• article
08/02/2024

Outstaffing vs Outsourcing: Which One to Choose for Your Company?

To outstaff or to outsource? The decision is critical, but not always straightforward… Learn about the pros and cons of each to make the right choice.

Paulina Twarogal

Content Specialist

Hiring external companies for tasks traditionally handled by in-house employees has become a common practice for businesses globally. Typically accomplished through outsourcing and outstaffing, this approach optimizes their workforce and helps achieve business goals. Projections indicate that spending on outsourcing and outstaffing will reach $936.6 billion by 2027, with an annual growth rate of 7.7% until then.

Choosing between the two isn’t that straightforward, though. They both provide businesses with the flexibility to access top talents and fill missing skill gaps in their teams. But that’s where the similarity ends. So, what’s the difference between outsourcing and outstaffing? And what benefits and drawbacks do they bring?

Why do businesses decide to outstaff and outsource?

Organizations have been turning to both outstaffing and outsourcing over the years. Why? Here are several reasons. Let’s take a look.

Cost reduction stands out as a primary objective, and outsourcing and outstaffing emerge as effective solutions. Up to 70% of businesses cite cost as the biggest reason for outsourcing. These solutions provide businesses with flexible workforce available at a fraction of the cost when compared to local counterparts. Moreover, payment is made only for the actual work performed, leading to significant reductions in both labor and operational expenses.

Filling talent gaps is another reason why organizations so eagerly opt for this approach. As technology advances, companies need specialists with new skills. Right now, 87% of them are experiencing gaps in their IT teams or expect them within a few years. This situation can pose challenges. Yet, through outsourcing and outstaffing, businesses can quickly bridge talent gaps, gaining access to skilled professionals without the need to upskill their internal teams or undergo lengthy recruitment processes.

Another driving force is improving business focus. Delegating specific business functions to external service providers not only provides organizations with additional time but also shields them from distractions. This time, on the other hand, can be dedicated to honing the company’s core competencies, as noted by 57% of businesses

Additionally, embracing these practices frees up internal resources for other purposes, with administrative tasks, workspaces, and software licenses managed efficiently by outsourcing and outstaffing vendors. 

What is outstaffing?

Outstaffing is a way of expanding a business’s capabilities with external help, whether nearshore, offshore, or onshore. This is achieved by hiring individual professionals to work directly with the client on specific tasks or projects. Unlike traditional outsourcing models, contractors in outstaffing are committed exclusively to one client, rather than working from project to project.

This approach proves to be an excellent long-term strategy for augmenting IT staff. It works particularly well for those companies already equipped with a solid in-house IT team looking to find experts in a specific area, all without the headaches of taking on long-term employees.

With outstaffing, the client takes on a more active role in managing the remote team. Although the outstaffed workers aren’t physically present on-site, they are considered part of the team and the client oversees their work. This includes coordinating tasks, milestones, information sharing, and deliverables.

In terms of costs, both outstaffing and outsourcing present financially sound options, depending on the company’s objectives. However, choosing outstaffing can be more affordable for long-term team growth without the challenges of extensive hiring and training.

Outstaffing: What are the benefits? 

The outstaffing model brings significant advantages for both tech and non-tech companies. It helps them stay competitive, expand quickly, and boost revenues substantially. Let’s dive into more details.

Full control over the development process

In the outstaffing service model, businesses take the lead in overseeing and managing their remote teams. This hands-on approach extends to crucial elements, including strategic planning, task distribution, quality assessment, and the ability to adapt in real-time to changing project requirements. In essence, outstaffing empowers companies with the control they need for a seamless and successful development journey.

Flexibility and scalability

Outstaffing provides companies with the flexibility to scale their teams based on project needs, eliminating the hurdles of long-term hiring commitments. For example, if a company needs a designer for a month, it can easily have one for that duration. As soon as project requirements change, they can scale resources up or down. The process of adding or disconnecting employees is streamlined when working with a single outstaffing company, ensuring a straightforward and rapid solution. 

Easily trackable results

Businesses have direct access to the work done by their outstaffed developers which allows them to assess their performance and the outcomes of their efforts. 

Lower costs than in-house

Companies can often achieve cost savings by paying for the dedicated time and expertise of outstaffed professionals. After all, hiring a remote team of IT specialists proves to be less costly compared to employing full-time experts working in-house. Businesses can save up to 40% with IT outstaffing. 

This is because they’re not required to cover expenses for talent search, onboarding, or termination; instead, these responsibilities fall on the outstaffing vendor’s shoulders. Moreover, outstaffed teams adopt a remote working approach that eliminates the need for companies to invest in establishing expensive IT infrastructure on their premises.

Access to top talent

As the demand for skilled workers continues to grow, assembling a team of professionals tailored to the company’s specific requirements becomes increasingly challenging. In this case, outstaffing services present a major advantage because they open the door to a broad talent pool.

Faster time-to-market

One of the significant advantages of IT outstaffing is that it helps companies bring their product to market faster. This is achieved through a dedicated team of specialists working exclusively on the project, aligning their skills with its specific requirements. They don’t need to learn the ropes of the business; they already know how to do their job. In a fast-paced market, a quicker product launch is a game-changer, giving companies a competitive edge and allowing users to provide timely feedback for improvements.

Outstaffing: the drawbacks

While outstaffing presents some undeniable advantages, it also comes with some challenges

Responsibility for choosing and managing developers

While it’s good to be able to select high-quality developers and have full control over them, this power comes with responsibility. So, if a company lacks technical expertise or doesn’t have a CTO, choosing the right developer can be problematic. The same goes for managing remote workers. Without having a dedicated project manager, doing so might be a challenge. In such cases, the outsourcing development model may prove to be a better option.

Communication challenges 

Overcoming communication barriers is a serious challenge in outstaffing. The outstaffed team might be in a different region or time zone, making task coordination and effective communication demanding. Nevertheless, these challenges can be mitigated with the appropriate tools and communication protocols.

Data security concerns

Sharing sensitive information and intellectual property with external teams is an inherent aspect of outstaffing. This, however, gives rise to concerns about data security, prompting companies to establish proper safeguards to protect their confidential information.

Dependency on third-party providers

Relying on this model requires businesses to trust the expertise and reliability of third-party providers. If any issues arise, the client company may face delays or disruptions in project execution.

What is outsourcing?

Companies (the client) choose to outsource when they have an idea but lack the means to implement it independently. Instead of setting up an entire in-house IT department, they can turn to another company with a concept and pay a specified amount to get an application or website ready. This scheme of work is suitable for everyone, including start-up owners and those with established businesses that are already operational and generating revenue. 

So, unlike outstaffing individual specialists for specific development tasks, outsourcing involves contracting out an entire project or specific tasks to an external vendor, who takes responsibility for the project—from planning to development and delivery.

The responsibility for managing the outsourced team lies primarily with the external service provider. The client may provide input and feedback, but the day-to-day management is handled by the outsourcing partner.

In the bigger business picture, about 92% of G2000 companies use outsourcing for their IT needs. Also, around 300,000 jobs in the U.S. are outsourced every year. This shows that many organizations see the benefits of outsourcing for their work and for saving on operational costs.

Outsourcing: What advantages are there?

There are various reasons why companies choose to outsource their projects.

Seamless project development  

Partnering with a software outsourcing agency opens the door for companies to see their entire project come to life. The agency takes great care in understanding the company’s needs, preferences, and budget, transforming conceptual ideas into tangible reality. This collaborative and thorough process ensures a customized solution that perfectly aligns with the client’s goals.

Reduced costs

Some business owners may wonder how they can possibly cut costs through outsourcing if that obviously entails hiring an additional service. Well, the answer is simple. Outsourcing certain business operations saves organizations the expenses associated with hiring and training additional employees. 

Moreover, it removes the need to maintain an in-house IT department and deal with employee benefits, payroll, and infrastructure. All of it is on the outsourcing company’s shoulders. The money saved can then be redirected into other aspects of the business to ensure sustainability and maximize profits.

No management headaches

The responsibility of managing the project won’t weigh on the company’s shoulders; the agency will take care of it. This only eases the workload on in-house employees but also grants them more time to focus on other essential company projects.

Access to a large talent pool

Outsourcing provides access to top-tier talent for businesses. In certain cases, the local market may lack sufficient qualified candidates, leading to compromises in hiring. Seeking talent in other regions or countries allows organizations to tap into a broader and more diverse pool of professionals. Outsourcing proves to be a savvy solution, especially when in need of specialized skills or expertise.

Concentrating on core actions

When businesses outsource non-core functions, it enables them to concentrate on their primary strengths and strategic goals. According to Deloitte’s Global Outsourcing Survey, 65% of organizations state that outsourcing helps them focus on their core functions. This increased focus can lead to innovation and a boost in competitiveness.

Outsourcing: Are there any drawbacks?

Bringing on an outsourcing development team means granting a third party direct control over a business function or process, which introduces certain risks.  

Less control and flexibility

Outsourcing tasks to another company may come with constraints imposed by inflexible contract agreements. What does it really imply? It means that the client’s control over software, procedures, protocols, hiring practices, and scheduling may be reduced. This approach could also limit the flexibility businesses need to adapt as they grow or face changes. So, if you like to be involved in the day-to-day activities of coding, planning, and scheduling, outsourcing may not be the right option for you.

Decreased security

Outsourcing can complicate data security by involving multiple sites sharing information, which increases the risk of data leaks. Additionally, control over hiring and employee protocols may be limited, affecting the oversight of company information.

Limited access to the codebase

Following an NDA agreement, the rights to the code transfer to the client. However, during the building phase, access is intentionally limited by the software outsourcing company as a precaution against potential data theft. Companies typically receive demos showcasing progress within specific timeframes. Nonetheless, this restriction might pose challenges, especially for companies that highly value direct and continuous control over the development process.

Expertise is built outside the company

The knowledge and skills gained during a project are incredibly valuable. When outsourcing, however, that expertise stays with an external partner once the contract ends. While the company gets the solution, the expertise remains outside, posing a risk for future in-house projects or additional work on the outsourced project. This means organizations will always need to depend on their partner for that specific expertise.

Communication problems

As in the case of outstaffing, many businesses find communication to be a major hurdle in outsourcing. This may stem from various factors, such as cultural differences (both nationally and within organizations), language barriers, and the decentralized structure of teams.

Adding to the challenge, the dynamic between the client and service provider can worsen communication issues. Service providers are aiming to meet client demands without questioning feasibility, which may lead to unmet expectations and disappointment in the final outcomes.

Costs can be higher than expected

While outsourcing is often seen as a way to cut costs, opting for the cheapest option may result in higher costs later. It’s crucial to ensure that initial cost savings don’t compromise other factors, like potential delays and additional expenses due to slower delivery times or compromised quality. A comprehensive approach to cost evaluation is vital for the long-term success of outsourcing endeavors.

When and which model to choose?

Before making a decision whether to go for outsourcing or outstaffing, consider a few key aspects, such as your company’s goals and needs, type of problem, project scope, time, and budget.

Outsourcing becomes the preferred choice when:

  • Your core product/service doesn’t involve tech solutions.
  • You lack the budget for a full-stack tech department.
  • Your current tech team is overwhelmed, hindering the adoption of another project.
  • You lack expertise in developing the product.

On the other hand, outstaffing is the ideal option when:

  • Your tech department doesn’t have specialists with a specific skill set.
  • Resources are insufficient for a particular development phase (e.g., QA/QC testing or UX).
  • You prefer avoiding hiring/HR tasks and need a specialist promptly.
  • You want to maintain control and oversight of every development process.

How can Neontri help you?

As your business expands, the demand for skilled talent naturally increases. However, the process of hiring and managing a full-time workforce can be both challenging and time-consuming.

Neontri offers a solution. Our experts are here to assist you in finding top-notch talent, taking care of payroll and benefits, ensuring everything’s compliant, and managing employee relations. We don’t just expand your workforce; we introduce highly skilled professionals who seamlessly integrate into your team, becoming true team players. After all, it’s not just about filling roles, it’s about finding the right people. 

How do we do this? Our experts reject generic fixes, opting instead for tailored solutions that match your unique business needs. So, while we handle the details, you can focus on what really matters—your core operations. Let’s discuss the ways of boosting your business while we handle the details.

 

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Agata Tomasik
Board Member
Head of Outsourcing
agata.tomasik@neontri.com

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