Outsourcing vs. Outstaffing, What's the Difference?
Competition between tech companies is fiercer than ever. Every day more companies, from large-scale businesses to startups, resort to Outsourcing to expand their team capabilities. It is common for businesses in the US to hire companies in LATAM. Same goes for EU-based companies and their Eastern-European and Asian counterparts. However, different strategies come into play when finding the right business partner. This article explores why outstaffing is an exciting type of remote employment.
Similar to Outsourcing, Outstaffing is another way of expanding a business capability with help from outside the company (whether nearshore, offshore or onshore).
The critical difference with Outstaffing is that typically the contracting company hires nearly 100% of the remote employee's time.
So, instead of hiring an assembled team where professionals can move between projects, in Outstaffing, the contracting part is hiring the person while offloading all HR-related processes to the outsourcing services provider.
The providing company handles payroll, benefits, equipment, bonuses, sick leaves, holidays, and employment taxes in this model. However, the outstaffed team member is exclusively dedicated to the contracting client.
Outstaffing is one of the more "transparent" ways of outsourcing services. The client expands their staff by adding team members from one or several outstaffing providing companies without dealing with employer-related processes and long-term employees contracts (depending on the agreement with the services providing company).
Outstaffing can be seen as yet another option for hiring work remotely. Once an outstaffed team member arrives at the team, the client decides the scope of work to be done, assigning and following up on tasks.
The outstaffed member performs all required tasks for the contracting business while officially employed by the outstaffing providing company.
The providing end is responsible for maintaining the team of professionals a company hires. One interesting point is that in-house managers can manage outstaffed members, but managers can also be outstaffed themselves.
In short, while outsourcing usually refers to a business partner providing end-to-end services involving all parts of a software development project, outstaffing is about hiring outsourced individuals.
Main differences between Outsourcing and Outstaffing models
When a company outsources a software development project, it usually looks to offload an entire project to a providing partner.
The contracting company may not even be a technology company, or it could be a startup that doesn't want to lose focus on its core business.
In Outstaffing, the client will have to manage hired employees in all matters related to the project development.
This is a crucial difference between models because the contracting company may not want or need to focus on managerial tasks.
If this is the case, Outsourcing could be a better option, but the outstaffing of administrative roles could also be the right move.
Before deciding on one of these models, companies should analyze if they are looking for a "Client-Provider" or a "Client-Contractor" type of relationship.
In Outsourcing, a significant degree of responsibility for project goals is delegated to the providing company; in Outstaffing, the provider usually has no control or responsibility for project status and tasks but is focused on hiring and retaining the right individuals for the client to manage.
Review of Outsourcing models
In a series of previous articles, we've covered the many aspects of software development outsourcing, including offshore and nearshore approaches.
Following is a summary of the key positive elements of Outsourcing and how they compare to an alternative Outstaffing model.
- No equipment purchases are needed: the outsourcing provider usually covers expenses and processes related to equipment such as laptops for developers, cloud servers, and mobile devices for testing. There is no need for the contracting company to put efforts into equipment purchases and provisioning.
- The provider enforces coding best practices: outsourcing providers usually include their up-to-date practices and processes to ensure the best code quality in their value-added proposition. A contracting company can have some degree of control over this, but the vendor generally takes care of it.
- Day-to-day operations are offloaded to the provider: a good outsourcing services provider will care for schedules, milestones, and, most importantly, communication. Great outsourcing companies have strong best practices when dealing with cultural and language gaps; they are experienced in using the right tools to minimize communication issues.
- The client has access to top-tier specialists: it is widespread that highly experienced individuals in top roles like a senior Software Architect or a UX expert work on many projects at once. They usually provide a couple of hours of highly focused goal-oriented work. In the outsourcing model, companies can have part-time access to these professionals without dealing with the costs of hiring senior roles full-time.
- Control: in an outsourcing model, usually, the client delegates control of the project in exchange for cost savings and efficiency improvement. While this is one of the substantial aspects of Outsourcing, lack of control may be incompatible with a specific type of company that already has strong software development teams that like to be involved in product development.
- Cost: this could not always be the case, but an end-to-end outsourcing project is generally more expensive than hiring particular individuals in an Outstaffing model. Outsourcing comes with an overhead of project management and guarantees that can directly affect costs.
As mentioned above, Outstaffing is an exciting alternative to Outsourcing that could be a better fit for many businesses. These are some of the typical pros of this model:
- Control: outstaffing is about hiring individuals, so the client usually has a great deal of control of the day-to-day tasks the outstaffed member performs. Outstaffed members will seamlessly integrate with in-house developers, and the client can manage the team as a whole.
- Flexibility: the outstaffing provider takes care of all HR-related processes while you focus on business-related tasks. While Outsourcing is common to hire entire teams, in Outstaffing, a company could employ just one team member if that is what fits their needs.
- Costs: Compared to Outsourcing, in general, outstaffing offers lower fees. The main reason for this is that the client is handling most of the managerial burden. If a contracting company has managers with enough availability to handle outstaffed members, the difference in costs could be significant.
- HR is greatly simplified: in outstaffing, the primary process outsourced to an outside company is precisely people management. Some businesses have complex regulations and financial calculations regarding salaries, bonuses, tax compliance, and other payroll-related issues. All of this work is delegated to the outstaffing company.
These are the most significant challenges when it comes to evaluating an outstaffing model:
- Communication risks: All communication channels, tools, and practices must be state-of-the-art to integrate seamlessly with outstaffed and in-house team members. Since there aren't any managers on the other side, a contracting company is usually responsible for ensuring the best possible communication between all parties involved.
- Project management efforts are considerably higher: closely related to communication, project management is also about risk assessment, planning, forecasting, and enforcement of the correct methodology. In an outstaffing model, all these critical aspects are the client's responsibility. Companies should have a proper project management system and ensure that each member is adequately integrated with the team regardless of being in-house or outstaffed.
- Responsibility for project success lies mainly with the client. Since neither communication nor project management efforts are offloaded to any outsourcing partner, the success factors for a project stay in-house. Depending on the contracting company's culture and current needs, this could be a pro or a con. It may even be what the company looks for, and if this is the case, then it is a strong indicator that outstaffing may be the right choice over Outsourcing.
- Need for in-house senior roles: to successfully manage a software development project with a team of outstaffed members, it is strongly advised that companies have at least a small number of highly talented people that can manage and control the performance of outstaffed members. Hiring and retaining talent is a difficult task; it will depend on each company whether this is a valid option. If not, they should probably look for an outsourcing model instead.
Outsourcing and Outstaffing share many aspects. They are both ways for a company to get help from outside.
The critical difference is that while Outsourcing is about hiring a provider to perform entire projects, processes, and team building, Outstaffing focuses on hiring individual team members.
When compared to Outsourcing, Outstaffing could pose significant cost savings and greater hiring flexibility.
However, this comes with a heavy load of managerial tasks for the client, most of them being critical factors for a project's success.
If a company has the required roles, tools, and talent, Outstaffing is an excellent option for getting remote help. Otherwise, the best choice may be hiring some other form of services Outsourcing.
At Devlane, we are experts in both Outsourcing and Outstaffing models. Reach us out here, and we can help your company choose the model that best suits your needs.