#Entrepreneurship #Guides | 11 min read | Updated: 1/24/2023

Outsourcing vs Outstaffing Models: What Is the Difference and Their Pros & Cons

Updated: 1/24/2023
, Delivery Manager

Outsourcing vs outstaffing is a never-ending debate. Companies are forced to make that choice every time they need to build projects or implement a new feature.

First, companies realize the need for the services of a couple of developers, or maybe a whole team, for your software projects.

Then they think of how much they’ll have to spend hiring quality in-house developers, which is probably not the best choice.

Finally, they decide on hiring the service an offshore software development agency and get confused with a bunch of terms like software outsourcing, outstaffing, dedicated team, and others.

We will analyze the details of outsourcing vs outstaffing and explain all the terms of offshore development. You will also learn how to choose the best offshore development model to help with your projects.

Offshore Development Models

Offshore software development service, also known as outsourcing, is the process of contracting out/outsourcing software development to an external development agency outside the customer’s country, unlike onshoring, which is done in the customer’s country.

According to the National Outsourcing Association survey, cost savings (35%) and improving customers’ experience (23%) are the top reasons why companies choose to outsource.

Some misconceptions about outsourcing on the web occur because the concept of outsourcing can mean two things:

  • In its broader meaning, outsourcing is an agreement between two parties. The first party (customer) wants to hire another company (software outsourcing company) to carry out a certain activity that could have been done internally.
  • Software outsourcing service, on the other hand, has a narrower meaning. It means contracting out the whole project, not just to help with some particular tasks.

According to McKinsey, about 70% of US companies prevail in the global share of offshoring.

As it turns out, about 300,000 jobs get outsourced out of the US each year. Companies mostly outsource web development services, accounting, and marketing. It is believed that software outsourcing boosts small businesses’ efficiency and expertise.

There are three main offshore development models:

  1. Outstaffing
  2. Outsourcing
  3. Dedicated team
offshore development models

What Is Outstaffing?

Outstaffing is a type of offshore web development where a customer hires a contractor from a software outsourcing company to carry out development tasks.

It can be said that offshore developers become literally remote in-house developers for the customer’s company for the whole period of cooperation with offshore agencies.

Usually, outstaffing is best for those customers who have a solid in-house team and want to find an expert in a certain area or save some money on hiring staff. Here, the outstaff team members would be dedicated to one client. Therefore, they do not work from project to project.

This type of arrangement can work smoothly. However, you must keep your HR department informed of your outstaffing development plan. Also, make sure the engagement rules are clearly defined.

What Is Outsourcing?

Outsourcing is a type of offshore web development where a company (customer) hires another company, i.e. software outsourcing company, for contracting out the whole project scope: from planning to development and testing. This scheme of work is suitable for everyone, especially for owners of businesses that already work and brings them money, but they want to make it more digital.

With outsourcing, team management happens on the side of the offshore web development agency.

What Is a Dedicated Team?

A dedicated team model is probably the most misunderstood within outsourced development service.

A dedicated offshore team consists of two or more high-quality developers involved in the development of a particular part of the project. Unlike outstaffing, a software outsourcing company manages the developers in the hired dedicated team. And, unlike the outsource cooperation model, a dedicated team is responsible for a certain part of the development process.

The dedicated teams may become an outsourcing development model after some time. It usually happens when the client is satisfied with the quality of cooperation.

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The Difference Between Outstaffing vs Outsourcing

Well, here are the main factors where their distinction is quite clear:

Purpose

  • Outstaffing service: to find a niche developer with certain expertise for companies.
  • Outsourcing service: to build or rebuild a quality product from scratch.

Time

  • Outstaffing service: faster development start since a developer is already employed by an outsourcing agency.
  • Outsourcing service: it takes time to set the process up to speed since a software outsourcing company needs to evaluate the projects, make specifications crystal clear and form the right team.

Management

  • Outstaffing service: developers are managed by a hiring company (the client).
  • Outsourcing service: a hired team is managed by an outsourced development agency.

Budget

  • Outstaffing service: generally the most budget-friendly option.
  • Outsourcing service: usually cost more than outstaffing and cheaper than in-house development.

These two models are somewhat similar. However, the main difference between outsourcing and outstaffing is that outstaffing hires experts from other firms to work on the project under the control of the business owner. On the other hand, outsourcing passes the web development process to a third firm.

Pros and Cons: Outstaffing vs Outsourcing

Now, let us talk about the advantages and disadvantages to work with outsourcing and outstaffing service models.

Pros and Cons of Outstaffing

Pros of Outstaffing

Outstaffing software development service is compared to freelancing. However, it is much more similar to in-house development. The reason is that, within the outstaffing model, hired developers are fully managed by a client as they would be managed as a staff. The client basically hires outstaff developers for the needed time.

Full Control Over The Development Process

With the outstaffing service model, you are in charge of managing the development process. You decide on the tasks your team is working on, schedule those tasks, and manage all the development activities.

Easily Track The Results

You’ll have direct access to the executed work and assess the work of your offshore developers.

Cheaper Than In-House

Hiring the best outstaff developers is basically the same as hiring a new staff to work for you, except for lower rates and savings on recruiting expenses.

Flexibility

Hiring quality offshore developers for work is pretty fast. You can also replace them and end up your cooperation when their work is done.

Cons of Outstaffing

While outstaffing your work can effectively solve your business goals, it has its own risks and drawbacks.

Responsibility For Management

Managing a remote worker can be both an advantage and a disadvantage. With the skills to handle a remote developer, managing quality web developers is a plus. But if you’ve never been in the shoes of a project manager, then it can be viewed as a disadvantage.

Risk of Instability

This is mainly the risk of losing your best developers. Thus when hiring an outstaff agency, it is worth drawing attention to the working environment in these agencies. The more benefits that agencies provide, the more chances your developer will not leave the company (and your projects with it).

Responsibility For Choosing Developers

Hiring benefits your company since you can hand-pick quality developers. On the other hand, if you lack a technical background or don’t have a CTO who can help you out, then choosing the right developer may be an issue. In this case, the outsourcing development model may be a better choice.

Risks of Poor Planning

Being responsible for the management, you are also responsible for the whole planning process. Quite often, those who have never evaluated and planned their work can’t correctly establish a software building process.

Pros of Software Outsourcing

There are lots of reasons why companies may choose to outsource a particular task, job, or process. For example, some of the recognized benefits of outsourcing include:

Pros and Cons of outsourcing

All-Inclusive

You will get a whole project from scratch. Hiring a software outsourcing company will fully evaluate your demands, wishes, and budget and will make your project idea a reality.

No Need To Take Care Choosing Developers

A software outsourcing company forms the team on its own. That being said, if a customer has preferences, they can always influence team formation.

No Management Headache

You won’t have to take care of the management. The agency will do it for you. This will reduce the workload of in-house employees, giving them time to work on other company projects.

Commitment To the Result

A remote team is focused on finishing the task and giving you the best quality. On the other hand, outsourcing is devoted to the final results. This is the reason why outsourcing companies pay so much attention to figuring out the project goals and conducting a discovery phase.

Better Communication Within the Team

Your projects probably won’t be the first your team is working on together. This certainly increases the chance that the development process will go smoothly.

Cons of Outsourcing

Hiring an outsourcing development team involves giving a third-party direct control over a business function or process. As such, it comes with certain risks. For example, when outsourcing, you may experience problems with:

Limited Control

With the outsourcing development model, you won’t have to manage your development, but you also won’t be able to control it and track every step fully.

Limited Access To The Codebase

Once you sign an NDA, the rights for the code written become yours. However, during the building phase, you won’t have much access to the code. This is because the software outsourcing company needs to secure it against possible data theft. Normally you will be presented with demos of what has been done during a certain timeframe.

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Common Misconceptions about Outstaffing and Outsourcing

Over 12 years of our work, we have heard a lot of misconceptions concerning software outsourcing and outstaffing cooperation models. Here are some myths about outstaffing and outsourcing:

Offshore Development Models Are All The Same

Many people believe that there is no distinction between offshore outstaffing and outsourcing development models. However, the chosen model may significantly impact your projects. The main difference is that, with software outsourcing service, the team and project management happens on the vendor side, whereas outstaffing requires the client to manage developers on their own.

Offshore Agency Manages Developers

In fact, the client is responsible for keeping track of assigned tasks, managing the progress, communicating with a developer or a team of developers, and accounting.

No Actual Communication is Required

The remote developer is a part of your development team. This means communication will be vital for both sides. In fact, more communication is needed because most of the teams are working remotely.

Outstaffing Is Easy

Some people are gifted with either technical or managing skills. Nevertheless, entrepreneurs underestimate the complexity of hiring an outstaff team. They believe that they’ll be able to communicate, manage and assign tasks to the remote staff, and manage their business at the same time.

Every Outsourcing Company Has An Expertise

When clients come to a software outsourcing company, they expect a certain level of expertise and service. However, not every software outsourcing company has it. So, in order not to fall into this trap, test-drive a team, get feedback from their previous customers, and view their former projects.

There Is No Need To Take Part In Development 

With outsourcing service, the project development falls on the shoulders of the outsourcing agency. However, it shouldn’t be the reason to abandon the projects. The development team still requires guidance in terms of the client’s business model, their long- and short-term goals, and features prioritization.

When and Which Model of Offshore Development to Choose

There are a number of factors to take into account when making your best choice:

When and Which Model of Offshore Development to Choose

Type of Problem

The type of offshore development highly depends on your project needs. If your team is having trouble solving a couple of tasks, then outstaffing is preferable. Also, it is the best choice when planning to build a project from scratch.

Task Scope

The task scope highly correlates with the type of problem you want to solve. So, if the lists of tasks go, it becomes clear it’s not a one-person job. That’s why software outsourcing would be better – timewise. You should hire a person to simply support your project. This means you only assign the tasks one by one. In this case, outstaffing is the better option.

Time

There is a big misconception going around about offshoring. A lot of people believe that offshoring is only for short-term tasks. Well, that’s obviously not true.

A remote developer or a team can start working on the project almost right away. However, software outsourcing will require additional preparation. 

Money

Outstaffing involves fewer qualified people and, therefore, fewer cost. This is an important factor because cost is one of the main reasons why people decide to outstaff or outsource their work.

With all that having been said, the report of the National Outsourcing Association states that respondents progress more quickly with offshoring.

Places to Find Offshore Development

One of the main reasons why companies choose the offshore development service is to reduce cost on development. This is especially relevant for countries with high development cost.

Where to outsource

Source: CleverRoad, Daxx, Sloboda Studio, Upwork, IT Work, Clutch

East Europe

  • Lower cost compared to other countries
  • A talented pool of developers
  • Convenient time zone
  • Many outsourcing and outstaffing agencies

There are other places for hiring remote developers:

Asia and India

Hiring from Asia and India offers lower cost for outsourcing software development. However, there is a higher risk of sloppy coding.

Conclusion

To sum up, there are three main offshore development models: outstaffing, outsourcing, and dedicated teams. They are an extension of outstaffing and lie in the middle of outstaffing and outsourcing.

The main differences between software outsourcing and outstaffing are the scope of the project and the side responsible for the management of development activities.

When hiring the right offshore development team for your project, we highly recommend considering your project goals and specificities and realistically assessing your ability to manage the development process.

Frequently Asked Questions

What is outsourcing?

Outsourcing is the process of delegating business processes to an external provider or a third party. In IT, outsourcing uses third-party service providers to build from scratch. That is from planning to development and testing.

What is outstaffing?

Outstaffing is an offshore development model where the client hires a contractor from a software outsourcing firm to carry out development tasks. The employee works full-time on their project but is paid by the third-party company.

What is a dedicated team?

The third-party company provides the client with a team of the most skilled and self-managed experts suitable for their IT project. They will integrate seamlessly into your IT department, master your business process, and invest all their time and resources to ensure your project is successful.

What is the difference between outsourcing and outstaffing?

The main difference between outsourcing and outstaffing is that outsourcing refers to the entire project support, while outstaffing provides hiring and maintenance of experts.

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