Out-Staffing Vs. Outsourcing: Is There A Better Approach?
Outsourcing as a concept took off sometime during the 1990s when the digital revolution enabled client companies to waive off their software development projects to service providers who would then realize it internally. Primarily, the clients can choose a fixed cost per project which is agreed upon a mutually agreed deadline (Fixed Cost Project model). Otherwise, they can also hire developers from a staffing agency who would be managed by the client’s internal teams. Outsourcing is primarily associated with the Fixed Cost Project model, whereas out-staffing is associated with the Full-Time Equivalent model. Both the models have pros and cons, but the success of its implementation depends upon your project and staffing requirements.
Here is a quick comparison between the outsourcing and out-staffing models.
What’s outsourcing all about?
In an outsourcing scenario, a particular project (e.g. Software development) is dished out to a service provider, who remains responsible for execution and delivery. The service provider is responsible for the successful completion of only the project. The provider manages the end to end execution, and can also hire talent if required. Apart from that, the client doesn’t need to take any added responsibility to complete it. This allows the client to focus on core business activities and delegate specific project(s) to the chosen service provider(s).
- Talent Acquisition responsibilities are taken care of by the service provider.
- Eliminates overhead costs associated with the completion of the project.
- A client does not have to manage the project or the service provider’s team.
- Client loses quality control of the project.
- Communication with the development team is not direct and lucid.
- Pain points may not be communicated with the offshore team accurately.
- Costs can soar if additional projects are added along the way.
Case study: A manufacturing company based in New York City intended to launch a mobile application to manage its field staff. The company outsourced the project to a client based in India. While the quality of the application was excellent, the company realized that it needed IoT sensor integration as well. The service provider agreed, but this resulted in additional fees to the client.
What went wrong?
This scenario could have been avoided through transparent and ease of communication between the client and the service provider.
Lesson: The outsourcing model is great for simple single one-off projects. With more complex projects on the sleeves, a more flexible model is required.
How is out-staffing different from outsourcing?
In an out-staffing model, remote workers who are employed by another company are recruited temporarily to perform certain tasks. The external agency acts as the employer of the remote team and is responsible for their salaries, bonuses, and equipment etc. The client provides and manages the assignment directly. This is a great model to choose when the client company has begun a project and requires specific assistance from professionals with certain skills that are not available in-house. Herein, lies the advantage because you can hire a top level talent for a fraction of the full-time hire. Additionally, the client company’s managers oversee project management and completion.
- This model is perfect for ongoing projects.
- Specific skills that are required only for a short duration could be hired based on specific projects. Direct access and control of remote workers either onsite or offshore.
- Client bears the management responsibilities.
- Communication channels need to be of high quality and transparent.
- Deliverables are the client’s onus.
Case study: A San Francisco Bay Area software company required to execute Python-based projects. Unable to acquire in-house talents, they decide to hire two skilled Python developers from an out-staffing company. While the projects were completed in time satisfactorily, the company realized it needed to complete more projects in other newer technologies such as Kotlin. This resulted in the client having to hire more remote workers from a different out-staffing agency.
What went wrong?
Hiring multiple remote workers could have been avoided if the client company hired from the same agency and paid for the development time, rather than for the number of workers. The client also didn’t receive the necessary guidance.
Lesson: Out-staffing model is suited for a large IT company that already has well-defined processes and management but is looking for specific skills temporarily. It is not suitable for companies with dynamic requirements.
What a flexible model looks like?
A flexible model combines the outsourcing model with out-staffing services and adds IT consultancy to the mix. Most outsourcing and out-staffing models fail because consulting is often ignored and the fact that project requirements change along the way is taken for granted. Software development and digital requirements are always dynamic and cherry picking projects and remote workers can both prove to be expensive.
Dedicated hiring is a flexible and dynamic solution that erases constraints placed by traditional models such as outsourcing and out-staffing. It combines the advantages of traditional project outsourcing and remote workers with that of consultancy so that businesses only pay for skills used and services rendered. Most importantly, businesses do not have to squander temporal and financial resources on multiple project outsourcing and parallel remote hiring.
Advantages of a flexible model
- As project requirements and skill demands can widely oscillate, a flexible model is leaner and cost-effective
- Such a model gives the client company access to developers, designers, digital marketing consultants, security experts, project managers, ScrumMasters, etc.
- It also stresses on the importance of an agile framework, which helps businesses to scale down or scale up depending on their evolving needs.
Dedicated hiring can be understood as an amalgamation of the benefits of outsourcing and out-staffing models with added benefits of IT consultancy. This is a flexible model that allows businesses to manage projects the way they want while having access to a multi-disciplinary team of IT professionals and consultants.
- The traditional outsourcing model focuses on project completion by an external service provider
- Out-staffing model focuses on hiring remote workers to fill specific gaps temporarily
- Dedicated hiring addresses the pain points associated with outsourcing and out-staffing models, and underscores the importance of a collaborative and agile approach
What are your business requirements?
Whether the traditional outsourcing model suits your needs better or the out-staffing model is designed for your success is something that depends on your business requirements. If you have a one-time project that needs to be completed, choosing the traditional outsourcing model is a good idea. If you already have a project that has been started but you need external assistance temporarily, you could go the out-staffing way.
However, business requirements often change and client needs are dynamic in nature. A flexible model combines the advantages of both traditional outsourcing and out-staffing. Professional IT consulting helps you assess your changing needs and mend your outsourcing contract in a flexible manner so that you don’t feel restrained by a single model.
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