Outsourcing vs. Outstaffing: Understanding the Differences
Whether you need to create a new product from scratch or delegate some of the company’s tasks, it’s always about hiring new people. And this is where the question of the employment model comes into the scene. If you don’t want to go through all the hassle of interviewing and employing in-house, you have two main options: outsourcing and outstaffing. What’s the difference, and which one to choose for your specific case? We’ll try to find the answers in this outsourcing vs. outstaffing battle.
What is an IT Outsourcing Model?
In very short terms, outsourcing means delegating the whole project to another company. In this case, you can be minimally involved in the process and only communicate with the project manager to share your requirements, ideas, and suggestions. With the outsourcing model, the people working on your project might be working on other projects as well, there might be rotations in the team, and you most likely won’t have direct access to the people. However, you won’t need to deal with any people-related issues in return.
Real-life outsourcing example: A small business needs to set up a new website and delegates the task to an outsourcing web development company. The web development company designs and builds the website, ensures it runs smoothly and securely, and handles any ongoing maintenance and updates. The small business focuses on its core competencies and leaves the technical aspects of the website to the experts. No direct communication with website developers, designers, or testers is going on, a PM is a person of contact responsible for translating the client’s needs to the outsourced team. The project is not that large, so developers also work on a website for another small company.
Pros and Cons of Outsourcing
Outsourcing is a prevalent employment model. Inn 2019, at least 37% of small businesses outsourced at least one business process, and this number only rises every year. However, it’s not a one-fits-all solution — there are advantages and disadvantages that a business needs to consider before opting for this model.
- Lower overhead costs. Outsourcing can help reduce overhead costs associated with hiring and training employees, purchasing equipment, and maintaining infrastructure.
- Access to technology. Outsourcing can provide access to the latest technologies and tools that may not be available in-house or may be too expensive to implement.
- Access to a talent pool. Outsourcing to external service providers can provide access to a more extensive and diverse talent pool than in-house hiring, especially for companies located in areas with limited talent availability.
- Risk sharing. Outsourcing allows companies to share the risks associated with a project or service with the external provider. It can be especially beneficial for high-risk projects with significant potential losses.
- Focus on core competencies. Outsourcing non-essential tasks allows businesses to concentrate on their strategic goals and core competencies.
- Reduced legal burden. Outsourcing can reduce the legal and regulatory compliance burden for companies operating in different countries, as the external service provider would be responsible for compliance in their respective jurisdictions.
- Communication challenges. Outsourcing may create communication challenges due to language barriers, cultural differences, and time zone differences.
- Security risks. Outsourcing may create security risks, especially when sensitive data is involved. External service providers may not have the same security protocols or standards as your business, leaving the data vulnerable.
- Limited customization. Outsourcing may limit the customization options available to clients, as external service providers may have standard processes and procedures that do not align with the client’s specific needs.
- Contractual obligations. Outsourcing contracts may have strict contractual obligations that can be difficult to modify or terminate if the project or service needs changes.
- Dependency on the external provider. Outsourcing may create a reliance on the external service provider, making it difficult to bring the work in-house or switch to a different provider if needed.
What is an IT Outstaffing Model?
You can think of outstaffing as extending your team with (usually remote) specialists but without employing them in-house. With an outstaffing model, your extended team is employed by an outstaffing agency. They deal with documents, wages, bonuses, equipment, and other operational issues, while you are responsible for the tasks, assignments, and communication with your new employees. So, you get a software development team fully at your disposal, but some other people are dealing with all the boring stuff.
Real-life outstaffing example: A company needs to expand its in-house development team to work on a new mobile app project. They hire a team of developers and testers through an outstaffing company who work remotely but are integrated into the company’s existing team. The company retains complete control over the project, setting the priorities and tasks for the outstaffed team, and communicating with them directly. The outstaffed team members work exclusively for the company and are fully dedicated to the project, ensuring consistency and quality. The company pays the outstaffing company a monthly fee for the services provided by the team members, and the outstaffing company takes care of HR, payroll, and legal compliance.
Pros and Cons of Outstaffing
As we already said, both outsourcing and outstaffing have their pros and cons. Outstaffing might be a perfect solution for those seeking more control over everyday tasks. But will it be as good for the businesses willing to concentrate on their core competencies without diving into the development routine? Let’s take a look at the advantages and disadvantages of the outstaffing model for your company.
- Flexibility. With outstaffing, companies have the flexibility to scale their team up or down depending on the project requirements. It allows them to adapt quickly to changes in the market and avoid the cost and time associated with hiring and training new employees.
- Cost savings. Outstaffing can be a cost-effective option for companies as they only pay for the services provided by the outstaffing company. It eliminates the need for additional costs such as employee benefits, office space, and equipment.
- More control. With outstaffing, companies can communicate directly with the outstaffed team members, set priorities and tasks, and control the entire project workflow. It guarantees a higher level of transparency and control than outsourcing, where companies have less direct contact with the outsourced team.
- Better integration with the in-house team. Outstaffed team members work exclusively for the company and are fully integrated into the company’s existing unit. It allows for better collaboration and teamwork compared to outsourcing, where the outsourced team may work independently.
- Cultural fit. With an outstaffing model, companies have more control over the hiring process and can select team members who are a good cultural fit. It can lead to better collaboration and teamwork.
- Long-term partnership. Outstaffing can lead to a long-term partnership between the company and the outstaffing provider, with the provider becoming an extension of the company’s team. It helps gain greater consistency and reliability compared to other hiring models.
- Management challenges. Business owners may find it challenging to manage an outstaffed team member remotely, especially if they lack experience managing remote teams.
- Communication challenges. Outstaffed team members may be located in a different region or time zone, making communication challenging. The company may have to adjust its work hours to accommodate for the outstaffed team member’s schedule or deal with communication delays.
- Increased costs. Outstaffing can be more expensive than outsourcing, especially if business owners need to provide outstaffed team members with equipment, training, and benefits.
- Potential for misalignment with company culture. Outstaffed team members may not be fully integrated into the company’s culture, leading to potential misalignment and communication issues. It can be especially true for long-term projects, where outstaffed team members may not have the same level of commitment or engagement as in-house team members.
Outsourcing and Outstaffing: Main Differences
Still can’t decide which employment model suits your company — outsourcing or outstaffing? Here is a detailed breakdown of every aspect of the development process within these two models. Please note that these are general aspects that might differ between outsourcing/outstaffing companies you’ll work with.
|Scope of work||The entire project/task is delegated||Specific roles/positions are delegated|
|Responsibility||The service provider manages the project/task||The business owner manages the outstaffed team members|
|Communication||Direct communication with the project manager||Direct communication with outstaffed team members|
|Scalability||Highly scalable, can handle larger projects||Limited scalability, better suited for smaller projects|
|Expertise||The service provider brings specialized expertise||The business owner has more control over the skillset of the outstaffed team members|
|Control||Less control over the work of the service provider||More control over the work of the outstaffed team|
|Flexibility||More rigid, changes to project scope may be challenging||More flexible, can adjust the outstaffed team member’s role as needed|
|Legal responsibility||The service provider is responsible for legal compliance||The business owner is responsible for legal compliance|
|Time zones||Can work with service providers in different time zones||Time zone differences may lead to communication challenges with outsourced team members|
Outstaffing vs. Outsourcing: What to Choose?
Choosing between software outsourcing and outstaffing largely depends on the specifics of your business, available resources, and your personal preferences. The best way to make a decision is to contact outsourcing and outstaffing companies, and see what they have to offer and how it aligns with your company’s goals. Need to make a decision right now? Here’s some general advice:
Go for outsourcing if:
- You need to complete a specific project or task that requires specialized skills that are not available in-house.
- You want to reduce overhead costs.
- You prefer a hands-off approach to managing projects and want to focus on your core business functions.
- You need to scale your operations up or down quickly without investing in additional infrastructure or personnel.
Go for outstaffing if:
- You need a dedicated team of professionals to work exclusively for your business.
- You want more control over the hiring and management process for your staff.
- You need a flexible, long-term staffing solution that can adapt to your changing needs over time.
- You want to build a strong working relationship with your team members and foster a culture of collaboration and teamwork.
Both of the models offer a number of advantages to IT business owners, it’s a fact. Just weigh them out together with your personal interests and the unique goals and needs of your business, and you’ll have your perfect development team hired in the most effective and suitable way.
What does IT mean to be outstaffed?
Outstaffing is a business model where a company hires an external team of professionals to work exclusively on its projects. The outstaffing company provides HR, administrative, and other support services to the external team, while the business is responsible for managing the team’s work and tasks.
What are the two 2 types of outsourcing?
There are two main types of outsourcing: onshore and offshore. Onshore outsourcing involves hiring an external team of professionals from the same country as the hiring company. Offshore outsourcing, on the other hand, involves hiring a team of professionals from a different country, usually with lower labor costs.
What is the difference between sourcing and outsourcing?
Sourcing refers to finding and selecting suppliers, vendors, or service providers for a particular business function or activity. Outsourcing, on the other hand, refers to the process of delegating a specific business function or activity to an external service provider. In other words, when you source — you look for service providers, employees, or suppliers. When you outsource, you delegate tasks or projects to the already-found service provider.