Outsourcing VS outstaffing: what is more suitable for your business?
Nowadays, there are two main options for work optimization. So, outsourcing and outstaffing are two widespread administrative models which gain increasing popularity among companies that are engaged or need the development of software. These two options not only help organizations accelerate development and to reduce and control expenses but also allow them to utilize the invaluable experience of IT professionals from around the world.
If you are interested in any of these approaches, our quick guide on outsourcing and outstaffing will be helpful. If you do not know what approach to choose or if you have already decided on the choice, but eager to know everything about a specific business model, including its pluses and minuses? We will try to answer all questions that may arise.
Many mistakenly consider that both terms are interchangeable concepts. Most likely, such delusion is widespread because both methods mean a process of an assignment of certain work to non-staff employees. To avoid ambiguity, it is essential to consider each method of management separately and in comparison. So, let’s start with the definitions.
The essence of outsourcing
The term “outsourcing” appeared in the eighties of the last century. It is transferring certain tasks by a client organization to a contractor organization that specializes in the relevant field. Speaking about IT, it may be the creation of mobile or web applications, creation of design of a product, etc.
It is necessary to distinguish between outsourcing of people and business processes. The first concept implies the transfer of responsibilities of one of the departments (for example, the department for servicing computers and software) to specialists from another company that specializes in this field. Speaking about the outsourcing of processes, it means transferring not just individual tasks to a service provider, but an entire segment within the business. The hallmark is the absence of budget and time constraints.
Benefits and drawbacks
Outsourcing certainly has a huge number of advantages, but do not forget about the disadvantages. Let’s talk about everything in detail. Here are the pros:
- The client doesn’t have to take part in the hiring process.
- Reduced costs. It costs less to choose a freelance development team than to find and hire full-time employees. In particular, if you live in the USA or Western European countries, the prices for quality software development are quite high. Because of this, it is much cheaper and more efficient to hire contractors from other parts of the world.
- All the aspects concerning quality and delivery are the service provider’s responsibility. Service provider commits to deadlines.
- Access to more qualified professionals. Having chosen outsourcing, you are not limited in your choice, as you can easily hire specialists with unique skills around the world.
- The service provider is fully responsible for all the equipment and software needed to complete the project.
- Communication problems. With remote collaboration, especially when it comes to a large time difference, misunderstandings may occur that, in turn, may affect work. For an effective development process, all appropriate communication channels and methods of cooperation must be established.
- Risk of important data leakage. By transferring data to a third party, you put yourself at the risk of data leakage. Therefore, it is very important to look for reliable contractors with a good reputation and reviews.
- The client hardly can intervene or control the development process, which actually PMs only do.
The essence of outstaffing
This approach to personnel management implies signing a contract in which a third-party team or individual employee is officially hired from the outside to perform work and/or a number of company functions.
Benefits and drawbacks
Outstaffing is one of the options of remote employment, where the team performing the entire required range of work of the client company is another legal company. It is responsible for the salary, bonuses, and equipment provided to the employee, while the client company issues tasks only. The pros are the following:
- Elimination of disputes. Since the employee enters into an employment contract with the outstaffing company, and not with the organization that orders services, the latter does not participate in labor disputes that may arise.
- Management of employees is simplified. The service provider deals with all the documentation, from the registration of vacations and sick leaves to reports preparation. This reduces the burden on the administrative department and the accounting department of the client company.
- Flexibility. This means being able to control the number of dedicated specialists client hires to work on his projects.
- Hired temporary staff reports directly to the client for the “rent” period.
- The rates are a bit lower compared to outsourcing (up to 20%).
There are also some drawbacks:
- Problems with communication. As we have previously mentioned, problems related to misunderstanding may arise. Therefore, it is of vital importance to set up communication that would be convenient for both parties.
- Increased responsibility. If you have decided to choose this model, be prepared to take on more responsibility. It is recommended to have tech-savvy experts in your team for more effective management.
Which model to utilize?
Any company requires good specialists, but not any company has all the necessary capabilities and resources to recruit and maintain a huge staff of employees. That is why many organizations use the services we have described. The choice of one of the models largely depends on the initial needs, goals, and capabilities of your business.
If you are not too technology-oriented and you do not have specialists able to watch the work of remote workers, outsourcing is the most suitable option for you. Then, if you have already set up some IT processes and have everything you need to manage and work with a team of people from another company, feel free to choose outstaffing.