person holding a computer mouse in a room

Every year more and more employers resort to outsourcing and outstaffing. Despite their widespread use, these concepts are often confused. It is time to understand the terminology and highlight the similarities, differences, pros, and cons of each of the management models.

Both of these terms, which came to us from the English language, imply work with a third-party contractor, as evidenced by their common root out – “outside,” “outside.” However, there are significant differences between these models.

Outsourcing (from the English outside resourcing – “external source”) is the practice of transferring tasks and functions by a company to a contractor specializing in a particular field of activity.

You resort to outsourcing the personnel of another company, delegating certain tasks to them, and concluding a contract for the provision of services, thereby getting rid of the problem of equipping workplaces and paying taxes and insurance. Moreover, the salary for personnel outsourcing services is often lower than the salary of full-time employees.

The main advantages of outsourcing:

  • Reduced efforts to find, hire and manage staff.
  • Reducing the cost of equipping workplaces.
  • Unloading payroll and tax cuts.
  • Replacing existing staff during vacations and decrees.
  • The attraction of additional resources for seasonal work.
  • Quick start of tasks.

The disadvantages of outsourcing can be problems with communication when working remotely, the difference in time zones, and the risk of leakage of corporate data. That is why it is important to seek services from reliable and trusted performers.

Outstaffing (from the English. out – “outside,” staff – “staff,” “staff”) – a form of relationship between an employee and an employer, which allows the employer to legally attract labor without registering employees to his staff.

In other words, the outstaffing service implies the removal of personnel from the state and the transfer of authority for personnel administration to the contractor. At the same time, in fact, employees continue to work at their workplace and perform their previous functions, but the obligations of the employer are officially transferred to a third-party outstaffing company.

Benefits of outstaffing:

  • Simplified personnel management system, elimination of legal problems when working with foreigners.
  • Elimination of the need to deal with financial issues.
  • Reduced payroll and tax costs.

When outstaffing, companies enter into an agreement on the provision of personnel. In this case, the customer pays for specific specialists for a specific workplace. So, you can find an outstaffer seller who will stand at the checkout in the employer’s store. It is more important here not how many clients the employee will serve but how many hours and days a week he will be busy with business.

The choice of a contractor in IT is highly dependent on many factors: the complexity and bureaucracy of the customer and the procurement department; a team that will deal with the project from the client’s side; the product and the conditions under which it will be developed. Based on my experience of developing web and mobile applications, I have identified the key points that affect the choice of vendor.

As a customer, you must understand what you want to get from the contractor: the fulfillment of wishes or the solution to specific business problems. Do you need performers who can write code and draw designs? Or do you need a team that understands the specifics of your industry and is ready to get involved in the product to solve problems? The answer to this question will determine what to look for when choosing a contractor.

The second key point in choosing a vendor is the budget that the customer is willing to spend on the production of the product. The level of competence of the contractor depends on it.

If you are looking for a contractor, then your own team must have sufficient competencies in Django development services and design, as well as understand the characteristics of the market and see the next steps of the product roadmap. In this particular situation, an outstaff is suitable: this way, you speed up development by increasing tasks in a sprint.

If you are looking for a partner who will be involved in the product and worry about business performance, you should choose more carefully.

Try to feel how deeply the vendor understands the specifics of your business. They may not know all the subtleties and features of the industry, but they should strive for this. Therefore, one of the factors when choosing is a focus on specific industries. If the contractor has a specialization, he has a deeper understanding of the industry, the needs of the business, and the users.

Which companies use outsourcing

Nike has outsourced all production functions. The company is only engaged in the development of design and sales of sportswear and shoes in its stores. The goods themselves are made by contracting organizations concentrated in the Asian region. That hasn’t stopped Nike’s revenue from growing 540% over the past ten years.

Another good example of outsourcing comes from IKEA. The company almost completely entrusted transport and production functions to third-party contractors and is engaged only in retail sales through its own network of stores.

Kodak has delegated IT tasks to IBM since 1989. Their 22-year-old agreement is considered the starting point in the history of IT outsourcing, after which more and more corporations began to pay attention to this type of interaction with contractors.

Google outsources some product development and customer support, reports. This allows the company to provide quality customer feedback and focus on key business objectives.

How to choose an IT contractor, and how much does development cost?

Study the contractor’s website and presentation. Highlight interesting cases from your industry. At the next meeting, ask to talk about this case and the features that the team encountered in their work. Many may be limited by a non-disclosure agreement, but if this case is posted on the site, then the contractor will probably be able to cover the details. Also, ask what team to allocate to your project. Make sure it includes a project manager. Get to know him. The success of the project will largely depend on this person.

After the vendor returns with a commercial proposal, try to understand how well the project estimate is developed. Detailing is a sign of the maturity and professionalism of the vendor.

Pay attention to vendor delays. If they don’t keep their promises in the early stages of the pre-sale, then it’s likely that the same will be repeated during the project.

Look not only at the offered prices but also try to compare estimates for specific tasks. Ask the vendor to tell you what is included in this task. Different agencies evaluate the same terms of reference differently. For example, a Softformance team usually plans unit testing, and another may not.

If you choose a fixed payment format, try to start working with the contractor after the drafting of the terms of reference by the same contractor. This is the best way to do the first project with a new vendor. During the creation of the TOR, the contractor’s competencies and workflow can be assessed.

From the first days of the project, ask for access to the Gantt chart. Assign checkpoints to check readiness and compliance with the work plan and schedule. After a successful first project, move with the contractor to the Time & Material format.