Outsourcing vs Outstaffing: What To Choose

If you’ve arrived at this page, you’re obviously faced with whether to use outstaffing or outsourcing as a model for dealing with an external IT service provider, and you’re wondering which would work best for you. Well, if that’s the case, you’ve come to the right place. In this article, we’ll look at the problem of choosing outsourcing vs outstaffing in great detail.

Below we’ll explain the features of both methods of IT staff augmentation and note their advantages and disadvantages. In addition, we will consider the cases when one model shows better results in a high-quality software product and better cost-effectiveness for the client.

We hope this information will be a concise and helpful guide to help you decide which way is easier and cheaper to achieve your business goals and get the best practical results.

Why businesses prefer outsourcing and outstaffing

First, let us note why software outsourcing and outstaffing are popular services today and can facilitate many business processes in a company.

The development of software products and web applications, as well as their technical support, requires the professional qualification of a whole team of specialists. Equally important are well-established production processes so that the product meets all the technical requirements and planned deadlines.

Not every company can afford a complete IT department with developers, testers, and system administrators on staff. And it is not always required! In this case, third-party developers can fill the missing links in the existing team or form a complete development team from scratch to solve a specific task. Most importantly, you can use their services for as long as the current job requires, without any unnecessary social obligations.

It is not a secret that cooperation with well-established offshore IT vendors often leads to the same practical result for less money. Firstly, their labor costs are lower for equal technical expertise, and secondly, there are no taxation costs. And even with a robust financial resource for software development in an enterprise-level company, the leadership may have a request to simplify managerial processes and reduce the cost of maintaining expensive local specialists.

Delegating tasks to an outsourcer is a well known and proven management solution. It is all the more applicable to such a dynamic sector as IT. According to recent statistics from Grand View Research, Inc., the total global spend on IT outsourcing and outstaffing is expected to grow by 7.7% annually to reach $936.6 billion by 2027.

However, it is worth noting that ignorance of the details of what exactly hides under a method of cooperation with third-party developers often leads to operational errors and, consequently, to excess costs. So let’s move on to the outstaffing and outsourcing model differences.

Read about the benefits of outstaffing versus a recruitment agency in this article: IT Outstaffing company vs IT Recruitment agency – Academy SMART

Difference between outsourcing and outstaffing

What is an outsourcing in custom software development? It is a project business model in which the customer fully delegates all software development and customization tasks to an outsourcing agency, restricting himself to periodic monitoring of scheduled work. In this case, the customer does not spend time on the team selection, their technical equipment, and the organization of the work process. It is the responsibility of the outsourcing company, as well as the final result of the development.

An obvious advantage of this model is its simplicity for the customer since the project cost estimate already includes both the specialists’ working hours and the costs associated with the software development. The outsourcing company finds the specialists of appropriate competence, arranges their work, and pays for their work.

The side of the outsourcing company is represented by the Project manager, a person responsible for the project which organizes the development team’s work and communicates directly with the client. He reports on the results of the job, agrees on the current tasks, and considers the client’s wishes, correcting the team’s work if necessary. The absence of extra communication between the client and those directly involved in the project frees his time to deal with other pressing issues facing his business.

You can read about the role of the project manager on such projects in this article: Project Manager role in Outsourcing companies

For that reason, IT outsourcing is the best solution when you can’t maintain your development team or don’t want to delve deeply into the technical details of your projects.

It is ideal when there is an urgent need to get your software development process up and running as quickly as possible.

Also, outsourcing is the optimal solution if application development is a one-time, current task for you, and it is unclear at this point whether you will need the services of developers in the future.

Well, what is outstaffing? It is a way of augmenting your staff by buying the time of the talent you need from an outstaffing company. In this case, a remote worker is entirely at your disposal and works on your projects as a member of your development team.

In this case, the customer does not waste time recruiting and training a remote worker because they are buying the time of a specialist with a pre-agreed level of competence. And it is important when you need someone with particular expertise!

Being a part of your development team, such an employee is always available for direct communication on current business issues. And it is straightforward to monitor the results of their work in person.

Since a remote worker is an employee of an outstaffing agency, it deals with all the issues of workspace organization and paying the salary.
There is no formal employment relationship between the customer and the remote worker. Therefore it is not difficult to replace such an employee or refuse his services when the need for them has run out.

The main reasons to use outstaffing are to hire employees whose knowledge and skills are needed for your team or to scale a project when there are not enough available hands.

However, hiring staff from nearshore or offshore countries, such as Ukraine, can be much cheaper than hiring a full-time native worker of the same skill level. The hourly rate of labor there is lower, and you will not have employer taxes. Academy Smart, for example, has delivered around a hundred projects of varying levels of complexity in its 13 years of activity as an outsourcing & outstaffing agency. Our employees daily perform their duties as part of clients’ developers teams from Europe and the Middle East. Below you may find a brief presentation of the projects in which our company has been involved.

And now, let’s get specific what are the pros and cons of outsourcing and outstaffing models.

Pros and cons of outsourcing

The project outsourcing model has a range of clear advantages for the client:

1. The service provider is entirely responsible for the development or refinement of the software, fully compliant with the requirements of the specification and within the contractually agreed terms. It means that the outsourcing company is also responsible for all the management decisions, which, in the end, should lead to the delivery of the MVP and, subsequently, the final product.On the one hand, it frees the customer from unnecessary routines and control over the development process. On the other hand, the project’s success always directly impacts the company’s brand image as a reliable service provider. That is why outsourcing agencies who care about their reputation select IT specialists who are guaranteed to cope with the project’s tasks and create all conditions for them to do so.
2. Since you are buying a turn-key project, the outsourcer is responsible for estimating and scheduling the necessary resources for the project. It hires employees with the appropriate competencies, assembles development teams, and coordinates their activities.The vendor also provides the material and technical part of the developers’ activities, which is also accounted for in the final project cost estimate. Of course, the agency deals with paying its employees’ salaries, bonuses, and tax issues, allowing the customers to focus on other areas of their business.
3. Outsourcing allows you to flexibly scale both processes and the staff of specialists involved in the project work. A large number of available resources at outsourcers enables project work to be completed more quickly, without any loss in quality assurance procedures, even under tight time constraints.Of course, it is impossible to decrease the development time radically only by expanding the number of programmers. However, a third-party development team can more effectively handle the tasks that are throwing your team into disarray by taking a fresh and unbiased view of the problem.In addition, the large staff and wide contacts of outsourcing companies allow you to bring in IT talents with exclusive expertise, a couple of hours of their work more than pays for itself in reduced team time as a whole.

As you may have seen, IT outsourcing is simple and efficient. You pay for the product you need and don’t care how it is created. However, this outsourcing model also has its disadvantages, which also should be mentioned.

1. The customer has no direct influence on the progress of the work, as he has no direct access to the development team. Therefore, the control over the efficiency of programmers’ working time is, in a certain sense, conditional. Suppose you are dissatisfied with periodic progress reports by PM and would like to be fully involved in managing your product’s development. In that case, the outsourcing model is probably not the best fit for you.
2. In a sense, getting started with an outsourcing company is a credit to its reputation and the feedback of its previous clients. You can find out how efficient and competent its employees are once you are presented with the specific results of their work.There is always the possibility that the vendor does not fulfill their obligations precisely as agreed. Or it unmotivated overcharges for its services. Also, without having direct contact with the team, you can only trust that seniors and middles are working on your project rather than middles and juniors.However, the supplier’s good faith is a direct consequence of the company’s customer focus and concern for its reputation. Serious companies do not do such things.
3. If there are problems with a clear definition of the project scope, the work cost may increase significantly and sometimes even exceed the maximum limits you initially planned. The best advice here is to be clear about your objectives and to take the advice of technical consultants into account during the specification stage of the project.

Pros and cons of outstaffing

Now let’s turn our attention to the outstaffing benefits:

1. You have complete control over the workflow because the company puts its employee at your disposal. It means you can task him with any work on your project within his area of expertise, and you can monitor his employment and its results. Remote workers are always on call during working hours, and you can personally and immediately solve all current issues with them.
2. Outstaffing allows you to flexibly manage your workforce, engaging certain people only when you need them. You don’t have to worry about hiring or firing employees or paying their wages and taxes. An outstaffing agency does all this by offering any suitable candidates for your purposes.
3. Usually, hourly rates for outstaffing are lower than for other staff augmentation business models. At the same time, with a good knowledge of your project needs, you can use the competence resource of a third-party specialist more effectively.In addition, you can save money by not having to expand your office to accommodate new staff.

Among the relative disadvantages of outstaffing are the following:

1. The responsibility for delivering the software product remains entirely on the customer and his team. And it means that even the most talented IT pro cannot always overcome wrong management decisions and poorly structured workflows.However, you know how valuable an independent view can be if you take it critically.
2. Effective communication between the tenant and remote workers is a problem. Here it is appropriate to remember the technical side of the issue, namely the reliability of communication channels, and time zone differences. Also, the possibility of a language or even cultural barrier should be considered if you get workers from distant offshore countries.
3. If you require remote staff to work overtime, you will have to pay extra, often at a higher rate.
4. Some outstaffing companies have been known to practice the option of replacing a current employee with another without prior approval. That can put a damper on your plans if you encounter such practices. So, such force-major events are best negotiated in advance.

Now you have a holistic view of the differences between outsourcing and outstaffing and the strengths of both business models.

Our clients who have already used Academy SMART outstaffing service

In summary, hiring an outsourcing company is the best solution if you have an idea but no technical background and no in-house team. In this case, you entrust software development to professionals, and you can deal with the positioning of the product in the market and the development of your brand.

Do you already have a team in place but don’t have the right talent available, or are they too expensive? An outstaffing agency best solves the problem of staffing your company.

By the way, fast-growing IT companies often combine outsourcing services, working on projects in general, and outstaffing services. Their recruiting departments regularly attract young specialists and established professionals, while HR employees create a work environment that fosters high performance and creativity. The talent search never stops, as the professionals on our list Top 15 Highest Paying Software Jobs In 2021 are always in demand.

When choosing a service provider, one should pay attention to a company’s reputation, its references, and the products it creates. Of course, we would recommend talking to the former and current clients of the company in person so you can get a more objective view of the upcoming collaboration.

You should also pay attention to the cultural affinity of the outsourcing company employees, as, in this case, the probability of misunderstanding the tasks and processes is minimal. That is why Ukrainian companies like Academy Smart are suitable for customers from Europe, North America, and the Mediterranean region.

We are ready to offer many years of experience in staff augmentation and outsourcing custom software development, established processes, and technically competent staff. We will be glad to discuss your ideas and advise you on which solution would be the most effective in your case. If you are ready to move towards your goal, we are prepared to help.

Outstaffing vs Outsourcing: Frequently Asked Questions

What is an outsourcing

Outsourcing is a contract to develop software products with outside IT providers. It is a project-oriented model of cooperation. As a result, you get turnkey software.

What is an outstaffing

Outstaffing is renting the time of an IT specialist from a third-party company. It is a persona-oriented model of cooperation. As a result, you get the expertise you need to staff your project and use their services for as long as you need them.

Learn more about our outstaffing services here: IT-outstaffing.

Iryna Kurkina

CBO at Academy Smart