Outsourcing vs. Outstaffing

Software outsourcing and outstaffing can both save your money and time spent, but how to choose which one is better and will work exactly for you?

Choosing the company, the client can have many questions in the beginning. How to choose an outsourcing company? What are the outsourcing pricing models? How to choose an outstaffing company? And finally, which one to choose: outsourcing or outstaffing?

This article was written exactly with one purpose: to disperse any doubts on this account.

Let’s start from the ground and look closer at the software development business models that exist in the business world.

Software development business models in Syndicode

As an experienced software development company, we decided to build our business by providing services in two directions:

• Custom software development
  In this model, we develop a software product for you from start to finish. The only two things you should provide us with – are your ideas and budget.
• Team extension
  This model fits startups or enterprises that usually have an in-house development team but somehow need extra developers/designers/managers/architects to complete some tasks they can’t handle themselves. And this model has two options: IT outsource and IT outstaff.

Now let’s find out more.

What is IT outsourcing?

Here we finally can make it clear what we mean when we speak about IT outsourcing companies.

The term outsourcing came from the phrase outside resourcing. It means an agreement between companies when one hires another company for a planned activity that is usually done internally, sometimes transferring its employees.

More often, we can meet IT outsourcing, that is, outsourcing of information technologies and software product maintenance. The maintenance of IT departments of large corporations requires enormous costs. To reduce them, the companies refuse the full staff of programmers and transfer some of their work to other companies, mostly abroad (offshore programming), which is much cheaper.

How it works precisely:

• In case the company that orders the service has its own staff, the head of the company, a clear structure, and policies, the staff of the company has to be trained;
• The companies providing services are only involved in certain works and are supervised by their own personnel of the customer company. The contract is on a long-term basis or temporary;
• When the outsourcing company bears all the commitments to maintain a business process system, the customer company has its own, but with a limited number of personnel solving non-essential tasks. Sometimes such staff is an employee of the company providing outsourcing services;
• When the employees of the outsourcing company are constantly in the customer’s company, they are subject to the customer’s management and may or may not report to their employer. In this case, the outsourcing company can also take part in recruiting qualified staff (outstaffing);
• There are cases when two or more outsourcing companies cooperate. If the customer company has branches in different countries of the world with a central office, information technology department, or another outsourcing company, functions can be shared locally when the local company is present only for “physical” user support, while the remote administration from another country is responsible for branch infrastructure.

IT outsourcing pros and cons

If you are reading this article, you probably want to know more about why you should choose IT outsourcing. We can give you some reasons. IT outsourcing pros:

• Increase in business profitability. Outsourcing can reduce the cost of maintaining business processes;
• All efforts on the main business. The transfer of related business processes to outsourcing will shift the focus on the core business of the company;
• Engaging other best practices. Outsourcing company specializes in a specific kind of activity and serves a large number of companies, which allows it to thoroughly understand all current issues and use their experience;
• Reliability and stability. The outsourcing company is responsible for the work performed in accordance with the service contract and current legislation;
• Scale business flexibility. With the increase or reduction of the scale of business, the enterprise needs to hire employees, to bear the costs of their training, the equipment of the workplace, to pay additional taxes, and compensation. All this takes time and additional costs and can lead to reduced business mobility and rising costs.

But of course, every strategy can have its risks. The IT outsourcing cons are:

• The threat of non-fulfillment of a confidentiality contract. The outsourcing company usually guarantees that the information is confidential, but there can always be a threat. The outsourcing company has a provision on the commercial secret of the client. The transfer of information about the client’s activity is carried out only in accordance with the current legislation;
• The human factor. This can seriously affect the level of information security and the effectiveness of the life of the customer company. The absence of a customer-company director of information technology and infrastructure policy, planning, and budget planning may not be good. In some cases, there is a psychological impact on people who service the system – because of the fear of losing the customer;
• The efficiency of performing infrastructure maintenance operations can’t always be controlled;
• The cost of outsourcing can often be higher than the cost of keeping records by internal employees;
• Possibility of outsourcing company’s bankruptcy. Like any company, an outsourcing company could potentially go bankrupt, causing additional problems in finding another outsourcing company and transferring it to all businesses.
• Different time zones. This can be a barrier to coordination with the hiring company.

All of those drawbacks can be eliminated by hiring a company that has proven its reliability and quality by numerous projects and many years of experience. It’s a shameless promo, but we talk about Syndicode.

What is IT outstaffing?

Here we came to the next notion that we are going to explain. What is an IT oustaffing company, and why should you consider it an option for your business?

Outstaffing is a type of business model in which a hired person is responsible for all the job duties of a company being officially employed by another company (outsourcing agency). The latter is an employer that decides on the wages, bonuses, and equipment, while a client company sets tasks and assignments.

There are a number of reasons why organizations start using IT outstaffing:

• There are strict limits on the number of staff, and you can’t increase it.
• If it is necessary to reduce the number of the company’s staff, while not losing the number of employees working in it.
• The contracting authority plans to start a business in another country but doesn’t want to register a legal entity.
• There is a project by the end of which the employee’s services will no longer be required.
• There is a need for the urgent replacement of an employee who has gone on long-term leave (for example, maternity or sabbatical leave).
• The contracting authority wants to reduce the administrative costs of personnel office work and costs related to the calculations and payments of salaries.

There are several types of it outstaffing you need to remember while choosing:

1. Leasing staff. In this case, contractual relations arise between the contracting authority and the implementing organization for a period of more than three months.
2. Temporary staffing. The need for temporary staffing arises when there is a temporary project of 1 week to 3 months periods. It may also be necessary to replace a full-time employee temporarily.

IT oustaffing advantages and disadvantages

Of course, IT oustaffing has its advantages:

• It can reduce the taxes on salaries and taxes on income.
• IT outstaffing reduces the number of staff, which will reduce HR managers’ responsibilities.
• It allows you to monitor the quantitative indicators of employees in the company.
• You can hire great professionals without paying high prices and taxes;
• You obtain flexibility in increasing or decreasing the number of employees you hire;
• You can fully control the software development process as well as have access to any of the team members.

But no business model is perfect, so IT outstaffing has its disadvantages as well:

• The communication process should be on a high level. Otherwise, there can be problems and difficulties;
• Only the client and his team are responsible for delivery issues.

In case you hire Syndicode to help you with outstaffing – we cover all the risks. Personnel provided by Syndicode is always highly skilled and responsible – this is our task to leave you with no reasons to worry about.

Outsourcing vs. outstaffing models comparison

Let’s make some comparisons of the two software development business models we have described above:

• Organization of work.
  • Specialists working under an outsourcing contract have a flexible schedule and work on their territory.
  • By performing work under the outstaffing contract, employees are subject to the customer’s employment schedule, usually have their jobs on the customer’s premises, and have job descriptions.
• Payment.
  • Under the contract of outsourcing, payment is received when the project is done,
  • under the contract of outstaffing, employees receive a monthly salary.
• Contract.
  If we talk about the legislation of Ukraine, it does not provide a clear definition of either outsourcing or outstaffing and does not contain norms governing this relationship.
  • Generally, outsourcing is a long-term relationship between companies for a period of 1 year or more.
  • In the case of outstaffing, it can be a contract for a term necessary for the performance of certain works.
• Interaction with the customer.
  • Collaboration under an outsourcing contract is almost always carried out according to the same principle: the customer transfers a certain business process to a outsourcer company.
  • In the outstaffing model there are usually two options for interaction with the customer:
    • the outstaffer company provides its qualified employees for the temporary use of the customer company;
    • the customer company releases its employees, and the outstaffer company counts them as their staff. So, they are listed in the outstaffer company but continue to work in the customer company and perform their usual responsibilities.
• Communication.
  • In outstaffing you are more involved in the process and know all the developers in person, you can build long-term relationships with them.
  • In outsourcing, you do not have free resources and time for that.

Both Ruby on Rails software outstaffing and outsourcing are provided at Syndicode since 2014. There are many reasons why we choose Rails as our core technology. But throughout years and projects, it proved its relevance and efficiency.

What to choose in your case?

Syndicode provides the next services in outsourcing/outstaffing

1. Software development
2. Design
3. Management

You set requirements for a dedicated software development team and talk to us to hire. Also, we can consult you on optimal software project team size and the skills needed for your project. Syndicode can help you:
– to meet the deadline quietly with an extra dedicated developer or a whole remote team;
– to find an expert for a specific task or project;
– to delegate tasks;
– to reduce costs or quantity of personnel.

When you hire Syndicode (no matter outsourcing or outstaffing), we cover all the risks regarding:

1. taxes,
2. legal issues,
3. payroll,
4. hiring,
5. office rent for the devs team, etc.

Software outsourcing, as well as outstaffing, can be a great choice in terms of software quality and the costs involved. And Syndicode will help you to be ahead of the pack! Read about our dedicated software development team, and you will have no doubts!