Nov 6, 2023

Outstaffing vs. Outsourcing: what’s the difference?

Dive into a detailed analysis comparing outstaffing and outsourcing, revealing their individual strengths

Knowing when to choose outstaffing or outsourcing is essential, especially when considering the potential risks of choosing the wrong method. For instance, in 2013, Target experienced a data breach that compromised the personal and financial information of millions of customers and had to pay 18.5 million dollars in a settlement. It was later revealed that the breach was caused by a vulnerability in a third-party software that was outsourced by the company. 

This incident highlights the importance of carefully deciding when to outsource or outstaff and most importantly, selecting the right partners. However, that said, there is no doubt, outstaffing and outsourcing are immensely beneficial, with McKinsey & Company estimating the global market value for both at $900 billion to $1 trillion per year. 

In this blog, our goal is to help you explore those differences and their advantages and disadvantages in more detail. Read on to discover how outstaffing stacks up against outsourcing. What are the differences between the two, and when should you choose remote staffing or outsourcing? Let’s find out!

Advantages of outstaffing

Outstaffing is popular, thanks to its flexible remote working culture that is now embraced by nearly 75 million employees in the US alone. What's more, job openings for remote positions increased by over 350% in the last two years, showing a high demand for remote staffing. Here are the following advantages of outstaffing.

100% control over the project

Employees hired under the outstaffing model integrate with your existing team and can work autonomously or as an extension. Whichever option, you're entirely in charge of creating and defining workflows, choosing tools and technologies, as well as monitoring progress. This gives you complete control over the project, ensuring its completion matches your needs and expectations.

The time-zone difference benefit

You can hire remote staff members in multiple locations and take advantage of the time-zone difference to set up 24/7 business operations. With a wider talent pool to recruit from, you can find workers who fit in your organization's culture and deliver the same quality results as your in-house team, regardless of the geographical barrier.

Access to skilled professionals

IT-driven companies often turn to outstaffing to hire skilled talents that are otherwise expensive to employ on a full-time basis. This allows you to build the best-in-class solutions or deliver a high-standard level of experience just like giant corporations. In the long haul, it presents opportunities for growth and overseas expansion.

Easy to change the scope of work or scale the team

There are no one-time contract obligations in outstaffing, giving you greater flexibility to change the scope of work or scale the team’s output to match the foregoing market demand. Similarly, you can bring additional skilled professionals on board when the work at hand is too complex and lay them off when there are easier tasks to fulfill.

Custom client approach

Unlike traditional outsourcing, where the external partner specializes in offering a niche service, outstaffing agencies take a custom-client approach for every project. This means you can find professional assistance for all your remote cooperation needs, whether it’s accounting, payroll, finance & legal support, or administrative support, to free you from the backend office routine.

Scaling your business can be challenging, but with the right team in place, it's achievable. Our outstaffing services are designed to provide you with the top-tier talent you need to take your business to the next level. As experts in the field, we understand that every business has unique requirements, which is why we take a tailored approach to our outstaffing services. If you're ready to free up your time and resources, achieve greater efficiency, access skilled professionals, enjoy custom-client approaches and benefit from 100% project control, get in touch!

Disadvantages of outstaffing

Despite becoming popular lately, outstaffing has its kickbacks as well, including:

Lack of employee motivation

Employees who work remotely can lack motivation, including unclear boundary lines, family distractions, poorly defined workflow, or even a lack of appropriate tools. Typically, this group doesn't experience the same positive synergies of physical interactions as their in-office counterparts. If unchecked, this might translate to lost focus on the job and diminished productivity in the long haul.

Recruitment challenges

The acute talent shortage is still a global challenge, with Korn Ferry forecasting over 85 million job vacancies by 2030 because there are inadequate professionals to fill them. This trend means that hiring temporarily through outstaffing can also be an uphill task, especially if you're looking for highly skilled professionals who are in high demand, such as data engineers.

Hidden costs can arise

Just like outsourcing, outstaffing can feature hidden costs that may go beyond your initial budget. For instance, if you're paying remote employees an hourly rate, you might be forced to pay overtime whenever they work outside business hours. At the same time, the hourly or monthly can change with the prevailing economic situation or when a new employee is hired as a replacement for someone who just left.

What is outsourcing?

Outsourcing entails using external organization resources to fulfill an IT role or project. Typically, organizations can outsource the project partially or wholly to a company, virtual assistant, or independent freelancer. Whichever option, the outsourcing partner will get the job done but has no direct employment relationship with your company. 

It’s also worth noting that outsourcing may not necessarily involve remote developers. Although rare in the current IT business landscape, the strategy might include outsourcing an entire IT operation to a third party, who might bring their employees to work from your premises. To date, over 94% of organizations are leveraging some form of IT outsourcing to fulfill tasks that were originally dedicated to internal departments. 

Advantages of outsourcing

Outsourcing is continually gaining traction in both small and giant organizations, with recent statistics forecasting the global expenditure on outsourced business processes at $212 billion in 2023. This figure represents a 19% increase compared to 2019’s expenditure, likely due to the following advantages:

A variety of outsourcing options to match your needs

There are up to four types of outsourcing to pick from, depending on your business needs. They include:

• IT outsourcing: you can outsource several IT functions to an external service provider, including app design and prototyping, software development, systems licensing & maintenance, or data security and compliance.

• Project outsourcing: besides outsourcing specific business functions, you can also hire a third party to handle your workload on a project basis. For instance, the agency can handle the whole digital marketing campaign or build your software from scratch.

• Multi-sourcing: this involves partnering with multiple service providers to facilitate various business processes, especially functions that require varying IT infrastructure and operations.

• Professional sourcing: you can also outsource professional services to external companies, such as brand awareness, marketing, public relations, or accounting. 

Initial low investment cost

The cost-saving benefits of outsourcing include the ability to control project costs because you'll pay a fixed price at the start of the project. This can help you plan wisely and free capital for investment in other core business areas, such as marketing and customer service.

Greater flexibility

Outsourcing offers more flexibility as your service provider assumes the management role to ensure the work is executed as agreed. Moreover, you can always switch to another partner because outsourcing partnerships don't necessarily include upfront employer relationship commitment.

Access to global resources

The main factor that drives small businesses to outsource their projects includes access to global-leading tools, technologies, and skilled talents to compete favorably with well-staffed giant organizations. Moreover, outsourcing IT roles to partners in different time zones can help you serve clients around the clock.

Faster delivery

Reputable service providers can finish your projects on time, delivering faster results to reduce the time to market of your products. This helps you launch faster while the market niche is still lucrative and acquire a bigger share. 

With the global expenditure on outsourced business processes projected to reach  $525 billion by 2030, there's never been a better time to explore the benefits of outsourcing. Our company offers a range of outsourcing solutions, from multi-sourcing to professional sourcing, to help you achieve your business goals.

Potential challenges of outsourcing

While outsourcing has many benefits, there are also some challenges to consider:

Additional expenses

Although 59% of companies turn to outsourcing to cut costs, there may be hidden expenses, such as transition and management costs that can quickly add up. However, with careful planning and clear communication, these expenses can be minimized.

Reliance on third-party providers

A recent study by Deloitte shows that 48% of organizations are hesitant to embrace outsourcing as they fear overdependence on external companies. In the event of an outage or other service disruption, this could result in downtime for your business. However, with proper due diligence and selecting a reputable outsourcing partner, this risk can be easily mitigated.

Ensuring cultural alignment

When outsourcing to a different country or culture, it can be challenging to ensure that the service provider is aligned with your company's culture and values. However, with effective communication and building a strong partnership, this challenge can be overcome.

At Flawless Group, we offer oustaffing solutions that address these challenges by providing a dedicated team of skilled professionals who work closely with our clients to ensure clear communication, cultural alignment and reliable performance.

Differences between outstaffing and outsourcing

The biggest difference between outstaffing and outsourcing is found in the following parameters:

Management responsibilities

In outstaffing, the client is responsible for overseeing the day-to-day management of the remote team. This includes assigning tasks, paying bonuses, and even motivating the staff. Contrastingly, an outsourcing vendor assumes all management responsibilities and you never interact with the employees handling your tasks.

Working environment

Outstaffing is purely remote, employees can join your workforce from any part of the world. They can be working from home, a shared office space, or multiple locations—whichever works for both of you. On the other hand, as mentioned earlier, outsourcing doesn’t have to be necessarily remote and can include the vendor bringing in external employees to work from your office premises.

The cost benefits

While outsourcing is generally inexpensive when small projects are involved, outstaffing comes with greater cost flexibility. This is because it doesn't follow the contract-type engagement structure, and you can always scale or downscale your team to match the foregoing budget. Quite the opposite in outsourcing; the vendor will require you to make an upfront commitment.

Work culture

Remote staffing gives you the advantage of incorporating the existing company culture into the newly hired team. This means you can be as selective as you want, ensuring that you work with value-matched employees only. However, outsourcing gives you less control over the project you can’t inculcate the company culture among the vendor’s staff.

Turnaround time

Working with an outsourcing vendor means you have to wait for them until they complete the project before inspecting it. This can translate to wasted time, especially if there is a back-and-forth to rectify errors. Outstaffing, on the other hand, can guarantee you faster turnaround timeframes because you're completely in charge of the project to hold everyone accountable.

When to choose outstaffing

Here is when to choose outstaffing over outsourcing:

If you have internal resources to manage remote staff

Having complete control of your project comes at the cost of expensive management costs. For instance, you'll need to invest in project management software and remote collaboration tools, especially if you want access to the employees without necessarily going through the primary command line.

If you want to save employment costs

One of the advantages of outstaffing, when compared to outsourcing, is that it can help you save employment costs, especially if you recruit from developing countries like Ukraine, Poland and Bulgaria. This is because living standards in these countries are low to moderate, allowing workers to charge relatively affordable rates.

If you have experience with the remote working culture

Have you successfully managed remote employees before and achieved the set deliverables? If your answer to this question is yes, outstaffing might work better and more efficiently for you. Your experience will keep employee motivation at peak levels at all times during business hours. 

Flawless Group offers its own outstaffing services. Get in touch with our team to explore your outsourcing options and take your business to the next level.

When to choose outsourcing

Here is when to consider outsourcing:

If you have an extra budget allocation

Outsourcing can be excellent for ramping up productivity, but it can work best for you if you consider additional hidden expenses that might come your way, especially if it's a fixed-price project. Moreover, you also need extra money just in case the current vendor fails to deliver and you’re forced to look for another one.

If you have the flexibility to take risks

The risks involved in outsourcing are high as opposed to outstaffing. You should only take this strategy if you're comfortable letting a third party take control of your project. With that in mind, you might only want to outsource simpler tasks like software development and not core business functions, such as customer management.

If you want to enhance IT output without internal interference

Unlike outstaffing, your outsourcing vendor assumes project management responsibility from the start, whether working alone or in a team. This means you can enhance IT productivity with external help without interfering with your normal business routine. The in-house staff doesn’t also have to collaborate with the vendor on outsourced projects.

Wrap up

Now that the difference between outstaffing and outsourcing is clear evaluate your organization's needs carefully to determine which option works best for your case. Factor in all the advantages and disadvantages highlighted in this guide to pick a model that adds more value to your existing workforce without introducing drastic changes. In the long haul, either model can give you a high ROI if you choose prudently.

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