Outstaffing vs. outsourcing. Should you opt for the former or the latter? There isn't a simple answer to choosing either approach, as it involves various considerations. Nevertheless, both outsourcing and outstaffing are in high demand as companies and startups seek to scale their operations and pursue rapid growth.
Statista forecasted that the IT outsourcing revenue would hit US$395.00 billion in 2022. The report highlighted the attractiveness of software outsourcing and outstaffing models. Both provide businesses the flexibility to access a vast talent pool and fill missing skill gaps in their team.
But that's where the similarity ends. Outsourcing and outstaffing are based on a different hiring model and meet different business needs.
In this article, I'll explain the difference between outsourcing and outstaffing, how it works, highlight the pros and cons of both outsourcing and outstaffing, and what inspires businesses to choose either of these two models. More importantly, you'll learn how to choose a suitable outstaffing and outsourcing partner for your company.
What is an Outstaffing Model?
Outstaffing is a staff augmentation process where businesses hire software professionals from IT outsourcing companies to boost their existing teams. In this arrangement, the outsourced developers continue to work at their workplaces but are fully managed by the client company.
Key components of outstaffing
Outstaffing allows you to hire dedicated developers who become part of your team. Throughout the project, you have complete control over coordination, direction, and task assignment for the outstaffed developers. This means you play an essential role in leading them to produce tangible results.
Pros and cons of outstaffing
Companies use the outstaffing model because it is rewarding in several ways.
- First, outstaffing allows them visibility over the entire project because outstaffed developers work similarly to in-house employees.
- Next, companies reduce hiring costs by tapping into markets with affordable and talented IT experts from Eastern European outstaffing companies.
- Outstaffing eliminates HR and administrative tasks because the IT outsourcing vendor handles them.
Outstaffing has its fair share of drawbacks, which includes.
- You're solely responsible for the success or failure of the outstaffed developers.
- There might be communication gaps between the outstaffed and in-house teams because they are in separate locations and possibly a different time zone.
Best suited for
Outstaffing is ideal for startups and companies that seek developers with specific skills to work with their existing teams.
What is an Outsourcing Model?
Outsourcing (unlike outstaffing) is a contracting process where businesses delegate entire software development responsibilities to an external IT company. The contracted IT agency is responsible for recruiting and managing team members, handling administrative tasks, and submitting project deliverables. With outsourcing, the hiring company need not maintain in-house IT capabilities.
Key components of outsourcing
Outsourcing allows companies to be very flexible when fulfilling their software development needs. Besides access to a global pool of talented developers, they delegate the entire software development lifecycle to third-party managed IT, teams. The hindsight is – companies have little control over how the outsourced team operates.
Pros and cons of outsourcing
Many startups choose to outsource their projects for these reasons.
- It helps them to launch an app and meet tight deadlines without depending on in-house IT expertise.
- Outsourcing helps businesses to reduce software development costs while ensuring superior quality.
- Startup founders can hire skilled developers from any region in the world. This allows them access to rare software skill sets;
- IT outsourcing is flexible. You can choose a different work arrangement after a project is delivered.
That said, outsourcing is not without challenges.
- You have limited visibility and control when outsourcing to an offshore IT company. This might raise privacy and security concerns.
Best suited for
Outsourcing is suitable for startups and companies that have precise, short-term requirements. For example, they want to turn an idea into an MVP in 6 months.
.png)
Why Businesses Decide to Outsaff and Outsource: 5 Reasons
Businesses have turned to both outstaffing and outsourcing over the years, and these are their primary motivations.
Reduce costs
According to a study, 59% of US companies outsource to external IT vendors to reduce hiring costs. The salaries for experienced developers in Western countries are considerably expensive compared to those in developing nations. Outstaffing allows companies to hire capable developers with a lower budget.
Fill talent gaps
As software development technologies evolve, companies require developers with new skills. Outstaffing and outsourcing are quick routes to landing such developers without upskilling their internal team or going through a lengthy recruitment process. Moreover, certain IT specialists are hard to find in some countries.
Improve business focus
Businesses might get sidetracked when they dabble in areas beyond their expertise. With outstaffing and outsourcing, companies can focus on their core capabilities instead of micromanaging developers. Meanwhile, outsourcing allows startup founders to devote their attention to marketing, sales, and pitching to investors instead of writing codes.
Free up internal resources
Software development is resource-intensive. Besides paying for the developer's salary, companies must allocate a budget for workspaces, software licenses, and ongoing upskilling. Turning to outsourcing and outstaffing, the offshore vendor will manage these overheads and the administrative tasks that come with them.
Increase capacity
Companies growing rapidly might need help to expand their software team to meet the increasing workload. In such cases, they resorted to software development outstaffing or outsourcing to augment their team with offshore developers. This allows companies to scale efficiently without being constrained to rigid financial commitments or physical resources.
Outstaffing vs. Outsourcing: What’s the Difference?
Here are simple clarifications if you're still confused about the outstaffing vs outsourcing difference:
Purpose
Outstaffing is ideal as a long-term IT staff augmentation approach for companies with an existing IT team. It allows them to quickly set up a remote team that can be productive almost immediately. Meanwhile, companies choose outsourcing when they lack IT capabilities or want to use external resources to build an app.
Control
With outstaffing, you manage the remote developers directly and have total control over their tasks, milestones, information sharing, and deliverables. However, there's very little visibility with outsourcing as you might not have access to source codes and some project documentation.
Team management
Outstaffing comes with the responsibility of managing remote developers. Even if they're not physically present on your premise, you manage them as if they are a part of your in-house team. Conversely, an outsourced development team is self-managed. They'll coordinate tasks based on project requirements and report progress to you at a specific timeline.
Cost
Both outstaffing and outsourcing can be financially-viable, depending on your company's goal. If you require a one-off app development, you pay less for outsourcing. Meanwhile, outstaffing is more budget-friendly when you want to scale your team long-term without tedious hiring and training.
Outstaffing vs Outsourcing – Making Your Own Choice: 4 Tips
Both outsourcing and outstaffing are viable solutions for you, depending on your business requirements. Here's how to make a choice facing the outstaffing vs outsourcing dilemma.
Ongoing requirements
First, consider the software problems that you need to solve. Are you looking for long-term support for existing apps? Or require developers to work on an MVP? Outstaffing ensures that your business has stable long-term support, while outsourcing is ideal for a one-time project.
In-house expertise
Some companies have an existing IT team, while others, such as startups, choose to operate without one. If you lack technical capabilities and can't lead a team of developers, outsourcing is the better option. It allows startups to focus on other key business areas while getting their apps to market quickly.
However, you'll benefit more from engaging an outstaffing company if you have a capable in-house IT manager and well-established software processes. This is true when you're trying to strengthen your team with skilled specialists.
Budget and time
IT outstaffing services save money for an established company because you're managing the outstaffed developers. Conversely, outsourcing will cost more because the vendor is responsible for managing day-to-day operations and charges that in the fee. Still, software development outsourcing is the wiser choice if you have tight deadlines to meet.
Control and visibility
Some technological companies prioritize control and data privacy. While outsourcing vendors are bound by NDAs, these companies prefer to set up an in-house IT team and hire outstaffed developers. This allows the internal team to work on the highly-sensitive part of the project. However, outsourcing is a feasible option if technology isn't your core business.
How to Find and Hire Outstaffing Company: 7 Steps
If you've decided that outstaffing is right for you, follow these steps to hire a reliable IT outstaffing company.
Step 1 - Define the project scope
State your project requirements clearly before you talk to outstaffing companies. It helps both parties to start the discussion with a common understanding. Here are some important details to consider:
- How many developers do you require?
- What skills/experience do you require?
- What’s your business nature?
Step 2 - Search for IT outstaffing companies
Then, search for potential outstaffing partners. You can do so on search engines, business forums, or browsing a professional platform like Clutch. Take note of their locations, years in service, and areas of expertise. Compile a list of outstaffing companies that fulfill your requirements.
By the way, we have been recognized as the Top B2B company in Ukraine by Clutch. All thanks to our clients’ positive feedback and, of course, the expertise of the Uptech team.
Step 3 - Review portfolio and client feedback
Run background checks to prevent hiring an IT outstaffing company that doesn't align with your requirements. Find out what their previous clients say about the services. Clutch allows clients to leave comprehensive reviews and experiences of outstaffing providers. Compare them and choose those that provide consistently good services.
Step 4 - Conduct an interview
Next, hold an in-person interview with the outstaffing team, preferably with a technical manager. Seek clarification on how the outstaffing arrangement works. Find out if they have developers armed with the skills that your team needs. Or if they have overlapping experience with your business's operation. It helps to hire a developer who is familiar with your industry.
We have 6+ years of experience developing products in 8 industries:
- Fintech;
- On-demand;
- Healthcare;
- Real estate;
- Social apps;
- Marketplace;
- Streaming apps;
- Health & Fitness.
🔎Check out what services we offer, the product development approach we use, and our cases on our website.
Step 5 - Discuss budget, data confidentiality, and other terms
Once you're satisfied with the proposed outstaff team, hold further discussions on the fee, confidentiality measures, responsibilities, liabilities, and other legalities. Discuss verbally and in writing to prevent misunderstandings.
Step 6 - Agree on communication modes
It's essential to maintain an open communication channel with the outstaffing companies and their developers. Decide which method works best for both parties and agree on them. For example, you use tools like Slack, and Asana to plan, discuss and keep track of projects.
Step 7 - Hire and onboard
Sign the outstaffing agreement and formally onboard the outstaffed developers to your team. Provide clear guidelines, task scopes, and expectations to ensure they can be productive as soon as possible.
5 Common Challenges in IT Outstaffing and Ways to Overcome Them
IT outstaffing is rewarding but also poses challenges.
Time zone differences
Significant time zone differences frustrate collaboration between the outstaffed developers and your in-house software team. For example, if a US company hires Philippines-based developers, holding a spontaneous meeting will be tricky as the business hours don't overlap.
Solution
Work with IT outstaffing companies closer to your region or one with a manageable timezone. Alternatively, agree on communication rules, such as sending queries by a specific hour and provide response in 2 working days. This helps to manage communication across certain time zones.
Communication barriers
There are brilliant software developers in every part of the world. However, not all share your language and cultural practices. When a language barrier exists, it becomes difficult to communicate projects, timelines, and expectations. This becomes detrimental to ongoing collaborations.
Solution
Interview developers before hiring them. Besides discussing your projects with the marketing team, talk to the people who will be working with you daily.
Intellectual property
There are concerns about data leakage and intellectual property protection when you onboard a remote team that ultimately belong to another company. Businesses dealing with sensitive data and next-generational technologies might hesitate to outstaff unless the issue is addressed.
Solution
Employ measures to safeguard intellectual properties, such as regulating email, communications, information, and NDAs.
Misguided expectations
Some business owners assumed that outstaffing requires little to no management effort. Such misassumptions result in poor collaboration between the outstaffed and the in-house team. Without clear leadership, direction and instructions, the outstaffed developers will be confused about their roles in the team.
Solution
Prepare an onboarding guideline for the outstaffed team. Explain the company's cultures, expectations, project tasks, and roles. Help them fit into the organization and manage them as you did with your in-house developers.
Choosing a reliable provider
There is plenty of IT outstaffing companies. However, only some provide the reliability, talent, and professionalism that businesses value. If you hire outstaffed developers who can't deliver results, it will hinder rather than help your business.
Solution
Do your due diligence by reviewing client feedback and interview the outstaffed developers thoroughly before making your choice.
The Cost of IT Outstaffing Services
Outstaffing costs vary according to the country the developers are located. If you outstaff from developed nations, you'd be paying massive salaries. Meanwhile, Asian countries offer developers for outstaffing and outsourcing that command cheaper wages, but you must grapple with the cultural differences.
Western companies tend to outstaff and outsource from Eastern European countries. Developers from Eastern Europe are affordable, experienced, and known for delivering top-quality work. Besides, we are fluent in English and are comfortable working with Western clients.
Here's a breakdown of the average price of software developers’ services in popular outstaffing destinations.
- India - $8,603 per year.
- China - $117,984 per year.
- Ukraine - $95,589 per year.
- Romania - $67,449 per year
- Argentina - $27,876 per year
Remember that culture, language, timezone, and reputation are equally important consideration factors besides salary.
Conclusion
Outstaffing and outsourcing allow businesses to quickly extend their team with skilled developers. I've clarified the differences in the outsourcing vs. outstaffing argument and scenarios where either is a good fit. Generally, outstaffing is ideal for businesses with long-term requirements, an adequate budget, and an in-house IT team.
I've also addressed the challenges when hiring an outstaffing team. You can overcome many difficulties, such as language, culture, and reliability, by working with Uptech. Uptech is a reputable international app development company that provides outstaffing services. We partner with startups worldwide to build apps that users love.
Talk to us about the outstaffing or outsourcing opportunities that Uptech can provide for you.
FAQs
What is outstaffing?
Outstaffing is a staff augmentation process where businesses hire software professionals from IT outsourcing companies to boost their existing teams. In this arrangement, the outsourced developers continue to work at their workplaces but are fully managed by the client company.
What is outsourcing?
Outsourcing (unlike outstaffing) is a contracting process where businesses delegate entire software development responsibilities to an external IT company. The contracted IT agency is responsible for recruiting and managing team members, handling administrative tasks, and submitting project deliverables. With outsourcing, the hiring company need not maintain in-house IT capabilities.
What’s the difference between outstaffing vs. outsourcing?
Here are simple clarifications if you're still confused about the outstaffing vs outsourcing difference:
- Purpose: Outstaffing is ideal as a long-term staff augmentation approach for companies with an existing IT team.
- Control: With outstaffing, you manage the remote developers directly and have total control over their tasks, milestones, information sharing, and deliverables.
- Team management: Outstaffing comes with the responsibility of managing remote developers.
- Cost: Both outstaffing and outsourcing can be financially-viable, depending on your company's goal. If you require a one-off app development, you pay less for outsourcing. Meanwhile, outstaffing is more budget-friendly when you want to scale your team long-term without tedious hiring and training.