far more stable and profitable, but the financial and time costs can be large.

Another option: Outsourcing AI Development

Outsourcing is a growing trend in AI development, software development, and IT in general. According to Statista, in 2023, the overall revenue from various segments of IT outsourcing, including administration and application outsourcing, exceeded $460 billion.[1]

Moreover, according to JoinGenius, the IT outsourcing market was valued at approximately $617.69 billion in 2024 and is projected to reach $806.53 billion by 2029, growing at a CAGR of 5.48%. [2]

In many end-use industries, the need to minimize operating costs associated with non-core processes and a greater emphasis on core skills are driving market development. Furthermore, the market is likely to be stimulated by the growing desire of next-generation organizations to perform core business tasks on their own and outsource support tasks  to increase growth prospects.

Why AI outsourcing development could be a better option than hiring in-house?

Leading AI experts

The first thing you need to remember is that finding true artificial intelligence experts is quite difficult. This market is extremely popular, which leads to the fact that full-time employees expect high wages. Moreover, the set will require a lot of effort: knowledge and time. When choosing outsourcing AI development, you will not have to deal with these difficulties as the external supplier already has a professional expert team.

Сost-effectiveness

The most obvious advantage is that your company saves money. Because of the salary difference between Western and Asian countries, the same task may be done in India for a fraction of the price. Also, keep in mind that the services supplied are of good quality, therefore low pricing does not mean lower quality.

Current liabilities

Sometimes, within a single project, you may need a certain competence. Given that the project will only be in operation for two months, it makes no sense to hire a new developer to your team permanently. Instead, it will be beneficial to сooperate with the company that provides the relevant AI services.

Risk reduction

Before we analyze this advantage, we first list the types of risks associated with a software development project:

• time risks
• budget risks
• operational risks
• technical risks
• external risks

Outsourcing is always regulated by a legal contract. It includes not only the scope of work, the NDA (Non-disclosure Agreement), but also some other important aspects, such as the payment clause, the deadline, the performance clause, the confidentiality clause, the withdrawal clause, and others. Consequently, both companies share the benefits and risks associated with this process by default.

Higher flexibility

To achieve faster work speeds, outsourcing companies are increasingly developing flexible teams. They work as an internal team and integrate with the business. Companies are looking for new ideas and want the most up-to-date technology and solutions, therefore specialists are more flexible now.

How to find an outsourcing company?

If you decide to outsource AI development, you should make your efforts to find the best team for the project. Recommendations for choosing a company are given below.

Research, Consultation, Portfolio

When choosing a company, find detailed information about their specialization, past projects, who exactly this company worked with, as well as customer reviews. A good option may also be to consult with this firm about your project. During the consultation, you will be able to understand whether the company’s offer sounds interesting to you, what risks there may be, and what strategy they can offer for you.

Also, ask the company to show the previous references. Any responsible outsourcing company will have a portfolio that documents previous projects: this is the business card of the company and its main advantage when it comes to attracting new customers. Pay close attention to all projects connected to your industry when reviewing the portfolio. [3]

Check the key technologies of outsourcing agency

It is important to remember that artificial intelligence is a very specific specialization that is difficult to learn. Creating algorithms using machine learning requires experience, intelligence, and a particular combination of skills.

When outsourcing the development of AI products, make sure that the agency specializes in Big Data, Artificial Intelligence, Machine Learning, Business Intelligence, etc. Investing significant sums in complex AI-driven products, you need to be sure that you are working with the best group of professionals.

Ask yourself some questions

As mentioned before, low-cost countries can offer huge opportunities for high-quality AI outsourcing at a fraction of the cost of labor in the US and even in Europe. But before you choose a company, ask yourself a few right questions: [4]

1. Is your team fluent in English? This is the key to preventing serious misunderstandings
2. How many time zones are you in? To be able to communicate with the team during normal working hours, the time zone difference should not exceed 7-8 hours.
3. How do you manage your billing and accounting? Your outsourcing agency should be able to cooperate with your accounting department and conform to all accounting requirements in your country.

Managing Outsourced AI Projects: Best Practices for Success

Effectively managing outsourced IT projects requires a strategic approach to ensure that collaboration is smooth and project delivery is on track. Below are some essential best practices to guide you in achieving successful outcomes:

Clear Objectives and Scope

• Define Project Goals

Start by clearly defining the project’s goals and scope. Applying the SMART criteria (Specific, Measurable, Achievable, Relevant, Time-bound) helps set precise and actionable objectives that guide the team’s efforts and reduce potential misunderstandings.

• Document Expectations

Develop detailed project briefs and scope documents that serve as reference points for both your in-house and outsourced teams. This documentation helps prevent scope creep and ensures alignment on deliverables and timelines[1][4].

Effective Communication

• Establish Communication Channels

Utilize a variety of communication tools such as video conferencing, instant messaging, and project management software to facilitate real-time collaboration. Regular updates and status meetings are crucial for keeping all stakeholders informed and engaged.

• Promote Transparency

Create a culture of openness where team members feel comfortable sharing concerns and ideas. Transparency helps build trust and enables early identification of potential issues, preventing them from becoming larger problems.

Performance Management

• Set Clear KPIs

Define key performance indicators (KPIs) to measure progress and success. Regularly reviewing performance against these KPIs helps assess milestones and the quality of deliverables, allowing for timely adjustments as needed.

• Encourage Feedback

Foster an environment where feedback is welcomed throughout the project. Constructive feedback improves processes and outcomes while ensuring that team members feel valued and involved[3][4].

Foster Collaboration

• Build Relationships

Invest time in establishing strong relationships with outsourced team members. Regular interactions through video calls or onsite visits can enhance teamwork and collaboration[1][3].

• Create a Collaborative Culture

Treat the outsourced team as an extension of your in-house team. Encouraging knowledge sharing and teamwork can lead to increased commitment and productivity from all involved[1][4].

Utilize Technology

• Leverage Project Management Tools

Implement project management software such as Jira, Trello, or Asana to manage tasks, track progress, and maintain visibility over the project. These tools facilitate effective collaboration and communication among team members[2][4].

• Implement Agile Methodologies

Consider using Agile or Scrum methodologies, which focus on flexibility, iterative development, and regular feedback. These approaches are particularly effective for managing outsourced projects where requirements may evolve[2][4].

Monitor and Evaluate

• Continuous Monitoring

Utilize robust project management tools to gain real-time insights into project progress and resource utilization. Regularly reviewing performance against milestones helps in identifying and addressing issues promptly[1][2].

• Adapt to Changes

Be prepared to adjust objectives and strategies as project requirements change. Regularly updating goals ensures that they remain aligned with business priorities and project needs[1][4].

By adhering to these best practices, organizations can improve the effectiveness of their outsourced IT projects, leading to better collaboration and successful project outcomes.

Key takeaways

Deciding what to do with the implementation of artificial intelligence development in your company is a difficult task. In this article, you could find two options: you can create your team of AI specialists or hire an outsourcing company to develop the technology for you. Each of the methods outlined above has its advantages and disadvantages.

Addepto is an AI and business intelligence consulting company. If you’re looking for a partner to help you understand the complexities of AI software development, we would be pleased to talk with you and give you our expert advice.

In-House vs. Outsourced AI Development – FAQ

What is in-house AI development?

In-house AI development involves building and managing a dedicated internal team within your organization that handles all aspects of AI development, including system maintenance and support. This model allows for direct control and customization but can be expensive and time-consuming.

What are the advantages of in-house AI development?

• Better Customization
• Ownership of Intellectual Property
• Cultural Conformity

What are the disadvantages of in-house AI development?

• Lack of Expertise
• High Cost

What is outsourcing AI development?

Outsourcing AI development involves partnering with external companies that specialize in AI technology. These companies provide the necessary expertise and resources, often at a lower cost compared to in-house teams.

What are the benefits of outsourcing AI development?

• Access to Leading Experts
• Cost-Effectiveness
• Reduced Risk
• Higher Flexibility

What are the potential drawbacks of outsourcing AI development?

• Less Direct Control
• Communication Challenges

How do I choose between in-house and outsourced AI development?

Consider the following factors:

• Budget: Compare the costs of maintaining an in-house team versus outsourcing.
• Project Scope: Evaluate whether your project requires ongoing support or temporary expertise.
• Expertise: Assess whether you have or can acquire the necessary skills internally or if external experts are needed.
• Flexibility and Speed: Determine if you need a flexible, scalable solution that can be quickly adapted.

How does outsourcing IT impact project timelines

While outsourcing IT can accelerate project timelines through dedicated resources, scalability, and expertise, it also introduces risks related to communication and vendor dependency. To maximize the benefits, organizations should establish clear communication channels, set realistic timelines, and maintain regular oversight of the outsourced teams to ensure alignment with project goals and schedules.

The article was primarily published on Jul 1, 2021.

References:

1. Statista. URL: https://www.statista.com/topics/1900/it-outsourcing. Accessed August 12, 2024.
2. JoinGenius.com. 33+ New IT Outsourcing Statistics, Insights & Trends 2024. URL: https://www.grandviewresearch.com/press-release/global-business-process-outsourcing-bpo-market. Accessed August 12, 2022.
3. Tpssoft. How to have a successful Artificial Intelligence outsourcing development. URL: https://www.tpssoft.com/blog/p/how-have-successful-outsourcing-artificial-intelligence-development. Accessed June 2, 2021.
4. Procoders. Outsourcing vs. Outstaffing Models: What is the Difference and Their Pros & Cons. URL: https://procoders.tech/blog/outstaffing-vs-outsourcing/. Accessed June 4, 2021.