Modern businesses turn to outside vendors to handle some of their operations and projects both locally and overseas. This is especially true for custom software development where companies use vendors’ help to improve their projects’ technical capacity and boost the efficiency of their internal teams.
There are several ways to extend the capabilities of your IT staff. In most cases, you would hear a discussion around outsourcing vs outstaffing and why one is better than the other. Both can be viable options under different circumstances. But what are these circumstances and what is the difference between these modes of cooperation with software development vendors? Take a look at the following article to find out.
What is the difference between outsourcing and outstaffing?
In the outstaffing vs outsourcing discussion, it is essential to first figure out the difference between these models. Let us discuss the details of both and see which benefits they offer and what flaws they might have.
What is Outsourcing?
The choice between software outsourcing and outstaffing is one of the most important decisions you are going to make. In simple terms, outsourcing is a type of cooperation between you and your vendor where you have an idea for the project and delegate it to your software development partner. The level of your engagement in the project can be negotiated with the vendor and depend on the type of contact. You can be as involved in the project as you want. So, if you have an idea for a project but don’t have the right people, managerial experience, and domain expertise for the job in-house, outsourcing can be your best choice.
What is Outstaffing?
Outstaffing is a type of cooperation between the business and a vendor in which the latter provides team extension services to the client. When comparing outstaffing vs outsourcing, you can tell that outstaffing is a much faster way to bring some fresh talent to your team. Let’s say you already have a team of developers in-house but it is not enough to reach all the goals of your project. You need some extra talent to get the project where you need it, and that is where you make the choice between software outsourcing vs outstaffing.
In such a situation, outstaffing is a preferable option as it allows you to quickly hire the required number of people and introduce them to your team in a matter of weeks. You do not need to delegate an entire project to an outside vendor, you just need several people to reinforce your in-house team and get the project going smoothly. Let’s say you already have five developers working on your project in-house, but the project is too big and too complex for just five people to handle. In that case, you find an outstaffing vendor who offers team extension services and can give you more developers fast.
So, what does that type of cooperation mean for your business and how do you handle the outstaffing process?
The good news is that you are not an official employer for the outstaffed team members. This means that you pay money to the vendor and the vendor handles everything starting with payrolls and ending with sick leaves and days off. You bear no responsibility (in terms of contractual obligations) for these employees, all you have to think about is their input in your project. You can expand your team without having to deal with all the operational headaches.
The core differences between outsourcing and outstaffing
With the basics of the outsourcing vs outstaffing dilemma out of the way, we can get deeper into the differences between these two approaches. To draw a clear line between software outstaffing vs outsourcing, we need to break the two down by answering four major questions:
What problem are you trying to fix or which goal are you trying to achieve?
Outstaffing: the main purpose here is to fill the gaps in your in-house talent fast. Find a pre-determined number of niche experts to reinforce your existing team and achieve the project goals.
Outsourcing: find a team of developers who can build, rebuild, modernize, or rescue your project. You delegate your entire project to a team that will handle its development.
How much time do you have? (Both to start and complete the project)
Outstaffing: with outstaffing, you can hire the required number of experts fast, especially if you work with a vendor who offers a considerable talent pool. You can get new people working on your project in a matter of weeks.
Outsourcing: starting a project from scratch is usually a time-consuming process as it requires product discovery, planning, and design to even begin the development process. However, by working with a team of full-cycle developers, you can achieve the goals of your project within a reasonable timeline and your intended budget.
What’s the budget for this project, considering your needs?
Outstaffing: when pairing outstaffing vs outsourcing, the prior is a more budget-friendly option. You pay for the hours of work, just like you do with your regular employees, it’s just that your outstaffed employees work from a different location.
Outsourcing: usually costlier than outstaffing but much cheaper than in-house development. You will have to pay for the entire development process depending on the choosing pricing model.
What level of involvement do you want to have?
Outstaffing: the team is managed fully by the hiring company (the client). As a client, you’ll be managing the performance of the team as if they were your employees. However, you will not have to worry about payrolls, taxes, sick leaves, etc – all of that will be handled by the vendor.
Outsourcing: the team is managed by the company that provides software development outsourcing services.
What is in it for you?
Outstaffing: you will expand your team's capacity to deliver on project milestones with the help of external talent. You will be able to scale your team up and down at any moment, improve the retention of talent, and even get help from an external HR management team.
Outsourcing: the outsourced team will design a full roadmap for the development and implementation of the software solutions you need. You will get end-to-end solution delivery from the ideation up to the market launch and post-launch support. With the help of an experienced software development partner, you can cut the launch time, reduce the development costs, and mitigate the delivery risks.
Make the right choice: what are the pros and cons of each model?
Comparing outstaffing vs outsourcing, it is necessary to acknowledge that both options have their advantages and disadvantages. You need to keep them in mind when choosing the right option for your upcoming project. Here are the pros and cons of outsource vs outstaff:
The pros and cons of outstaffing
- Control over the development process: the outstaffed experts work as a part of your team, which means you have full control over the development process. The team reports to you and they follow your directions.
- Trackable results: you have direct access to backlogs, which means you can track the results for each sprint and see what’s been done.
- Cost-efficiency: with outstaffing, you do not have to take care of all the additional costs - accounting, taxes, fees, off-day compensations, etc. Also, you hire just the right number of people to handle the development process.
- Flexibility: you can scale your team up and down whenever you need.
- Management responsibilities: you will have to handle the development process on your own. You will require project management expertise to properly manage both in-house and remote teams.
- Risk of project instability: you need to choose a vendor who offers comfortable and sustainable conditions for the employees. Otherwise, you risk losing experts throughout the development process.
The pros and cons of outsourcing
- No management headache: you delegate your entire project to a software development company. This means that you do not need to manage the project yourself. You simply provide the vendor with precise requirements for the project and they handle the rest.
- Engagement in choosing the experts: your partner will select the best developers for the project according to the technical specifications, required team stack, and optimal team composition. Alternatively, you can participate in the selection of the team members if you like, depending on your engagement model.
- Commitment to the project goals: once the agreement is signed, a trustworthy partner will see the project finished in accordance with the SLA.
- More efficient communication within the team: if you delegate your project to a technology company, the team will be comprised of its internal staff. This means that the team will be working in the same location, which minimizes communication hiccups.
- Flexibility: similar to outstaffing, you can scale your team up and adjust it to the needs of the project. Depending on your cooperation model, this can be handled by the vendor without your direct involvement, as long as it stays within a reasonable budget.
- Limited control: you delegate the entire project to the vendor, and you will not have much control over the development process. You can oversee the progress and give your feedback to the project managers, but you won’t be able to directly control the development process.
- Limited access to codebase: in many cases, software development vendors follow their own internal best practices and code the way they see fit. As a result, it might be challenging for you to make sense of the code they have written, even if it works perfectly. To solve this problem, experienced development companies conduct knowledge transfer sessions to give you a full and precise understanding of the code.
Choosing between outsource vs outstaff, you must understand the needs of your business, and an experienced technology consulting partner can help you make the right choice for your business context. You will also have to evaluate both options before you make that decision, so let’s take a look at the opposite side of the outsourcing vs outstaffing dilemma.
Outsourcing vs outstaffing: which one is better for your project?
In the discussion around outstaffing vs outsourcing, it is necessary to understand that it is not about which one is better in general. It is about which one is better for you and your business case. Consider the following questions:
- Do you have the resources to ensure efficient management of daily operations for a vendor-employed team?
- Do you have well-established and structured internal processes to assign and follow up on the project goals?
- Is it easy to engage new experts in your internal processes and establish a fluent line of communication between external developers and your internal talent?
If the answer to at least one of these questions is no, you should consider outsourcing. It will be borderline impossible to ensure the efficient performance of the outside team if you cannot manage its performance, don’t have structured and comprehensive internal processes, or cannot ensure fluent cooperation between the teams. In such a case, you will need a convenient turnkey solution that can only be delivered by the expert software development vendor. However, if you can give a positive answer to these questions, outstaffing might be a preferable option, especially if you already have a core in-house team.
One of the most important questions for most businesses is how to achieve the best possible result without stretching the budget too much. Again, if you put outsourcing vs outstaffing, you can say that outstaffing can be a more cost-efficient option. But is it the most cost-efficient option for your business? Let’s see.
Cost efficiency on the radar: save money by making the right choice
Cost efficiency is one of the primary concerns when picking the right cooperation model with your vendor. Comparing outsourcing vs outstaffing, we can state that outstaffing is generally a cheaper option to roll with. If you need to hire just a couple of developers for the duration of a project, you pay for a couple of developers only.
You can pay either for a predetermined period of time or pay periodically as long as you need your outstaffed developers. Let’s say you know you will be needing outstaffed experts for six months; you can sign a contract, pay a negotiated price for six months of their work and finish your cooperation after that period of time. If you don’t know the exact amount of time, you can just pay on a monthly basis.
Outstaffed engineers are basically your employees. So you just pay a negotiated price to your vendor, and they handle the payroll and all the associated expenses. All the while, outstaffed engineers bring value to your business, handle essential tasks, and perform their daily duties as your in-house employees would.
You can further decrease the price of hiring and maintaining an outstaffed team by hiring overseas. This is a common practice in software outsourcing and outstaffing that allows companies based in developed countries to work with talented engineers in growing economies.
The rates might fluctuate depending on the tech stack an individual developer works with, their seniority level, and the unique skills they bring to the table. However, it is generally more cost-efficient to hire people from growing economies as it can give you a good cut on the overall project budget.
Outsourcing is more expensive: here’s why
With outsourcing, you pay the full price of development to the vendor, which might range wildly depending on a number of factors. The development timeline, the number of experts, the complexity of the project, the tech stack, and more – all of those will determine the price of your project.
Developing the whole project from scratch with the entire team of outsourced developers will be generally more expensive than augmenting your in-house team with external talent. However, outsourcing does not have to wreck your budget. There are two major pricing models usually used by software development companies:
- Fixed price. You pay a fixed price for a predetermined set of services. This model is usually used for small-scale projects that have a short list of requirements and clear goals. With such clarity comes confidence in the budgeting needs and the timeline for the project. So, you and your partner agree upon the price and timeline, and the outsourced team holds full responsibility for the project. You pay a set price and agree on the deadline and the vendor handles the rest. In this case, the vendor is solely responsible for the success of the project and can even be fined for failing to meet the acceptance criteria of the project.
- Time and material. Here you pay for the time spent and materials used to accomplish the goals of the project. This model is generally used for large projects that might have fluctuating requirements and changing scope. In such cases, it is impossible to set a fixed price for the project, so you pay throughout the development process however long it might take. Obviously, you have certain expectations and an approximate budget that you are ready to allocate to that project, so you need a reliable partner who can deliver results with respect to your budget and within a reasonable timeline.
- Dedicated team. This engagement model allows you to hire an entire team of developers that are exclusively focused on your project and your product. Unlike other models where the experts may still work on several projects over the same period of time, with a dedicated team, you have a team working on your project only. This helps with the accumulation of knowledge within the project making it the best option for the long-term project. As for the pricing, you agree upon the monthly payments with the vendor, and the budget is estimated beforehand. The budget can be up to some changes if your project scales up.
Your choice of pricing model will depend on the specifics of your project, and there is no right or wrong answer. You need to negotiate the pricing with the vendor and select a model that suits your particular project.
Software outsourcing and outstaffing with N-iX
Looking for a software outsourcing and outstaffing partner, you need to select a reliable vendor who is able to deliver results regardless of the type of cooperation you go for. You also need to be sure your partner is able to scale the scope of cooperation up by either providing additional talent to the outstaffed team or bringing in more people to the outsourced project.
N-iX is the kind of partner that excels at both types of services providing staff augmentation services as well as full-cycle software development services. Our team has been of tremendous help to Fortune 500 companies that used our team extension services and those who outsourced entire projects to our teams.
Our outstaffed experts have been working with some of our long-term partners for years bringing valuable knowledge and technology insights to the table. Being instrumental in the functioning of clients’ in-house teams, our engineers become a valuable part of their talent pool while we handle all the administrative expenses and headaches associated with employee management.
When handling full-cycle projects, we work to do all the heavy lifting for you. You have an idea for the project and we have the means to bring that idea to life. With years of experience in developing high-end software solutions leveraging a wide range of technologies, we achieve excellence in software development outsourcing services. N-iX offers you:
- 20 years of experience delivering software development and team extension services. We combine our robust business practices with operational flexibility and apply a development approach that matches your needs.
- A talent pool of 2,000+ technology experts who work with such technologies as Big Data, Machine Learning, Data Science, IoT and Embedded Software, and more.
- N-iX is more than a software vendor, we are a partner you can rely on. We are a Google Cloud Platform Partner, an AWS Advanced Consulting Partner, an SAP partner, an OpenText Services silver partner, and a Microsoft gold certified partner.
- We are a one-stop-shop software development service provider that can provide you with the talent you seek, develop an entire project from the ground up, save a troubled project, and take your product to the market within a reasonable time and budget.
- N-iX works with clients across continents providing software development services to companies in the USA, Europe, and other locations around the world.
- Our teams run 100+ active projects and deliver 50+ PoC, MVP, and Discoveries every year across such industries as manufacturing, automotive, healthcare, and telecom, to name a few.