Outsourcing and outstaffing are two popular workforce solutions, but they have some key differences. Understanding these differences can help businesses pick the right model for their needs. This article examines the pros and cons of outsourcing versus outstaffing to help you decide which is better for your company.
Table of Contents
What is Outstaffing?
Outstaffing involves temporarily “borrowing” specialists from an outstaffing agency to work on your projects under your management. Outstaffers integrate into your team to fill gaps in skills or capacity.
Common types of outstaffing include:
- IT Outstaffing - Programmers, developers, QA testers
- Marketing Outstaffing - PPC, SEO, email marketing experts
- Administrative Outstaffing - Virtual assistants, data entry clerks
You directly manage the outstaffers day-to-day as you would your employees. The outstaffing company handles recruitment, salaries, benefits and taxes for the outstaffers.
Key outstaffing benefits:
- Control - Manage outstaffers directly, like your employees
- Specialization - Fill skills gaps quickly as needs evolve
- Cultural fit - Outstaffers integrate into your workplace
- Flexibility - Scale up and down faster than hiring/firing
Downsides of outstaffing:
- Price - Higher cost than offshoring full teams
- Administration - Legal compliance complexity
- Talent pool - Limited to outstaffing the company’s network
- Temporary - Outstaffers still tied to a vendor
Outstaffing companies like the one you can find at this link, https://academysmart.com/services/it-outstaffing/, provide more control over delivery with less scalability than outsourcing. They’re ideal for filling short-term or evolving project needs.
What is Outsourcing?
Outsourcing refers to hiring an external company, usually overseas, to handle certain business processes or functions. Commonly outsourced services include:
- IT services like software development, testing, support
- Call center operations
- Administrative tasks like data entry or billing
The outsourcing provider is responsible for managing their staffing, infrastructure, and processes to deliver the services you’ve contracted them for.
Key benefits of outsourcing:
- Cost savings - Labor and operational costs are often cheaper with overseas providers
- Focus - Frees your staff to focus on core competencies
- Flexibility - Scale services up and down as needed
- Specialized expertise - Access skills your business lacks
Downsides of outsourcing:
- Quality control - More effort to manage delivery and quality
- Turnover - Lack of direct control over staff retention
- Communication - Language and cultural barriers to overcome
- Hidden costs - Travel vendor management add up
Overall, outsourcing trades control for cost efficiency and flexibility. It works best for supplementary services.
Key Differences: Outsourcing vs Outstaffing
| Parameter | Outsourcing | Outstaffing |
| Ownership of delivery | External partner | Your company |
| Location of talent | Overseas (usually) | Domestic or nearshore |
| Pricing model | Fixed fee or time & material | Hourly rate per outstaffer |
| Flexibility to scale | High | Medium |
| Control over delivery | Low | High |
| Talent continuity | Low | Medium |
| Cultural alignment | Low | Higher |
In short:
- Outsourcing minimizes costs, but the tradeoff is lower control
- Outstaffing provides more control and continuity but at a higher price
When to Outsource vs Outstaff
In a McKinsey study, 87% of participants stated that they either anticipate or are currently experiencing gaps in their IT teams as early as 2020 as a result of recruitment bottlenecks. This leads them to choose between outsourcing and outstaffing.
The best option depends greatly on your specific needs and constraints. Some guidelines on when to choose outsourcing or outstaffing:
Outsourcing tends to work better when:
- Cost is the primary driver
- You have clearly defined processes to hand off
- Flexibility to scale services up and down is needed
- Services are supplementary to core business
For example, outsourcing may work well for a small retail business that wants to minimize the costs of order fulfillment. Outsourcing order processing, shipping and customer service allows the business to focus on product development and inventory management while still providing decent support services. The ability to flexibly scale support staff and systems to match order volumes makes outsourcing a good fit.
Outstaffing tends to work better when:
- You want direct control over the delivery
- Specialized skills are needed for core activities
- A cultural fit and onsite collaboration are beneficial
- Workloads are variable or have evolving needs
For instance, a software startup needing to expand programming capacity for a new product quickly would benefit more from outstaffing. Bringing on outstaffed developers integrated into the product team allows for close collaboration and management. It provides the specialized skills needed for core product development without the long hiring ramp-up. Outstaffing fits better for this variable workload requiring cultural alignment.
Additionally, outstaffing can work well when companies need to cover for employee leave or vacancies. Rather than over-hire full-time, businesses can fill gaps in capacity by outstaffing specialists for defined periods. This provides flexibility to experiment with new roles as well. For example, outstaffing a data scientist for 6 months before deciding to hire a full-time equivalent.
For many companies, a blended model makes the most sense. Outsource for stable back-office services while outstaffing for specialized project-based needs. The split depends on the mix of fixed versus variable workloads and the share of supplementary versus core activities. However, properly balancing outsourcing and outstaffing can help optimize both savings and control.
Best Practices for Success
To maximize success with either outsourcing or outstaffing:
For outsourcing:
- Take time to define requirements, processes and metrics
- Vet providers carefully - check the track record and reviews
- Invest upfront in cultural alignment and communication
- Build strong governance for provider relationship
For outstaffing:
- Involve the hiring manager closely in screening outstaffers
- Onboard outstaffers thoroughly as if permanent employees
- Set clear objectives tied to business goals for outstaffers
- Rotate outstaffers to avoid overreliance on temporary help
Aligning objectives, maintaining visibility, and open communication are critical in either model.
Final Thoughts
The outsourcing versus outstaffing decision has major implications for budget, capacity, continuity, control and culture within your workplace. Understanding the core differences in these workforce solutions is key to picking the right approach per business needs and constraints.
Balancing cost efficiency with business alignment is crucial. The good news is that outsourcing and outstaffing models continue to evolve, with more flexibility across delivery locations and collaboration models. Mixing outsourcing where it makes sense with targeted outstaffing can help balance savings and control at an optimal level for driving business performance.