IT Outstaffing and Outsourcing: What's the Difference?
| Outsourcing | Outstaffing | |
|---|---|---|
| Control | Less direct control over the execution and team management. | More direct control over the remote developers and their activities as they integrate with the in-house teams. |
| Expertise Access | Access to specialized expertise and resources provided by external vendors. | Access to skilled offshore developers with diverse expertise sourced through outstaffing agencies. |
| Cost Structure | Typically, project-based or service-based pricing with predetermined costs. | Hourly or project-based billing, offering flexibility in cost management. |
| Scalability | Offers scalability by allowing businesses to adjust resources based on project needs. | Provides flexibility to scale the development team up or down quickly in response to changing requirements. |
| Communication | Communication with external vendors may require additional effort and coordination. | Communication is facilitated through direct interaction with remote developers, often using collaboration tools. |
| Control Over Resources | Limited control over the resources and infrastructure used by external vendors. | Greater control over the resources and tools used by offshore developers, allowing for more customization and optimization. |
| Risk Distribution | Risks are shared with external vendors, but businesses retain ultimate responsibility. | Risks are managed jointly with the outstaffing agency, with greater control over project outcomes. |
According to Grand View Research, the global expenditures for outsource and outstaff will reach $936.6 billion by 2027. These statistics prove that both models are in great demand among different companies in different domains. Read more about outsourcing vs. outstaffing for software development in our article below.
Outsourcing: Definition, Pros and Cons
So, let's discuss outsourcing vs outstaffing differences in detail.
What is an IT Outsourcing Model?
IT outsourcing provides a service for an extended period without a specific project. In this case, a separate company independently controls the execution of services, is responsible for the executed result, and supervises the entire software development process.
Example: Company "A" needs to provide technical support for a website. Company "A" asks company "B" to provide the service. "B" maintains the site, independently controlling the entire process and providing "A" with the finished result. In this case, all responsibility for the performance of work and its quality lies with the company providing the outsourcing service.
It should be noted that outsourcing should not include the provision of services for the project under a contractual agreement, such as ordering the offshore/nearshore development of an application from a third-party company. This type of service refers to project activities.
Pros of Outsourcing
Three main advantages of outsourcing software development include:
- Absolute delegation. Since another company handles all processes, you can save time controlling and tracking personnel's work. This allows you to free up time for other, more important tasks and not take an increased part in realizing the project.
- Staff optimization. You will not have to keep additional employees and pay for office, electricity, and other expenses. In addition, taxes are optimized because you do not cooperate under an employment contract. However, it should be noted that developer outstaffing also allows you to optimize taxation.
- Risk mitigation. Outsourcing can help businesses mitigate risks associated with team management, technology investments, and market uncertainties. By partnering with experienced service providers, companies can leverage the vendor's industry knowledge, best practices, and risk management frameworks to minimize operational risks and ensure compliance with regulatory requirements.
Numerous startups opt to outsource projects for these advantages, often utilizing nearshore software staff augmentation to enhance their development capabilities.
Cons of Outsourcing
Three main disadvantages of outsourcing include:
- Uncontrolled results. You do not control the process in real time and must trust an unfamiliar development team. You can check their results and case studies. In addition, there is a human factor: failure to meet deadlines and the need for regular information about the work process. Note that such shortcomings are inherent only in unscrupulous software development teams.
- Nuances of the niche. The contractor may need to learn specific details necessary for your sphere. Accordingly, the contractor does not consider them in the software development, which causes the result to suffer. In this case, you need personal active participation in the project and expert explanations on the design of functionality, design, etc. Or you should consider the option of outstaffing, which will be discussed below.
- Hidden costs. While outsourcing can result in cost savings in certain areas, businesses may encounter hidden costs associated with outsourcing arrangements. These may include expenses related to vendor management, contract negotiations, transition costs, and coordination efforts. Additionally, unexpected changes in scope, pricing structures, or service levels can impact the cost of outsourcing over time.
Despite these challenges, the National Outsourcing Association survey states that cost savings and experience improvement are the top reasons companies outsource.
Outstaff Meaning, Benefits, and Pitfalls
Now that you understand the outsourcing model, let`s discuss outstaffing definition.
What is Outstaffing?
IT outstaffing is providing an employee or several on a project basis. In this case, you are "renting" employees, not a service. Here, you control the specialists and supervise the process. At the same time, you pay only for the work done without incorporating this person into your staff.
Example: Company "A" needs to develop a website. Company "A" asks company "B" to provide specific developers. The specialists come to "B" and develop the site. "B" controls the whole process and supervises the software development independently.
It is common to provide offshore developers with an outstaffing model. A development team augmentation provider like MaybeWorks offers the client a developer or several. Then, the client integrates the specialist into the workflow: assigns a manager or manages the developer independently, issues tasks, and checks their fulfillment.
For example, our MaybeWorks experts worked on Blue-Jay Rental using the outstaffing model. We provided the customer with several remote developers who created the code architecture, integrated Stripe, added unit testing, and much more.
Outstaffing Benefits
Three main advantages of outstaffing include:
- An opportunity to work with a qualified specialist without having him or her on your payroll. You can control the entire process as if he or she were your employee without burdening yourself with formalization under the Labor Code. This also allows you to optimize the process of paying taxes for the specialist and not impose the obligations associated with the employment contract.
- Scaling up a development team without changing its legal status. Working on an outstaffing model under a contractual agreement allows you to optimize taxes without transferring the company to another tax regime and, accordingly, without increasing taxation.
- Flexibility and scalability. Outstaffing provides businesses with greater flexibility and scalability in managing their workforce. Unlike traditional hiring, which often involves long-term commitments and fixed costs, outstaffing allows businesses to scale their development team up or down depending on engineering project requirements and fluctuations in workload. This adaptability can be enhanced with a custom HR system development, which would streamline the management of remote teams and optimize resource allocation for specific projects.
Outstaffing is ideal for startups that want to hire developers with certain skills to work with their existing in-house teams. If you think the outstaffing model is less beneficial than hiring a freelancer, we have an article discussing IT staff augmentation providers and freelancers.
Outstaffing Challenges
Three main challenges of outstaffing include:
- Employees without an opportunity to grow in your company may lack career motivation. This can negatively impact the work's results. If the employee is not interested in moving up the career ladder in your company, the work may not be performed as well.
- You control the process, so full task delegation is impossible. You must get into all the engineering processes and interact with the employees. Tasks need to be set independently, and you must also accept their results. Sometimes, it will be difficult for a person without specialized knowledge in the IT sphere to assess the work's results competently. In addition, an employee on outstaffing will need to be introduced into the work process, which will take additional time.
- Data security and privacy. Sharing sensitive information and proprietary data with remote workers raises concerns about data security and confidentiality. Ensuring compliance with data protection regulations and safeguarding intellectual property are essential considerations when outstaffing.
Despite these challenges, outstaffing will be in demand worldwide. Now, companies are preparing to address the shortage of skilled IT professionals. According to a McKinsey report, roughly 85 million fewer skilled people will be in the workforce by 2030. IT outstaffing is an effective way to hire awesome offshore developers if you can't find them in your country.
We also recommend you read our article about software team extension.
Outsourcing or Outstaffing Models - Which One to Choose for Your Business?
Below, we will discuss outstaffing vs outsourcing and what option is better for you.
Cost Control
Cost control is a crucial aspect of any business strategy, and both IT outsourcing and outstaffing offer opportunities for reducing operational expenses.
When outsourcing, businesses engage third-party vendors to handle specific tasks or processes. This model allows companies to access specialized expertise without incurring the overhead expenses of hiring full-time staff. By outsourcing non-core functions, businesses can benefit from IT staff augmentation cost savings on salaries, benefits, and infrastructure.
In the case of outstaffing, you hire remote developers through a staffing agency or professional services firm. While this model may require higher hourly rates than outsourcing, it can be more cost-effective for long-term projects or when ongoing support is needed. Additionally, outstaffing enables businesses to retain greater control over the workforce and project outcomes.
We also recommend you read our article about creating future-proofed software.
Team Expansion
Expanding your remote team is essential for scaling your business and meeting evolving market demands. Both software outsourcing and outstaffing offer opportunities to augment your workforce.
Outsourcing allows businesses to swiftly scale their operations by tapping into the resources and expertise of external vendors. Whether it's software development, marketing, or administrative tasks, outsourcing enables companies to access a global talent pool and flexibly adjust their resource allocation based on project requirements.
With outstaffing, businesses can expand their development team with dedicated remote developers who operate as an extension of their in-house team. This model provides greater organizational control and integration, fostering collaboration and alignment with company culture. Outstaffing also offers the flexibility to scale a remote team up or down based on the project`s engineering needs, ensuring optimal resource utilization.
We have an article about the future of staff augmentation.
Improvement of Management
Managing remote developers is crucial for driving business growth and ensuring project success. Outsourcing vs outstaffing can impact management practices in different ways.
Outsourcing requires strong vendor management skills to oversee multiple external partners and ensure alignment with business objectives. Effective communication, performance monitoring, and contract management are essential for maintaining quality standards and meeting project deadlines. While outsourcing offers flexibility and access to specialized expertise, it also requires diligent oversight to mitigate risks and ensure accountability.
Outstaffing simplifies management by directly overseeing remote employees fully integrated into the organization. Project managers can directly supervise and coordinate the activities of outstaffed development team members, fostering a collaborative working environment and enabling real-time feedback and support. This close integration facilitates effective communication, enhances project visibility, and streamlines decision-making processes.
Increase in Profit
Ultimately, any business strategy aims to drive profitability and sustainable growth. Outstaffing vs outsource can contribute to the bottom line in different ways.
Outsourcing can lead to cost savings and operational efficiencies, translating into higher business profit margins. By leveraging external expertise and resources, companies can focus on core competencies and strategic initiatives, thereby maximizing productivity and revenue generation. Additionally, outsourcing allows businesses to adapt quickly to changing market conditions and scale operations as needed, enhancing agility and competitiveness.
Outstaffing can also boost profitability by providing access to skilled IT professionals at competitive rates. By augmenting the remote team with remote developers, businesses can reduce overhead costs associated with traditional hiring while maintaining flexibility and scalability. Moreover, outstaffing enables companies to allocate resources more efficiently, optimize project delivery timelines, and capitalize on emerging opportunities, ultimately driving higher returns on investment.
Cooperate Beneficially for Yourself With MaybeWorks Specialists
Established in 2012, MaybeWorks stands out as a premier provider of IT staff augmentation solutions, serving a global clientele with unwavering reliability. Our development team comprises over 50 seasoned developers proficient in cutting-edge technologies. We specialize in the JavaScript/TypeScript stack, encompassing:
- React/Angular
- Node.js (Nest.js/Express)
- AWS/Google Cloud Services
- Database management: MongoDB, MySQL, and PostgreSQL
At MaybeWorks, our developers boast extensive experience across a multitude of industries. From FinTech ventures to bespoke solutions for banking, insurance, trading, and blockchain applications, we've successfully executed software development of varying complexities. Our expertise extends to various systems, including ERPs, CRMs, HRMs, B2B portals, SaaS, and IaaS platforms. We are equipped to tackle any project with proficiency and finesse.
Feel free to contact MaybeWorks to augment your team with our IT staff augmentation service!
Conclusion
Quick summary on our outstaff vs. outsource article:
- An outsourcing model provides a service for an extended period without a specific project. Outstaffing means providing employees on a project basis. This is the main difference between IT outsourcing and outstaffing.
- The advantages of outsourcing include delegation and staff optimization. The benefits of outstaffing involve working with a specialist without official employment and optimizing the taxes.
- Your choice between the two approaches should be based on your needs and your ability to participate in creating the project.
Your choice between outsourcing and outstaffing should be based on your goals and needs. You should choose outsourcing if you value fully delegating a task, freeing up your time, and eliminating the need to monitor your work constantly. If you need an employee on a project basis and feel more comfortable controlling the whole process yourself, then outstaffing will be preferable.
We are always here to augment your IT team with the best talents!
FAQ
-
What is the difference between outsourcing and outstaffing?
The main difference between outsourcing and outstaffing is the purpose. Outsourcing involves transferring a specific function to an outside organization, while outstaffing involves providing personnel. In both cases, the employees are part of the third-party organization's staff.
-
When is outstaffing necessary?
Outstaffing is necessary when the company needs a specialist with relevant experience and expertise or when a specialist is sick or does not have specific competencies. It will also help when the project needs to be launched quickly.
-
What are the typical contractual agreements and terms associated with outsourcing and outstaffing arrangements?
Outsourcing contracts typically include an MSA (outlines the overall relationship between the client and the outsourcing vendor) and an SOW (specifies the scope of work, project objectives, and deliverables). Additionally, you can sign an SLA (defines performance standards and metrics), an NDA (protects confidential information), and an IP Rights Agreement (addresses ownership and usage rights). Outstaffing contracts involve a Staffing Agreement between the client and the staffing agency, Consultant Agreements for individual professionals, and may include SLAs to define service levels.
