Outsourcing vs. Outstaffing: How to Choose & Not Fail?

December 22, 20217 min to read
Outsourcing vs. Outstaffing: How to Choose & Not Fail?

In the pandemic era, the borders between “in-house” and “outside help” have blurred. When everyone is working remotely, what really is the difference? So the topics of outsourcing and outstaffing are more important than ever. In our experience of serving clients, many people have a different understanding of what the terms really mean. So in this article, we will define them and focus on outstaffing and its applications.

What Is What?

Outsourcing means hiring an outside contractor to do jobs that are traditionally performed in-house. This is valid not only in the case of custom software development. For example, small businesses hiring accounting firms or corporations contracting cleaning companies are also examples of outsourcing.

The related terms are offshoring (outsourcing to a faraway foreign country) and nearshoring (outsourcing to geographical neighbors or within the country).

Most often it is used as a cost-cutting measure. Major outsourcing destinations often have lower costs of living and various legal mechanisms (e.g. favorable tax regimes) that cause the rates to be lower than in the country of origin. In addition, the company that outsources the work doesn’t have to cover overhead and expenses like equipment, as they are provided by the contractor.

However, there are other reasons. For example, the hired company might have deeper expertise in a certain area — this often happens in IT. The contractor might also be able to get to work faster, as they already have the necessary people on hand.

Outstaffing is “renting” specialists from another company. They remain on the staff of their primary employer and are paid on the contractor’s books. But they are entirely controlled by the business that hires them. Other common terms for this are “team extension,” “staff augmentation,” and “dedicated team”.

As this is the main topic of the article, we will focus on it and look at different scenarios separately. Not that they can’t be combined, it is just easier to understand them one-by-one.

“Classic” Outstaffing

The most common case where this approach is used looks something like this.

A startup is in dire need of extra people to grow its product team. However, the costs of hiring are high, and so are the average salaries. Moreover, when looking for qualified candidates it has to compete with the giants like Google, Amazon, or Twitter. And, being a new company, it doesn’t have anything resembling an HR brand. The odds are against the startup.

However, it can find help abroad. For example, they negotiate a contract for a dedicated android developer. One, to begin with — they just want to test the waters. However, the programmer integrates with the main office quickly and performs well, so the offshore team expands. At first, more devs join it, then QA engineers are added, and eventually, it expands into a full-fledged development center.

Startups and other fast-growing companies often have problems with scaling because they can’t find additional staff quickly enough. Especially if their recruiting team is small. Contracting an outstaffing company is a way to rapidly scale up.

This is one example of such a case, where we helped an eLearning company increase the development velocity by 20% in 3 months.

Staff Augmentation

This is more commonly used by small and mid-sized companies.

A business reviewed the work of their development team and saw that it could be more effective if they had a few extra specialists. For example, a manual QA engineer and a BI/Data Science specialist. Both are needed full-time. However, finding them locally is a problem: either they cost too much, or there aren’t any available.

To close the gaps they turn to an outstaffing company and request the needed specialists from them. As a result, the QA engineer and BI specialist remain employees of the outstaffer but are managed entirely by the business that needs them.

Dedicated Team

This is another approach commonly used by mid-sized companies, though large enterprises turn to it too.

A company needs regular and varied IT services, e.g. maintaining and improving their application. However, just as in other cases, expanding the in-house team is lengthy and expensive, and redirecting people from other projects slows them down.

Hiring an outstaffing vendor is a good choice in this scenario. The main company will send them tasks and payments for a certain number of hours per month and get the job done.

Project Team

This is most often needed by large companies that have several projects going on at the same time.

Suppose they have a task that would take about 6-8 months. This can be software for internal needs or some sort of integration. There is no point in hiring a team and onboarding them just to let them go once the project is complete.

On the other hand, they can request, say 3 devs, a QA engineer, and a designer from an outstaffing agency. When their job is done, their company will simply reassign them to different projects.

Product Team

This service can be requested by all kinds of companies but is the most demanded among startups and large enterprises. It implies the creation and scaling of a full-fledged development team, which includes programmers, testers, managers, business analysts, designers, and other relevant specialists. They can build software from scratch and keep maintaining it throughout its entire life cycle.

The company’s internal resources can then be directed towards promotional activities.

Nota Bene

Of course, the effectiveness of outstaffing largely depends on the agency that you will contract. Ideally, that agency should have a powerful recruiting department, mature HR processes, and proof that confirms the quality of their work.

The second important thing is speed… on the client side. In some cases, the clients want to conduct a lengthy series of interviews, including a test task, for each candidate. However, the candidates tend to have a lot of options: it’s a worker’s market. So unless they are very motivated to stick with a specific project, they are likely to abandon the selection and look for better options elsewhere.

Conclusion

Outstaffing is in demand among both large and small companies because it is a simple and straightforward way to solve the problems of scaling, project velocity, and product development. It can also be a good starting point for a partnership that will bring benefits for years to come. So if you have a need for extra qualified help, feel free to contact us!

We invite you to our partnership network to build your dedicated team. Let’s talk!

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