Outsourcing vs. Outstaffing: Which models should you choose?
Collaborating with an offshore software development company has become mainstream today. This approach allows companies to keep the focus on their established business processes and entrust the work on a new digital product to those who specialize in this. Below we will tell you about two types of interaction with such companies: outsourcing and outstaffing.
Offshore Development Models
Let’s look at the features of two models of interaction with offshore developers: outsourcing vs outstaffing. We will start with their definitions.
What is outstaffing?
Outstaffing is the hiring of a specialist who works in a contractor company (outstaffer) for a project of the client’s company. This specialist is part of the client’s team, and along with other team members, their work is regulated by the client’s internal management team. At the same time, the client pays the contractor for outstaffing services under the contract, and the contractor, in turn, pays the salary to that specialist.
What is outsourcing?
Outsourcing is the transfer of business functions, responsibilities, and business processes to another company operating in a specific niche according to an agreement. Resorting to this service increases the efficiency of the client’s company and allows it to use the freed up resources to develop existing directions where this company is well-versed.
Difference Between Outsourcing and Outstaffing
And what about the difference between outstaffing vs outsourcing?
A common feature of these two types of remote cooperation is their final goal: to reduce financial and resource costs needed to cover for non-core activities of the company. However, outsourcing and outstaffing also have some differences. Let’s take a look at them:
- The type of working relationship. Outstaffing implies the provision of specialists with the necessary qualifications on a temporary or permanent basis to the client’s company. With outsourcing, any work or service is performed according to the terms defined in the contract.
- Tasks. The outstaffing company is better when delegating complex tasks in the legal or accounting field, while outsourcing involves hiring an experienced specialist (or team) who offers turnkey solutions.
- Budget allocation. Payouts of an IT outstaffing company are no different from payouts to in-office employees. As for outsourcing, depending on the contract, it implies a specific budget according to the chosen pricing model (Time and Materials, Fixed Price, and so on).
To sum up, we can conclude that the main difference between software outsourcing and outstaffing is that in the first case, the contractor company temporarily transfers its employees to the client’s company, and in the second case, the client transfers certain, often non-core business functions to the contractor.
Pros and Cons of Outsourcing
First, let’s define the main advantages and disadvantages of outsourcing.
First, let’s find out the main benefits of outsourcing:
- Increased efficiency of work processes within your company. When you have the opportunity to delegate tasks that are outside your main profile to specialists, you can fully devote yourself and your in-office employees to more important tasks.
- Elimination of the need to formalize labor relations with new employees. Everything that lies in the responsibility of the accounting and legal departments will be on the side of the contracting company with which you cooperate.
- The transparency of relations. All labor obligations of the parties to cooperation will be described in the contract. It will also indicate the responsibility of the parties for failure to fulfill these obligations.
- Extensive talent pool. In fact, you can outsource any non-core functions. This is especially true for new areas of the company’s activities that its internal specialists have not yet managed to master.
Now let’s find out what are the possible disadvantages of the outsource model:
- Risk of data leakage. Even though the terms of confidentiality will be officially agreed upon by the parties in the contract, the risks of data leakage still remain. Therefore, if this happens, you will need to find out and prove that your contractor did it. In turn, to protect yourself from such problems, you will need to initially be responsible for choosing an outsourcing company.
- Dependence on external performers. The quality of services of outsourcing partners does not always correspond to the declared one. If you end up with a product that doesn’t meet your expectations, you’ll lose both time and money.
- Risks associated with the bankruptcy of the contractor. Like any organization, your contractor can go bankrupt. This will entail some downtime in the workflows associated with the implementation of the new product.
Pros and Cons of Outstaffing
Finally, let’s consider the pros and cons of the outstaffing model.
When choosing outstaffing companies, you will get the following advantages:
- Elimination of problems associated with the employment of new personnel. By choosing the IT outstaffing services, you receive new employees in your team by signing only one contract with them, NDA, instead of dealing with tons of bureaucracy that usually accompanies standard full-time employment. Thus, thanks to the outstaffing services, you will get the opportunity to immediately start working with an expanded team.
- Simplified personnel management. Payment for vacations, sick leave, and other costs associated with the absence of employees at the workplace is the responsibility of the outstaff team. As a result, this will reduce the burden on your accounting department and eliminate the need to personally provide any social guarantees.
- Solving financial issues. The outstaffing agency (and not you) will be engaged in the calculation of salaries for employees and also take on their shoulders everything related to taxation.
As for the disadvantages of IT outstaffing, we can highlight the next ones:
- Risks associated with the unreliability of the outstaffing company. You may encounter this if you are unlucky with the choice of your contractor and provided with unreliable specialists or those whose expertise does not match the declared one.
- Outstaffing can take time. Not all talents are ready to cooperate with companies according to this model – many of them prefer to work directly in the office of their employers. Therefore, if you need an expert with a narrow specialization, it may take some time to close this vacancy.
Outsourcing vs. Outstaffing: Which Model Is Better?
If you have a large-scale, long-term project in which your in-office employees should be regularly involved, the outstaffing model is better for you – in this case, you can set your own pace for completing work processes and at the same time, quickly engage the missing remote specialists with the expertise you need.
As for outsourcing, this model of cooperation with a remote team will suit you for short-term projects and in cases when you do not have an in-house development team at all. Therefore, the responsibility for managing work processes will lie on the side of the offshore company, and you will only set the right direction for the activities of your contractors.
How to Find an Outstaffing or Outsourcing Partner
If you are looking for a reliable software development partner that supports both cooperation models – outsourcing and outstaffing – feel free to contact us. Synapse Team will provide you with IT specialists with relevant experience and ensure flexible opportunities for interaction so that you receive both a high-quality product within a budget and comfortable conditions for cooperation.