Outsourcing has been around for decades. For example, companies have outsourced their advertising for a century and a half, almost as long as advertising has existed. This business practice has become increasingly popular among tech companies in recent decades.
Hiring an external team to perform specific tasks is essential in software development, where technological changes are happening so fast that companies’ capacities cannot keep up.
Here are some of the reasons why software companies hire an outside provider:
- The in-house team needs additional expertise or niche skills.
- The internal employees are overwhelmed with tasks.
- The company needs to add new features to the product quickly to keep up with the competition.
The most commonly cited disadvantage of traditional outsourcing is the loss of control, as companies transfer responsibility for a particular project to others. One way to gain more control over offshore developers is to choose a staff augmentation model that offers full-time software engineers from outsourcing agencies who work under the guidance of the customer’s management. We will discuss various aspects of traditional outsourcing and staff augmentation and explain their differences.
What is software development outsourcing?
The outsourcing model allows companies to hire a dedicated development team that can include a project manager, software engineers, QA testers, and UI/UX designers.
The client company contacts several agencies, discusses the project requirements, and selects a vendor that meets the budget and has the necessary technical expertise and industry knowledge. The vendor can then request more detailed documentation to confirm software requirement specifications with their business analyst.
Key benefits of software development outsourcing
Tech companies may assign the entire project to outside providers managed by the CTO or product owner from the internal team. Therefore, project outsourcing enables organizations to reduce operational costs and avoid investment in training and equipment. Thus, companies can worry less about business expansion and save money on salaries, benefits, retirement contributions, and other costs associated with hiring and managing a team.
In addition, outsourcing allows companies to access specific skills and knowledge that may not be available in-house. For example, an organization may require a specific programming language or methods, tools, and frameworks that would take an internal team a long time to master.
Finally, outsourcing the entire project may be the best option for non-technical leaders, as they won’t need to manage the external team and can focus on the core aspects of the business.
Key disadvantages of software development outsourcing
Outsourcing a project may be faster than building and training an additional internal team.
However, the customer will spend time finding and vetting agencies and communicating with each one. Moreover, when outsourcing companies agree to collaborate, they may not immediately have all the available developers required for the project, so it can take several weeks to source and hire additional engineers.
Outsourcing agencies, like any employer, carry risks and are careful about selecting people. However, outsourcing limits interaction between the company and external providers as the customer will not manage each member of the outsourced team directly. In addition, the customer may lose some creative or administrative control over the project. This problem can be partially solved by choosing vendors with similar values and focusing on good communication during the project.
What is staff augmentation?
Staff augmentation is a business practice of expanding an in-house team with dedicated specialists on a short-term or long-term basis. This practice uses vetted, full-time, employed software engineers from outsourcing agencies, which typically keep a database of profiles with a specific skill set.
Compared to traditional outsourcing, augmented contractors work directly with the in-house team, and the company has full control of the development process.
Here are some cases when companies decide to hire developers through staff augmentation:
- The in-house team is overloaded with work, and the company doesn’t have the capacity to invest in a new project or reduce technical debt.
- The project requires specific expertise that the company doesn’t have in its stack, and the company doesn’t need that expertise after the project is done.
- The company needs to grow its team quickly. It doesn’t have time to spend months searching for an experienced developer or someone with highly sought-after expertise and chooses to partner with a company that offers a deep talent pool of professionals.
- The company has legacy software that needs upgrading. Therefore, it may need experienced contractors with knowledge of both the code structure of the legacy system and newer tools and languages.
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Key benefits of staff augmentation
Staff augmentation is the practice of hiring developers who are available worldwide to work remotely. Companies choose staff augmentation to speed up the development process, reduce technical debt, and improve time-to-market.
Essentially, the IT staff augmentation company acts as the employer of record to simplify the legal aspects of local hiring and reduce taxes in the customer’s country. It typically provides proven, locally-compliant contracts and simplified billing.
As with traditional outsourcing, companies don’t have to worry about retirement contributions or pay for insurance, vacations, office rent, or workstations as they do for in-house employees. However, they will have to spend time onboarding a new contractor.
Finally, if the contractor is not a good fit for the company, it is easy to end the relationship or replace them with someone else. (In-house developers, for example, are more difficult to lay off because the company must provide advance notice and severance pay). Basically, staff augmentation gives a company the flexibility to scale up or down its development team quickly, making it useful for projects with fluctuating demand.
Key disadvantages of staff augmentation
Unlike outsourcing, hiring contractors through staff augmentation means that the company can manage them directly. However, contractors are less integrated into the company culture than in-house developers, and they typically communicate less with other teams. Therefore, when hiring contractors, the company should create a more detailed project description that takes into account internal processes and other company initiatives that contractors may not be aware of.
Staff augmentation vs. outsourcing software development: Key differences
|Hiring model||Staff augmentation involves full-time software engineers working at outsourcing agencies. It gives a company the flexibility to quickly scale up or down its development team.||Outsourcing implies assigning the entire project to the outside provider managed by the CTO or product owner from the internal team.|
|Business use||Companies turn to staff augmentation to speed up the development process, reduce technical debt, and free internal teams from non-essential tasks. Organizations also hire contractors if their project requires specific expertise that the company doesn’t have in its stack.||Companies choose traditional outsourcing when they need the project to be completed entirely by an external team that provides UX research, UI/UX design, software development, project management, and quality assurance.|
|Hiring process||Hiring contractors involves contacting several outsourcing companies that offer staff augmentation services and interviewing the software engineers they offer.|
Alternatively, companies can turn to a staff augmentation marketplace, which uses a network of agencies to provide a single point of access to contractors in different countries.
|Hiring the outsourcing provider involves contacting several agencies, discussing the project requirements, and selecting a vendor that meets the budget and has the necessary technical expertise and industry knowledge.|
|Benefits package||Contractors from outsourcing agencies are not eligible for employee benefits such as health insurance, bonuses, and paid time off because they already receive these benefits from their agencies.||With traditional outsourcing, companies do not bother with benefits, retirement contributions, and other costs associated with hiring and managing an internal team.|
As we have seen from the features of both models, they are quite different and meet different business needs. Outsourcing is the practice of handing over the entire project to an external team that provides UX research, UI/UX design, software development, project management, and quality assurance. In contrast, staff augmentation is the practice of hiring full-time contractors employed by outsourcing agencies to perform a specific amount of work under the direct supervision of the client.
However, they also share common features. For example, clients may find both models more cost effective due to the lack of operational and administrative expenses. In addition, both offshore and onshore outsourcing and staff augmentation can have a cost advantage because developer rates in popular outsourcing destinations such as Latin America and Eastern Europe are lower than rates in the U.S. or Canada.
Where to find a software development outsourcing company
Companies can choose a reliable outsourcing provider by asking for recommendations from their network, or at least turning to review aggregators, such as Clutch and G2, for validation of the IT service provider.
While agencies often ask their most loyal customers to rate them, having reviews is still a good signal, especially in the absence of other recommendations. If an agency has received great reviews, it means the development shop has found at least a few clients who are willing to invest their time in working with it.
Where to hire a software developer via staff augmentation
Companies hire an outsourcing agency that offers staff augmentation services or find a talent marketplace that has contractors from various outsourcing companies in different countries.
The second option is a staff augmentation model with an emphasis on hiring speed and larger talent selection. YouTeam is the first and largest marketplace to offer such a model. It leverages a network of 50,000 software engineers from hundreds of outsourcing agencies in Eastern Europe and Latin America.
With YouTeam, a client doesn’t have to contact multiple agencies to find a professional with the right skills and experience. A greater choice of talent also means the client has a better chance of finding the contractor that fits the company culture.
We hope this guide has helped shed more light on the specifics of traditional outsourcing and staff augmentation. To learn more about popular outsourcing destinations, please read our overview of the top countries for hiring offshore software development teams in 2023.
To learn more about the risks and benefits of staff augmentation, check out our guide to IT staff augmentation.