Outsourcing, outstaffing and product development: differences, pros, and cons
Tags: Product Development, Remote Team, Outstaffing, Outsourcing, Distributed Teams

Outsourcing, outstaffing is no longer a novelty, but reality, thanks to the pandemic. Product development is also a kind of distributed development team.

They all overlap and intersect in one way or another. And sometimes it’s hard to decide which work format is optimal when you need it.

What are their differences, what are the pros and cons of each approach to collaboration with a distributed team? Let’s straighten it out.

There are several parameters to compare:

the task to be solved

successful results

project management

areas of responsibility

payment format

1. Task to be solved

Outsource — fulfillment of ToR and assigned tasks.

Outstaff — access to rare competencies. Strengthens the internal team — both quantitatively, when you are short-handed , and qualitatively, when there is a shortage of expertise.

For product development — processes changes.

2. Result to ensure success

Outsource — release of working features

Outstaff — meeting deadlines, customer’s comfort

Product development — performs all work specific to hypothesis testing.

3. Project management

Outsource — you hand over the project/task to the contractor, it’s a turnkey approach

Outstaff — project management is the customer’s responsibility. Outstaff-employees are your inhouse-employees, except for the paperwork.

Product development — the remote team includes a project manager. Or a more risky approach — project management is completely absent.

Why? Product development is aimed primarily at hypothesis testing. This approach does not imply project management; different methodology and metrics. There is an opinion that a product is NOT a project, the conditions of project development do not apply directly to a product, i.e.rigid timings, fixed budget, and so on.

4. Areas of responsibility

Outsource — successful release of new features, meeting deadlines. Responsibility for the product itself is on the customer.

Outstaff — providing the necessary resources, its timely replacement if necessary. Responsibility for the product itself is the customer’s responsibility.

Product development — to do all the necessary work to prepare the hypotheses for testing. Who formulates the hypotheses? Either the product manager on the client side or he/she is included in the product development team on the contractor side.

5. Payment format

Outsource — fixed Time & Materials

Outstaff — Time & Materials On Retainer

Product development — On retainer.

What are the contractors themselves looking for?

Knowing your contractor’s goals will help you understand how keen the contractor is in collaborating with you.

Outsourced teams will fight for big contracts. They are ready to take big risks and maximum responsibility, taking into account possible force majeure. But one should understand that the cost of these possible risks will be built into the contract price.

Outstaffing companies want to sell their resources for as much time as possible. Even if the rate is not too high, the payback depends on the duration.

Product development puts their main value on CRR — Customer Retention Rate). It is in their best interest to get the job done as quickly and cheaply as possible so that the customer returns .

If you have a large amount of work — then an outsourcing company is your choice. Long-term collaboration is right for outstaffing. And if you need a quick release, check-up, or bug-fixing — product development is for you.

What are the benefits to the customer?

Outsourcing wins by the total cost of the contract. The more work on the project you want to outsource, the more loyal the contractor will be. The same amount of work but outstaffing would be more expensive.

Outstaffing benefits by the availability of human resources and profitable cost of a specialist per hour — you will pay directly for the time spent on the work, without paying for downtime and absence of work.

Product development provides you with the speed of hypothesis testing. By hiring a team for the development of your product, you significantly reduce the time-to-market rate — thereby increasing your market share quickly.

Which to choose?

Each work format can solve different “pains”

Outsourcing — when you have a non-core, but profitable project. When you want the project to be done “turnkey”, not being involved personally. Most of the responsibility and risks are on the contractor.

But the key to outsourcing is a Statement of Work, typically used when the work can be described according to specific directions or instructions, and when the requirements, tasks, and conditions are easily understood by both parties, and that the contractor can properly estimate the amount of work. Otherwise, you may fail to meet the deadline. This is common when you outsource the project in the middle , to finalize an already working solution. There may be a problem lurking in the depths that will bring the process to a complete standstill.

Outstaffing — when the team is short-handed. When competence is needed temporarily, or one more person is needed to help you meet the deadline. An outstaffing specialist becomes a full-fledged part of your team, you work with him as with your employees, but with some advantages: no expenses on salaries, no need to provide him with a working place. His area of responsibility will not be idle — in case of illness or vacation, and the contracting company will find a replacement if needed. If you are not satisfied with his work, he will be replaced.

Product development — when you are just entering the market, you don’t have a finished product, and you don’t have the internal competence to research the product/market. Unlike classic outsourcing, you can come to the product team without a SOW, but with a basic idea.

In our experience, these three formats work quite successfully in synergy with each other.

The sphere of development is becoming more and more flexible. Rigid rules have been replaced by common sense and shared benefit.

For example, if we talk about product development and put a value on quick hypothesis testing — then we come to the development of features that may already require additional resources, hands, and expertise, and most likely, you will need to implement them within a limited timeframe. That’s when you might need an outsourcing or outstaffing team.

The main factor to consider when choosing a working format with a distributed team is: what results do you want to achieve? When you answer this question, it will be easier to decide.