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Innovation
OUTSTAFFING AND OUTSOURCING: THE SUBTLE DIFFERENCES LEADERS SHOULD KNOW
Vasily Voropaev
Forbes Councils Member
Forbes Technology Council
COUNCIL POST
Expertise from Forbes Councils members, operated under license. Opinions
expressed are those of the author.
| Membership (fee-based)
Nov 10, 2021,10:30am EST|
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Vasily Voropaev is a founder and CEO at Smartbrain.io, a serial entrepreneur,
and is a dedicated promoter of remote work and remote teams.
getty
Outsourcing and outstaffing are well-known terms among IT recruiters and
professionals in the world of tech. During the pandemic, both of these
industries are experiencing unprecedented growth.
In outsourcing, part of the company’s functions is transferred to a specialized
third-party executive company. It doesn’t have to be solely programming — one
can outsource accounting, HR, call centers and advertising/PR. It’s based on a
long-term contract with a company for hiring contractors. This is more
profitable than simply being located in a place with a lower average salary or
taking advantage of professional specialization.
Outsourcing is highly sought-after in IT, and here’s why: The global market size
of IT outsourcing is estimated to reach $92.5 billion this year.
But the public knows far less about the outstaffing. Outstaffing is another way
to manage the workforce on your project. Your company leases professionals to
work exclusively on your project. Workers receive payment through an outstaffing
agency, who solves all workforce-related issues as well.
There are many differences between outsourcing and outstaffing, but only one
common feature: both aim to minimize financial and personnel costs and risks for
the client company. For example, outsourcing is ideal when you lack the
resources to quickly solve a secondary task, but if an insured event occurs, or
a key employee quits and you have to find an urgent replacement — an outstaffer
company handles those problems.
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In general, cost savings should not be the first (much less the only) reason for
choosing outstaffing. We recommend outsourcing for secondary projects or
functions and outstaffing for the primary ones, the quality of which determines
the future of the entire company.
The main differences between outsourcing and outstaffing:
• When outsourcing, the contractor or staff is usually subcontracted. In the
case of outstaffing, the staff is registered with the contractor company, which
searches for employees and ensures their sufficient skill level. At the same
time, you can choose exactly those people that you need, instead of the “full
package” that the contractor can provide.
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• Usually in IT outstaffing, the staff is more qualified, and therefore they’re
paid every month (or every two weeks), not from the client company but their
agency. With outsourcing, everything depends on the contract. Employees may
receive hourly wages or pay by project based on its outcome.
• With traditional IT outsourcing, communication is already established. The
manager and employees know each other, and they have established a working
relationship. During outstaffing, the customer has to build those relationships
from scratch. Having a skilled manager (with knowledge of the required language)
can be helpful.
• Work process is different. You have no control over what outsourced employees
do. They may have several projects from different customers. Therefore, quality
can suffer. When outstaffing, you completely control their work; they do not
receive assignments from the outstaffing company but from your company’s
manager. Therefore, you know for sure that your project is given their full
attention.
With outsourcing, you have greater clarity in a situation. You can opt for this
method when your energy or time is not enough, or to save on wages. Outstaffing
is more tricky. Not all situations are suitable for cooperating with a special
contractor agency to hire labor resources. The relevance of the service
increases in such cases:
• The bulk of the company’s expenses are personnel costs.
• Your HR department can’t keep up to cover the need in high-quality
specialists.
• The company staff grew so large you cannot enter the most favorable tax
bracket.
• In order to operate personnel, you maintain large HR and accounting
departments.
• You would like to reduce your risks with the insurer, GMS and others.
If you need to keep control over the workforce but eliminate their overhead and
financial support, outstaffing is an attractive option. The responsibilities of
the official employer are shifted to the contractor, and you manage the
personnel, as usual, paying for the services of the outstaffer through their
contract.
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Vasily Voropaev
Vasily Voropaev is a founder and CEO at Smartbrain.io, a serial entrepreneur,
and is a dedicated promoter of remote work and remote teams. Read Vasily
Voropaev's
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