The business delegates all possible work to outsourced teams. And will continue to do this even more actively in 2023. According to the Commit survey, 42% of CTOs claim that it is a key to quick scaling. Software development outsourcing is expected to grow by 70% between 2022 and 2023. First of all, it has to do with startups.
Moreover, according to Statista, revenues in this segment are about to grow by 8.26% annually. As a result, by 2027, the world market will exceed $587 billion, with $3.43 billion in Israel.
Revenues in IT outsourcing
It’s worth distinguishing outsourcing from staff augmentation.
What is the difference between outsourcing and outstaffing?
First, let’s check the definitions.
IT outsourcing is about “getting things done”. Such a model suggests that writing a code or finishing a task is done “turnkey”. The customer does not care much about how the project is managed or who exactly performs the tasks. The client is only interested in the result as a successful solution. However, the acceptance criteria, system requirements, and design are discussed.
IT outstaffing (also known as body leasing)is hiring certain consultants without actually employing them. They do not need workplace or tax coverage. In fact, they are full-time employees of an outstaffing company. This model facilitates the search for the necessary techies and saves costs. It also allows you to quickly and easily make changes if you need to scale up/scale down or substitute someone from the team.
IT offshoring is a general concept that includes both types mentioned above. It indicates the geographical distance between the team and the customer.
Both models allow working with talents from the global market without expanding the company’s staff and significantly save on additional costs. Despite the similarity, they have fundamental differences:
The customer is always right. But in case of outsourcing, they cannot say this personally to the team members – they report directly to the outsourced PM who is in charge of the timely features delivery. The PM typically decides on methodology, task tracking, and reporting software. They also establish a workflow to meet deadlines. Usually, the provider company itself chooses team members, maps out their qualifications, and decides on their responsibilities within the project. Developers can be transferred from one team to another or receive several customers simultaneously.
In outstaffing, all reins are in the hands of the client company. The provider does not participate in project management. The client manages the team, workflow, and backlog. Usually, the customer has their Technical Lead or Manager, and Dedicated Consultants just follow an already implemented workflow. In fact, outstaffed employees become a logical extension of the full-time team. And, as a rule, they work only for this team.
How does it work?
Outsourcing vs. outstaffing
In outsourcing, the client receives results, gives feedback, makes corrections, and submits requests. Quality monitoring during work is carried out by the service vendor.
In staff augmentation, it’s quite the opposite. The company’s management is in contact with every outstaffed employee, keeps a finger on the performance, and makes all the necessary adjustments “on the run”.
Both options are not interchangeable and are targeted to perform different types of business tasks. The choice between one or another is dictated mainly by the founders’ desire to manage the project themselves or, otherwise, by lack of time, expertise, and the necessity to manage the project. Also, such decisions are affected by the product type, the duration of planned cooperation, and the rest of the company staff.
A startup looking for funding needs a quality presentation or product demo. A non-IT company requires a turnkey project – be it a website or an application – but does not want to create an IT department. An experienced tech company has a one-time idea that needs to be implemented quickly. Then outsourcing comes in handy.
A hi-tech company requires engineers for stable work on open-ended projects. An in-house team cannot cope with the workload and additional “working hands” are needed. And this company has a strong team leader, able to deal with remote staff and supervise the tech nuances. Then outstaffing will be useful.
Main risks of working with IT outsourcing and outstaffing teams
Control over the quality of work
Indirect management by outsourced programmers hides the risk of poor quality results and an excessive number of edits and revisions. This is a waste of time and postponing the release. To mitigate this risk, it is best to specifically set the acceptance criteria and establish regular status updates and refinement meetings with the vendor.
As for body leasing, the team leader needs to make sure that the right process and tools are in place to manage members from different locations and time zones. Additionally, they would also need to enhance intercultural communication. Agile methodologies and team-collaborative tools will work best here.
A common fear of some tech entrepreneurs is that service vendors will go out of their control and “no one can do it better than me” attitude. However, outsourcing and staff augmentation, if implemented correctly, can be a perfect solution to release products faster and balance risks. You need to plan your involvement and vision – these are essential in any collaboration.
Possible leakage of confidential information
This risk is mitigated by proper IP undertaking agreements, NDA agreements, and GDPR subprocessor agreements. They are signed by the vendor company and can be also signed individually by every Consultant.
At PerceptionBox, we can help you augment your remote team with highly skilled engineers to maximize benefits while minimizing risk. Contact us for detailed consultation.