Outsourcing is no longer a new concept. For more than two decades already, the pros and cons of outsourcing have been weighed and analyzed. Time and time again, the biggest issue is mismanagement. To avoid this, the responsibilities of every member of an outsourced team need to be set in stone during the first phase. A lot depends on the cooperation model chosen. The most popular models are: project based, dedicated team and outstaffing. While the project based model is the most transparent, dedicated team and outstaffing should be treated with equally precise understandings of the spectrum of responsibilities on each party.
Let’s compare these models and find out the pros and cons each model offers. Before getting started, though, we’ll come to grips with the terms.
What Is Outsourcing?
Gartner’s definition of IT outsourcing is as follows:
“IT outsourcing is the use of external service providers to effectively deliver IT-enabled business process, application service and infrastructure solutions (including utility services, software as a service and cloud-enabled outsourcing) for business outcomes.”
Outsourcing implies handing over the control for processes, services, solutions or projects to another company to execute in full.
There are several types of IT outsourcing based on the location where the outsourced work is done.
- Moving business/services overseas. Used by US and Western European companies to take advantage of lower costs and/or a more favorable economic climate
- Nearshoring. Business or services are transferred to another country close by
- Homeshoring/onshoring. Allows employees to work from home
The most commonly outsourced IT functions are:
- App/software development
- Website/app maintenance and management
- Hosting and web development
- App support or management
- Cloud computing
- Data center operations
- Technical support and telecommunications
- Database development/management
- IT infrastructure
Reasons for outsourcing are:
- Reduction of costs owing to lower labor costs, cheaper infrastructure, or an advantageous tax system in the outsourcing location.
- Accelerating time to market owing to the outsourced company’s focus on the task and eliminating unnecessary and time-consuming processes in your own company.
- Taking advantage of external expertise, assets and/or intellectual property, especially if those resources are difficult to find at your location.
- Better use of your company resources. When some tasks or business processes are delegated to a third party specializing in that particular field, your company is able to focus on its core business and in-house employees are able to focus on the tasks they do best.
In short, companies outsource to use the third-party providers' expertise in performing the outsourced tasks when a third-party provider is able to do it better, faster and cheaper than the hiring company could.
What Are the Pros of Outsourcing?
Outsourcing has been steadily gaining popularity over the years. The number of companies that outsource IT staff in the US is difficult to count, but the trend is quite clear. According to Deloitte’s data, 31% of IT services were outsourced in 2017. Sixty-four percent of Statista’s respondents outsourced software application development. The total contract value of the information technology outsourcing (ITO) market amounted to $64.3 bn, and is forecasted to grow over $409 bn by 2022.
The first and most obvious advantage of IT outsourcing is reduced expenses. IT service providers in countries with lower production costs offer outsourcing services resulting in lower costs for labor, operations, and even equipment.
The client has to make less management efforts, thus saving money (again) and time on in-house management teams.
Access to expertise and talented staff is another benefit. Outsourcing companies often have technical expertise and highly-skilled professionals which may be unavailable in your own company and can be very expensive to hire in your home country.
Time savings, thanks to established business processes and procedures in place at your outsourcing partner facility, are another great benefit.
Staffing flexibility and the ability to hire extra staff when needed is definitely a pro, as you don’t have to hire and train in-house staff for seasonal or short-term projects.
The quality of the product/solution is the vendor’s responsibility, as the outsourcing company controls the project from A to Z.
Outsourcing models, however, can produce challenges. The cons of outsourcing sometimes are closely related to its pros.
The disadvantages of outsourcing include:
- Heightened security risks due to exchange of proprietary information of sensitive data. You must carefully analyze and verify potential outsourcer partner’s security policies, measures and procedures.
- There is no direct participation/control of the development process.
- The lack of a clearly defined project scope can result in higher costs.
- Time zone differences can be a problem if an outsourcer partner is located overseas and it can hamper communication, especially between managerial teams.
- Long distances can be a problem as well, making business trips more time-consuming and expensive.
- Language and cultural barriers can also hamper communications between your in-house and outsourced teams.
What Is Outstaffing?
The term outstaffing also relates to remote work. Yet, outstaffing is different from outsourcing. When you outsource services, the outsourcer controls the project and is responsible for it, i.e. the outsourcer hires the employees necessary to realize the project and is responsible for the results and quality of their work.
Outstaffing is a remote hiring model, which allows building a team of skilled IT professionals e.g. software developers, web developers, software testers, etc., abroad with the help of third-party contractors to perform a particular task. Outstaffing companies/suppliers provide official employment, insurance, and taxation to their staff, but the quality of services rendered and personnel management is on the customer’s hands.
There several most popular models of outstaffing in IT industry, according to Outsourcing Portal International are:
- Global Team Model, or a global delivery model, which consists of both the onshore and offshore resources located at multiple locations across the globe. This model allows completing a project in a very short time due to abundant resources and work around the clock at different locations.
- Virtual Team Model consists of multiple professionals with different skills from multiple locations across the globe. The work of the team is coordinated electronically and they work on the development of projects in parts.
- Dedicated Team Model consists of the skill-specific remote resource or the team of resources that work under the control of the company that outsources its project to a third-party company.
What are the advantages of outstaffing?
- Hiring professionals without necessity to deal with usual employment routines, such as legal entity set up, insurance, taxation, etc.
- Flexible hiring models provides the possibility to increase or decrease staff depending on the tasks and the project you have.
- You have access to every member of the team and have full control over development processes.
- You can increase or decrease team members expenses and you are in charge of the payroll.
- Lower hour rates compared to other hiring models and cheaper than in-house employees.
The disadvantages of outstaffing are also related to the remote nature of the hiring model.
- Communication issues may arise due to different time zones, language and culture barriers. Thus you have to choose high-quality communication channels and control the quality of communication.
- The delivery of the product is the responsibility of the client and his team.
- Service issues at the provider’s side can hamper effective work of a remote team.
Outsourcing vs. Outstaffing Comparison – Which One Is the Best Choice for You?
Let’s compare outsourcing vs. outstaffing. What are the differences and what are the key advantages/disadvantages to pay attention to when choosing the right model for you?
The first thing you should keep in mind is whether your company is technology-focused enough to control the workflow and development process. Do you have well-established processes and management to handle the remote team? If so, outstaffing can be a good choice. If your in-house employees are not keen with technology and you don’t have appropriate management processes and procedures in place, it’s better to outsource.
|You get services of highly-skilled IT professionals having expertise in the field you need. No need to oversee the work of professionals, especially if you don’t have in-house specialists||Dedicated team of software developers that work on one project, which you control in full|
|Vendor is responsible for the project outcome and controls the effective use of their own resources||High control over remote resources|
|Charges will depend on the time spent on the project, hourly rates are usually higher than those for outstaffing||Fixed charges to the third-party supplier for the completion of the project without hidden charges|
|The time of project completion depends on how well the tasks are assigned and the project is managed||Fast completion of the project|
Irrespective of the hiring model you choose, there are key points you have to keep an eye on. Project management is always critical for successful project completion. If you choose the outsourcing model, check if your provider has appropriate procedures to manage your project. If your choice is outstaffing, be sure you have those procedures in-house. Develop a detailed project plan and follow it. Set the tasks for your team and control their completion.
If you choose an outsourcing model, the provider will ensure day-by-day management for its team of PMs complemented by the provider’s wealth of previous experience in managing the development of high-tech products, and you’ll get more time and resources for your core business processes.