Outsourcing vs. Outstaffing, What's the Difference?

What is Outsourcing?

Outsourcing is the practice of hiring an external company or individual to perform tasks or services that are typically handled in-house. Businesses turn to outsourcing to reduce costs, access specialized expertise, or improve efficiency.

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By contracting work to third parties, organizations can focus on their core competencies while delegating non-core activities, such as customer service, IT support, or manufacturing, to external experts. Outsourcing can involve both nearshore (located in nearby countries) and offshore (located in distant countries) partners, depending on the needs of the company.

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While outsourcing offers many benefits, it also comes with challenges, such as potential communication barriers, time zone differences, and the need for quality control. To mitigate these risks, businesses must carefully select outsourcing partners, ensuring they have the necessary skills, experience, and alignment with the company’s goals. With the right planning and management, outsourcing can be a powerful strategy for enhancing operational efficiency, reducing costs, and scaling business operations.

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In software development, outsourcing often involves partnering with an external engineering team that assumes responsibility for delivering a complete project or a defined scope of work.

What is Outstaffing?

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.

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Today, this model is more commonly referred to as staff augmentation, especially in the software development industry. While the terms are often used interchangeably, staff augmentation better reflects the collaborative nature of extending an existing engineering team.

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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.

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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).

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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.

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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.

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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.

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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.

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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. 

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The right choice depends on factors such as internal technical leadership, project complexity, desired level of control, and long-term hiring strategy.

How to Choose Between Outsourcing and Outstaffing

Choosing the right engagement model depends on how your engineering organization is structured and what level of responsibility you want to keep internally.

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In general, outsourcing is the best choice when you need an external partner to take ownership of delivery, while outstaffing (or staff augmentation) is better suited for companies that already have technical leadership and want to expand their existing team.

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The following comparison can help determine which model better fits your organization's needs.

Pros and Cons 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.

Outsourcing Pros

• 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. 

Outsourcing Cons

• 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. 

Pros and Cons of Outstaffing

Here's a look at the pros and cons of outstaffing to help you decide if it's the right solution for your business needs:

Outstaffing Pros

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. Companies such as Huckleberry have successfully expanded their engineering capabilities by integrating experienced external developers into their existing teams.

• 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.

Outstaffing Cons

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. Building strong technical leadership is essential for successfully managing distributed engineering teams. Learn more about how to strengthen your backend team.

When to Outsource?

You should consider outsourcing when you need to reduce costs, access specialized skills, scale quickly, or focus on core business activities. It's also a good option if you're facing resource shortages or need to meet tight deadlines without hiring full-time employees. Outsourcing is ideal when the tasks don't require direct oversight or when your internal team lacks the expertise for specific projects. If you're evaluating global hiring strategies, you may also find our guide to software outsourcing destinations useful.

When to Outstaff?

Outstaffing is ideal when you need specialized skills for a project but want to maintain more control over the work process and team management. It’s a good choice when you need to quickly scale your team without the long-term commitment of hiring full-time employees. Outstaffing is also beneficial when you require flexibility, such as adjusting team size based on project needs or when you need a dedicated professional to integrate closely with your existing team.

What Would Be the Best for You – Outsourcing or Outstaffing?

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.

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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.

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At Devlane, we help companies choose the engagement model that best fits their goals. Our IT outsourcing services cover end to end delivery, and our staff augmentation model integrates senior LATAM engineers into your existing team. Reach us out here, and we can help your company choose the model that best suits your needs.