Outstaffing vs Outsourcing — clarifying the distinctions

Today, we'll explore the differences between outstaffing and outsourcing and why they're often mixed up. This article aims to help you choose the right approach to avoid mistakes and financial losses.

Let's start with straightforward definitions to help you grasp these formats.

Outsourcing means developing software products outside the client's company, with the project management handled entirely by the service provider.

Outstaffing, on the other hand, involves developing software products where the client manages the project, and the service provider supplies the necessary IT specialists.

Difference in Approaches

Each approach has its pros and cons. If you're good at project management, you're likely to choose outstaffing. If you lack project management expertise or have a small project, outsourcing is often preferred. A client's strong project management skills can make outstaffing more cost-effective. In outstaffing, the client bears project responsibility, while in outsourcing, it lies with the service provider.

It's important to note that poor organization and ineffective team management can put project implementation at risk.

In terms of transparency and flexibility, outstaffing offers more benefits. The client has full control over the process and can adjust work as requirements change. In outsourcing, full process control is generally not possible. Also, making changes to initial requirements (specifications) in outsourcing can often be a major problem. On the other hand, outsourcing allows the client to transfer maximum responsibility for the outcome to the contractor. Of course, the contractor considers these factors when calculating the cost of work.

Choosing the Right Approach

As mentioned earlier, if you want maximum transparency and full process control, outstaffing is your choice, provided you have qualified project management specialists. For small projects or lack of project management expertise, consider outsourcing as the most suitable collaboration format.

Outstaffing, an Insider's Perspective

Some clients haven't used outstaffing in their operations and don't understand its benefits. The most common and logical question is, "Why use outstaffing when you can hire specialists in-house?"

Main Reasons to Use Outstaffing:

1. No financial and time costs for hiring.
2. Financially justified due to tax benefits for the contractor.
3. No costs for retaining and motivating specialists.
4. Ability to engage external specialists for short periods.
5. No vacations or sick leave to manage.
6. Opportunity to leverage the contractor's expertise.
7. No indirect costs (equipment, software, office space, etc.).

Additionally, rapid scaling is much easier with outstaffing, allowing a team of needed specialists to be assembled in 3-10 days, compared to 6-10 months for an in-house team.

Forced Measure or Strategic Move?

Most companies balance staff specialists and external hires to avoid dependency on external and political factors. If a company changes focus and needs to freeze a project, it's very difficult and costly to dismiss in-house specialists, whereas external specialists can be released more easily. Human factors also play a significant role; conflicts within an in-house team or an employee leaving for higher pay elsewhere can disrupt operations.

The most effective strategy is to maintain a balance between in-house and external specialists, thereby safeguarding the business from disruptions. Typically, clients apply a ratio of 50% to 50% or 60% to 40%, where 40% represents external specialists engaged in outstaffing.

When Outstaffing is Inappropriate

For small projects, outstaffing makes little sense; outsourcing is simpler. Outstaffing is typically used for large and complex projects requiring flexible approaches and serious team management.

If a client has not used outstaffing and has concerns about project management, we conduct consultations to ensure the company's processes are sound. And we can assist clients with project management, ensuring team work is cohesive and efficient.

Cost of Outstaffing and Outsourcing

The costs of these two approaches vary significantly. In outstaffing, payment is based on the time of specific specialists, while in outsourcing, it's for a turnkey project. Outsourcing includes all company risks, significantly increasing project costs. Besides the higher cost, outsourcing is inherently less transparent. This doesn't imply outsourcing is a bad collaboration format; it simply has its own specifics. Initially, it's often impossible to objectively assess all project pitfalls and risks in the technical specifications, so contractors include these risks in estimates, leading to increased hours. Outsourcing project implementation is tied to stages lasting 1-3 months, while outstaffing work is based on tasks or sprints lasting 1-10 days, providing better transparency.

In outstaffing, you see all tasks the specialist is handling, closely monitor time spent, etc. In outsourcing, you don't see the task list, as project management is handled by the partner.

Contractor Qualification

Before starting outstaffing collaboration, the contractor provides the client with resumes of available specialists. After the client selects a preferred specialist, the contractor organizes a technical interview for validation. Subsequently, the contractor ensures the adaptation of the specialist or team to the client's project, ensuring their interaction is as seamless as with in-house specialists.

I hope this article has been informative, offering a new perspective on these software development formats.

It all boils down to selecting the best outsourcing company for your company.

Giving sensitive data to an outsourcing partner in the modern digital world means having complete faith in their security procedures. Selecting the incorrect partner might expose your data.

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