When it’s time to expand your team, the most important question is this: Which model should you choose to get the most out of it without losing money? There are many options available to help you extend your team’s capabilities. However, two models that have become increasingly popular over the years are outsourcing and outstaffing. Although they sound similar, there are significant differences between the two approaches, and it is crucial to understand them so you can make an informed decision.
According to Grand View Research statistics, global expenditures for outsourcing and outstaffing are expected to reach $936.6 billion by 2027. This shows that more and more companies are choosing these models for their project needs.
But what is the difference between outsourcing and outstaffing? Let’s compare outsourcing vs. outstaffing, diving deep into their specifics and their pros and cons to help you make the winning decision.
What Is Outsourcing?
Outsourcing refers to the practice of hiring an external company to handle specific business functions, such as IT services, customer support, or accounting. Essentially, if you have a project idea but don’t want to develop, design, or implement it on your own, that’s where the IT outsourcing model comes into the picture. The external company — or vendor — will take over responsibility of the designated tasks, allowing you to focus on your company’s core competencies. What’s more, the outsourcing agency is completely responsible for all their employment, payroll, and administrative tasks.
The outsourcing model is suitable in the following cases:
- You’re a startup founder who doesn’t want to get into technical details, doesn’t have time for project development, and strives to test new ideas.
- You’re a business owner without an in-house development team, and you want to hire tech specialists for a one-time task or specific project.
What Is Outstaffing?
Outstaffing, on the other hand, involves hiring employees from a third-party tech firm who will work as part of your in-house team.
In other words, when outsourcing, you can employ a team that will work independently. Meanwhile, outstaffing offers you an entire dedicated team that will be fully involved in your project, developing the product jointly with your specialists.
How To Choose the Best Model?
It can be difficult for companies to choose between these two models. However, here are some questions that Lionwood.software’s analysts ask clients to help them make the right decision:
- What are your project’s goals and priorities? Are you looking to reduce costs, access specialized skills, or increase efficiency?
- Do you have one-time or ongoing tasks? Will you have enough work to keep a whole team occupied full-time?
- Do you have a project manager or team lead in-house?
- Do you want to have complete control over your project and workers?
- Do you have any budget or timeline constraints?
Usually, when answering these questions, you may realize that outstaffing is the best approach. Clients often choose this model as they only need a couple of employees to cover their IT needs.
On the other hand, outsourcing allows you to trust your entire project development to an external expert agency, and you get a highly professional, dedicated team for all your technical needs.
Outsourcing vs. Outstaffing: Pros and Cons
What can better help you decide between these two models than a good old pros and cons list?
Pros of Outsourcing
- Cost savings. By outsourcing certain functions, companies can reduce labor and operational costs, such as salaries, benefits, and hardware/software expenses. The vendor will be responsible for these, saving you money in the long run.
- Access to skilled talent. Outsourcing allows companies to access a larger pool of experts in specific fields that may not be available in-house. This is particularly useful for businesses that require specialized skills or expertise that are unavailable within their own workforce.
- Scalability. With outsourcing, companies can scale up or down quickly without the burden of hiring and firing employees. This is because outsourcing vendors can provide additional resources when needed and scale back when the workload decreases.
- Increased efficiency. Outsourcing allows companies to focus on core business functions while the vendor takes care of non-core functions, resulting in increased efficiency. Because the vendor has the necessary expertise and resources, it’s easier for companies to meet deadlines and complete tasks efficiently without overtime.
- No daily management. Since the outsourcing provider offers a turnkey service, you don’t need to manage schedules, communication, or deliverables.
- Reduced risk. Outsourcing can reduce the risk of legal and regulatory compliance issues, as vendors are responsible for ensuring compliance with relevant laws and regulations.
Cons of Outsourcing
- Loss of control. Since the vendor is the one responsible for day-to-day activities, clients who prefer to have control over such activities may find this problematic.
- Reliability risks. Unless you conduct proper research or work with a company based on a recommendation, you may not know the vendor’s capabilities before working with them.
- Communication challenges. Since you won’t have direct contact with team members, it may be frustrating when you can’t oversee the work’s progress. Additionally, there may be communication obstacles due to different time zones.
Pros of Outstaffing
- Flexibility and scalability. Outstaffing allows companies to easily scale their workforce up or down without needing to hire or fire employees. It’s also possible to hire many experts in various fields: crypto specialists, frontend developers, etc.
- More control. If you want to maintain control over your project and your employees while also maintaining flexibility in terms of staffing levels, outstaffing is a perfect option. This model allows you to interact daily with your team, keeping full control over the development process.
- Cost savings. With the vendor handling the recruitment, payroll, and benefits, outstaffing also allows companies to save money in the long run.
- Increased focus. With outstaffing, you can focus on your core business functions while the vendor takes care of administrative tasks. This can result in increased productivity and help your business focus on its strategic goals.
- Fast recruitment. Since all you have to do is send your requirements to your future team, you can save time searching for the experts needed.
- Technical expertise. To maintain their reputation, outstaffing companies hire the best-in-industry developers with exceptional skills and expertise.
- Efficient development. Since the experts will be dedicated to your project only, they will get on board more quickly, resulting in faster development.
Cons of Outstaffing
- Communication challenges. Effective communication can be a challenge with outstaffing members working remotely in different regions or time zones. In order to address this, outstaffing companies should establish clear communication procedures using the appropriate tools.
- Higher cost. While outstaffing saves companies money on various expenses, engaging a reputable firm with highly skilled experts may come at a premium.
- Potential hidden costs. In addition to the upfront cost of engaging a professional outstaffing company, there may be hidden costs such as overtime work, employee turnover, and rate changes. To avoid any unwelcome surprises, it’s important to include these factors in the contract.
- Project responsibility. Unlike outsourcing, outstaffing clients have full project responsibility for overseeing their projects. While this can be a pro for those who value control, it also means that clients must have the necessary resources and expertise to manage their projects effectively.
How To Find the Right Partner for Your Project Development
Whether you’re choosing software outsourcing or opting for an outstaffing model, it’s essential to find a reliable partner who will cater to your specific needs and deliver the best possible results. This will not only save you time and money but will also minimize potential headaches.
Consider asking the following questions to make sure you hire the best team:
- Where is your outsourcing or outstaffing team located? Central and Eastern Europe are great regions if you’re looking to hire high-quality developers at a lower cost.
- Is your team located in a convenient time zone? It’s best to work with a team no more than 7-8 hours away from you to facilitate effective communication.
- Does your team have a high level of English proficiency? This is important to avoid miscommunications.
- How do you handle billing? Make sure the vendor company complies with your country’s laws.
- Can you provide references and a portfolio of previous work? This allows you to evaluate the company and ensure they have the skills and expertise needed for your project.
- How do you keep sensitive information private? Make sure the company you choose has strict NDA policies in place if necessary.
Outsource or Outstaff With Us
So, is outsourcing better than outstaffing, or vice versa? We’ve said it before and will say it again: It all depends on your preferences, requirements, budget, and deadlines.
However, whether you’re a startup that requires a project from scratch or a business that needs to improve an existing product, Lionwood.software can help you with any task. Our team has experience in every industry and tech stack needed to optimize your business processes, saving you both time and effort.
Outsource or outstaff? Contact us and let us help you choose the right IT model for your business.