What is IT outstaffing? IT outstaffing is an outsourcing model focusing on a company hiring a needed team of professionals via a service provider. This is done in contrast to hiring in-house full-time employees directly.
In today’s turbulent market, companies are constantly looking for different ways of keeping a competitive edge while reducing business costs. At this point, IT outstaffing is the approach to focus on because it brings Remote In-Sourcing® closer to your business operations.
According to Arizton, the IT outstaffing market in the United States alone is valued at $32 billion. Moreover, it is expected to reach $43.6 billion by 2027. It means learning more about the phenomenon is a potentially lucrative endeavor.
As a result, let’s find out how IT outstaffing works and particular trends in this market. In addition, we should explore the concept from the perspective of pros and cons and see what companies are most suitable for IT outstaffing.
How Does IT Outstaffing Work?
First and foremost, you need to understand what is IT outstaffing. It is a concept showing how companies collaborate with third-party vendors to hire various IT professionals. An IT outstaffing company hires these experts. Everything is established in a manner for a remote team to help you with some projects while you are not burdened with any management-related tasks.
In most cases, the IT outstaffing services work in these six steps:
- The company identifies its need for additional staff to work on a specific project or task. This firm does not want to hire full-time employees or expand on an in-house team.
- The company is looking for an IT outstaffing service provider. After locating the vendor, the firm contracts the provider. Usually, the outstaffing company has access to the talent pool of IT professionals available for hire.
- The company and the outstaffing vendors agree on different important aspects like terms of engagement, the project’s duration, the work’s scope, and the compensation.
- Both parties sign a contract, and the service provider hires the required team of professionals. At this point, the IT outstaffing vendor handles all the managerial aspects, such as terms of employment, payroll, benefits, and taxes.
- The outstaffed team starts working on the company remotely and reports directly to a project manager, who may be part of the in-house team of the customer or a member of the outsourcing team.
- The company that needed software development outstaffing engages in day-to-day activities with a remote team while the service provider deals with all the administrative tasks.
The steps above provide an overview of how the outstaffing model operates. To understand in which direction the phenomenon is moving right now, let’s explore some relevant trends and statistics.
IT Outstaffing Trends and Industry Statistics
From 2020-2022, the IT outstaffing market has experienced a major rise. Most experts argue the COVID-19 pandemic is the key reason behind the increase. More and more companies focus on remote software development and rethink their strategies for hiring employees. Keeping these aspects in mind, here are some major trends and statistics in the IT outstaffing industry:
- One of the newest outstaffing trends is linked to companies moving to cloud-based technologies for better security and scalability. With this trend, companies can easily outstaff their infrastructure-related workloads.
- In terms of statistics, according to Grand View Research, the global IT outstaffing market is expected to experience a compound annual growth rate (CAGR) of 4.4% from 2023 to 2028.
- Another major trend in the industry is directly linked to the rise of remote work. Again, COVID-19 accelerated this trend, thus putting outstaffing at the forefront. According to Gartner, about 82% of companies plan to turn to remote work for some of their staff, while 47% of firms plan to adopt remote work for all full-time employees.
- Outstaffing is a cost-effective model, which also presents a major trend. The report offered by Deloitte indicates that IT outstaffing, when done correctly, can reduce about 40% of labor costs compared to hiring full-time employees.
- A further major trend in the industry is addressing the shortage of skilled professionals. The report provided by McKinsey shows that by 2030 there will be a shortage of about 85 million skilled workers. At this point, IT outstaffing services can serve as an effective solution for businesses looking for skilled professionals.
Overall, the outstaffing trends and statistics indicate the phenomenon is a response to the recent and ongoing market-related shifts. It will grow in value, help deal with the shortage of skilled labor, and help tap into cloud-based solutions.
Advantages of IT Outstaffing: What Does the Customer Get?
Companies choose the method above not only because their market is growing in value. Respectively, particular outstaffing benefits come with the phenomenon. Let’s take a look at these in greater detail.
Smooth Hiring Model
Perhaps, IT outstaffing is one of the best among various outsourcing methods to get projects done by professionals without hiring people full-time or expanding in-house teams. Moreover, with this approach, you do not need to undergo a complex hiring process. The outstaffing vendor does all the heavy lifting in this realm. You must know the project requirements and the type of IT professionals you need to complete it.
The Total Project Control
Another important outstaffing benefit is that your product is handed to skilled professionals who can solely focus on what needs to be done. Yet even though the administrative and employment tasks fall on the shoulders of the outstaffing vendor, you have total control of how the project is delivered on a day-to-day basis and full focus on technology and strategy of the product.
Remember that outstaffing provides a dedicated team of experts with capabilities and expertise particularly required for projects like yours. Besides, before the project development starts, you are the one who can veto the professionals and thus play a crucial role in establishing the team that delivers.
Access to Resources
One of the key reasons for choosing IT outstaffing is that a company gets full access to important managerial decisions and resource management. It is better to have a project manager who can assign tasks to hired professionals. At this point, even if you select a variety of experts, for instance, designers, developers, and QA testers, you will see how many resources are available and how much is spent on a day-to-day basis.
As we mentioned at the beginning of this piece, every single company out there would like to reduce its business-related costs. Outstaffing development is the approach that helps achieve that. There is a substantially lower cost of hiring a remote team of IT professionals compared to hiring full-time experts working in-house.
The number can be as high as 40% cost reduction due to the IT outstaffing. Namely, you don’t need to pay for talent search, onboarding, or termination. These expenses fall on the outstaffing vendor’s shoulders. Besides, with the dedicated team working on your project only, there is a higher chance for greater speed to market. The sooner the product reaches the users, the cheaper the development cycle will be.
Tapping into the Talent Pool
Finally, with the rising demand for skilled workers, finding a team of professionals who can meet your specific needs is harder. In such a case, outstaffing services present a major advantage because these open access to a broad talent pool.
With a proper outstaffing vendor on your side, you get a good chance to tap into quick and easy IT resource scaling. As soon as project requirements change, you can either scale resources up or down. In such a case, the IT resources can be scaled up if you need to meet a new pressing project deadline. In turn, when the project is in the final stages of the competition, the IT resources can be scaled down for you to start on another project right away.
One of the important benefits of IT outstaffing is linked to the ability to get a product to market as fast as possible. With a dedicated team of professionals on board, the projects are completed much faster. This is true because, with the model, you get IT professionals who exclusively work on your project and have skills and competencies tailored to the project requirements.
In a fast-paced market environment getting a new product on the market as quickly as possible can be a game-changer. This grants a competitive advantage and ensures users can try out your product, and you can learn from user feedback what should be changed and improved.
Focus on Core Business Functions
When outsourcing IT projects to an outstaffing vendor, you can focus on core business activities. For instance, you get a dedicated team of professionals working on the entire project or various project parts. In turn, while experts are doing the heavy lifting, you and your in-house teams can focus on marketing activities and product development.
With all the advantages above in mind, IT outstaffing is a prospective phenomenon with a bright future for companies that seek cost reduction, total project control, and access to the talent pool. Yet, with all the phenomena can offer, it is still not one fits all solution.
Disadvantages of IT Outstaffing
The hard truth is that every hiring model has its downsides. For the IT outstaffing approach, there are some notable disadvantages to mention. Without further ado, let’s proceed to those.
When hiring a remote team, there is a high chance the IT professionals working on your project will originate from different countries and cultures. Besides, the experts might not even be a part of a single team and just be a set of individuals working remotely and communicating with one another. As a result, these can lead to communication issues, which affect the pace of project delivery. Still this risk can be mitigated by outstaff provider.
Quality Control Challenge
Another key obstacle with IT outstaffing is maintaining quality control. When outstaffing teams do their work on the project, you might not have the entire degree of oversight over the team’s work. As a result, this can lead to delays, errors, and subpar outcomes.
Software development outstaffing necessarily includes sharing confidential information and sensitive data. Yet, when you provide such data to an outstaffed team, you often do not have total control over the security channels remote IT professional’s use. Respectively, this can result in data breaches and other security-related incidents.
Perhaps, the best solution for the security risks associated with IT outstaffing is to ensure a hired dedicated team works in a cloud-based environment. This ensures top-grade protection. Besides, when signing a contract, you can present a clause indicating that sensitive data is to be handled in protected environments only.
While this disadvantage might be counterintuitive, especially considering IT outstaffing leads to cost reductions, some problems are still linked to the practice of having hidden costs. For instance, some projects might include management overhead, travel, training, and communication expenses. Ensure that these costs are discussed during the contract negotiation.
Problems with Team Cohesion
When working with a dedicated team, you might not get a group of IT professionals with the same loyalty and motivation level. It can be a real challenge and directly impact the quality of the project development. If people are disconnected from your company’s culture and values, they won’t be motivated enough to provide a hundred percent input.
Keeping all the aspects above in mind, it is clear you need to be careful with IT outstaffing. When signing up for the phenomenon, consider potential security risks, hidden costs, and communication issues. When done correctly, outstaffing benefits will definitely outweigh the outstaffing downsides. Experienced outstaffing vendor typically have high-level policies to mitigate risks and downsides above.
How Does the IT Outstaffing Company Help to Optimize Development Costs?
In simple terms, an IT outstaffing company can help optimize development costs through these five aspects:
- The company reduces overhead costs linked to office spaces, utilities, and equipment. Outstaffing vendors have their own infrastructure and resources, which means your company does not need to include such costs in the price of the overall development cycle.
- The IT outstaffing company provides a flexible pricing model to meet your demands. These include fixed-price contracts, hourly rates, and/or project-based billing. Respectively, with this approach, you optimize development costs by means of paying only for the services provided.
- Outstaffing companies provide access to a broad range of skilled talent. This often comes with getting experts who will work for lower wages. Thus, paying less than for an in-house team is a great development cost optimization strategy.
- IT outstaffing companies offer businesses flexibility in terms of scalability. Companies can quickly adjust development-related costs per shifting project requirements.
- Outstaffing vendors also provide tools for streamlining various business processes. This means workflows can be improved, project efficiency boosted, and development time reduced. As a result, if you need to spend less on a particular project, this constitutes development cost optimization.
The five aspects above clearly show how IT outstaffing companies help businesses optimize development costs. With all we know about IT outstaffing, the only thing left is to determine which companies are most suitable for the method.
What Companies Are Suitable for IT Outstaffing?
To tap into IT outstaffing services, several prerequisites need to be preserved.
First and foremost, large IT companies that want to strengthen their in-house teams are perfect candidates for the method. These can hire a dedicated team of professionals to add input to the project or test some hypotheses and see how the results differ from what an in-house team presented.
Second, companies that need assistance with digital transformation or developing various digital products are suitable for IT outstaffing. Often, these businesses come with small IT departments and don’t have sufficient experts to deal with development-related issues immediately. Yet, hiring a full-time employee is not a solution because the same problem might not happen twice.
Third, companies suitable for IT outstaffing are the ones seeking to avoid any given pains linked to hiring employees. Outstaffing vendors are the ones fully responsible for hiring-related processes.
Fourth, companies working on specific technologies and projects are the ones suitable for IT outstaffing. Namely, in the context of a skilled workers shortage, it can be extremely difficult to find professionals with expertise in Robotic Process Automation (RPA) in specific Domain (e.g. Healthcare), for example. Yet, with IT outstaffing, you get access to a broad talent pool and find the right people for your project.
As a result, the companies above are the ones that can tap into what IT outstaffing has to offer. To get the most out of the approach, you need to have clear project requirements and a clear understanding of what to expect from the dedicated team.
The Bottom Line
IT outstaffing is a phenomenon with a bright future. Companies that can properly use this method are the ones that will get a competitive edge. However, keep in mind that the concept entails particular disadvantages and can pose threats related to data breaches. Make sure you go through all the potential pitfalls during the contract negotiation process. Besides, anticipate hidden costs. The more you are prepared for IT outstaffing, the greater benefit it will bring to your business.
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