Understanding The Difference Between Outsourcing And Outstaffing

As the modern business environment is becoming overcrowded and therefore more competitive, businesses face rising expectations and requirements. Holding positions. increasing loyalty of the existing customers, and reaching new ones is getting harder.

In order to grow and expand, companies have to deliver smart and innovative solutions that ensure an exciting user experience while maintaining flawless quality. It’s crucial to cater to varying user needs and solve critical problems. 

This task might seem too complex. Well, it is so to a certain extent. Numerous businesses have the problem of the lack of resources and in-house expertise. They cannot cover big and complex projects on their own. Or it simply makes no sense for them to hire new employees for one project only. Whatever the case is, those with limited capacity look for alternative methods to break through with new products or services with minimum effort.

According to the increasing demand, the range of options is getting wider too. Companies that look for expert enhancement have several good solutions. Outsourcing and outstaffing are the most common ways to get external help and complete a project successfully. 

The two approaches refer to involving outside vendors in order to achieve improved technical capacity and better efficiency of internal teams. There are a lot of discussions around the comparison of outsourcing and outstaffing. But it doesn’t mean there is a better and a worse one. Both can be perfect options, however, under different circumstances. It is just important to know the key differences in order to make the right choice. 

The decision impacts the following critical business aspects:

• Cost-efficiency
• Control and maintenance 
• Flexibility and scalability
• Risk management
• Legal and administrative implications

Below, we will outline the main distinctive features which must be thoroughly considered when making a well-informed decision. But before diving into a comparison, let’s figure out what each model is about.

The concept of outsourcing

Basically, outsourcing is the practice of hiring a third-party company to perform tasks, handle operations, or provide services that cannot be done in-house. In other words, a client looks for an experienced team that has the required resources to implement an idea and deliver a high-quality outcome. In the world of technology, outsourcing can cover a wide range of operations including design, full-cycle development, testing, support and maintenance, and more. 

In outsourcing, a company enters into a contractual agreement with an external service provider –  the outsourcing vendor. The level of engagement may vary according to the contract. The vendor is responsible for delivering the agreed-upon services or tasks, typically under a set timeline and budget. The outsourcing vendor may be local or from a different country, depending on the nature of the services and cost considerations. A client’s involvement is also negotiated. 

Outsourcing is widely applied for the sake of several quite meaningful benefits:

• Cost savings
• The ability to focus on core business activities
• Access to the worldwide talent pool
• Enhanced scalability and flexibility

However, there’s always a flip side. Though highly effective for businesses with limited resources, outsourcing introduces a few challenges. Unless considered and managed properly, they can bring about serious problems and affect the company’s long-term success. 

Communication barriers, loss of control over certain aspects of the business, and potential risks related to data security and quality control are the most common concerns associated with software development outsourcing. 

The key to successful outsourcing is careful planning, effective communication, and a clear understanding of the goals and expectations on both sides.

Exploring outstaffing

Outstaffic refers to extending or augmenting a core team for a certain project or defined period without any operational worries. This type of cooperation is considered a faster way to get the required expert enhancement. It doesn’t take delegating an entire project to an outside team – you just can hire several experts that you need to ensure the project runs smoothly. 

Outstaffing implies that a company selects from experienced tech experts available in the outstaffing company’s talent pool. A client has control over an outstaff team, manages it, defines the scope of work, and sets project goals. An outstaffing company, in turn, takes responsibility for the payroll – up to sick leaves and days off, recruiting, hiring, onboarding, and managing external resources. 

However, companies that prefer this model have several important aspects to explore and decide on. Pricing approaches make an important point to focus on. There are two different options used by service providers to bill their clients for the services of the outstaffed team. 

In both models, the client benefits from having a dedicated team working on their project while being able to focus on their core business activities. Choosing between them is not a matter of guessing but rather a thorough analysis of key differences.

The cost model is based on a fixed monthly or hourly rate. The service provider charges the client based on the actual costs including salaries, benefits, taxes, office space, equipment, and other operational expenses. The service provider typically adds a markup or fee on top of these costs to cover their profit margin. The client pays the total cost of the team.

The cost-plus model involves an additional fee or incentive that brings more transparency and gives a client a better vision of cost structures. A client pays for salaries, equipment, bonuses, and other expenses through invoices from the outstaffing provider that may result in cost fluctuations.

A well-informed decision depends on various factors, including a company’s budget, project requirements, and the level of control they want over the outstaffed team.

The increasing popularity of IT outstaffing is explained with some noticeable advantages:

• Full control over a tech team and better visibility into a project’s processes
• High-quality outcome
• Flexibility and adaptability to workload
• Cost savings
• Quick and easy onboarding

And some projects still fail. This happens when challenges are not addressed effectively, requirements are not negotiated accurately, or a selected vendor does not fit. 

If you plan outstaffing, keep an eye on the following:

• Different time zones, language barriers, cultural diversity
• Security concerns associated with sharing sensitive data
• Complex management of a remote team
• Lack of skills and experience in a specific field

The above-mentioned problems appear if there are any gaps in outstaffing planning and preparation. Approaching it comprehensively and investing enough time into researching potential partners reduces risks significantly. Prefer engaging in long-term partnerships with a trusted and reliable provider to drive innovation, growth, and success. 

Comparing the two methods

Having outlined the concepts of outsourcing and outstaffing, we can move on to details and explore the core differences between the two models. Understanding these is vital for effective decision-making. 

You already know all the peculiarities so in this section, we will break the comparison into 5 essential aspects. 

The task

Outstaffing solves the problem related to gaps in an in-house team. It refers to hiring niche professionals in order to get the lacking expertise quickly.

Outsourcing means partnering with a full team and delegating an entire project to them. Outsourcing developers take responsibility for every step of product creation.

The timeframes

Outstaffing is a faster way to access required talents. It might take a few weeks to hire experts and get started with a project.

Outsourcing is considered a bit more time-consuming as it means an external team develops a product from scratch. Hence, product discovery and planning must take place before the development process starts. 

The budget

Outstaffing is more cost-efficient as it requires paying for working hours only. According to the report prepared by Deloitte, IT outstaffing, when done correctly, can reduce about 40% of labor costs compared to hiring full-time employees.

Outsourcing is more expensive as compared to outstaffing yet cheaper than in-house development. A company has to plan its budget to cover the full development process as per the preferred pricing model. 70% of companies find outsourcing cost-effective, as it reduces the costs of hiring in-house staff. 

The level of involvement

In outstaffing, external specialists selected from a provider’s talent pool are managed by the client. However, an outstaffing vendor is responsible for payrolls, sick leaves, benefits, bonuses, etc.

When it comes to outsourcing, a client has less involvement and control over an outside team – it is managed by an outsourcing services provider.  

The core value

Outstaffing is all about enhancing a core team and scaling it up or down as required. 

With outsourcing, a client has all development processes, up to post-launch services, covered by an external team. This way in-house employees can focus on other critical business tasks. 

Choosing between outsourcing and outstaffing

Choosing between outsourcing and outstaffing must be a well-informed decision. There is no one-fits-all solution. You should not think which one is better or worse in general but which suits your particular case. 

Consider the resources you have for effective management. Are your internal processes well-organized? How difficult would it be to integrate outside experts and provide a smooth workflow? Assess your in-house potential and capacity. Evaluate your budget.

If your internal processes are structured and run smoothly and you are able to manage external specialists as well as your core team effectively, then outstaffing might be good for you. 

In case you cannot provide seamless cooperation between internal and outside teams, then you should opt for outsourcing and get the whole process covered by a trusted vendor. 

Price is another critical factor to take into account. 

Outstaffing comes as a cheaper option You hire as many software development specialists as you need and pay for a predetermined period of time or periodically as long as you require outstaffing services.

In outsourcing, you should pay a fixed price for the full project. The price depends on numerous factors and is defined based on the type of contract:

• Fixed-price contract includes an agreement to complete the project for a fixed price. The scope of work, deliverables, and timeline are usually specified in detail. This type of contract is beneficial when the project requirements are well-defined and unlikely to change significantly.
• Time and Materials (T&M) contract involves payment based on the time and materials used to complete the project. This type of contract is more flexible than a fixed-price contract and is suitable for projects where the scope is not well-defined or may change over time.
• Dedicated team contract refers to an arrangement where the outsourcing vendor provides a team of professionals who work exclusively on the client’s projects for an extended period. In this model, the client has full control and responsibility for managing the team and the project, while the outsourcing vendor provides the resources and infrastructure needed for the team to operate. Monthly payments are negotiated with the vendor, and the budget is estimated beforehand yet allowing for minor changes as a project scales up.

Summing up

In conclusion, as businesses strive to meet increasing demands and stay competitive in today’s environment, the choice between outsourcing and outstaffing plays a crucial role in their success. Both models offer unique advantages and challenges, and the decision should be based on a thorough analysis of key factors such as budget, project requirements, control, and scalability needs. The unique needs and circumstances must also be considered. 

By carefully evaluating the key differences and the specific project’s requirements, businesses can make an informed decision that aligns with their goals and sets them up for long-term gains.

Effective collaboration with a reliable vendor can take a business to the next level and open up many exciting opportunities for growth. Invest enough time and resources in deep research and analysis to make the most out of this partnership.