External talent can enhance efficiency and reduce costs for a business. Three major models are used. Here, we’ll discuss the difference between outsourcing, subcontracting, and IT staff augmentation and determine the best model for a business.
In today’s competitive markets, a business has to be equipped with the latest tools and technologies as well as talented employees to stay active and attract customers. Technology has become integral to every industry. For example, a healthcare center uses technology to streamline patient records, appointments, etc. A travel company invests in IT to create custom packages and itineraries, understand customer requirements, etc. A manufacturing enterprise uses digital tools to automate production, increase quality standards, and enhance the supply chain.
However, not all businesses have the required expertise to achieve this. While some build an in-house IT team, others opt for simpler working models like outsourcing, IT staff augmentation, or subcontracting. Though all three are similar, they have certain differences that make it important to choose the right model for your requirements.
Statistics show that the global IT outsourcing market will be valued at $807.91 billion in 2025 and grow at a CAGR (compound annual growth rate) of 8.6% to reach $1,219.31 billion by 2030. The demand for IT staff augmentation and subcontracting is also high. In this blog, we’ll read in detail about outsourcing vs. subcontracting vs. IT staff augmentation and which model is the best for your business.
IT outsourcing, IT staff augmentation, and subcontracting are hiring models that allow an organization to use the resources of a service provider to complete specific tasks. These models are alternatives to recruiting candidates for the long term. Rather than spend time and money on hiring employees and training them in-house, businesses can take advantage of external talent and use their services to fulfill their project requirements. Though these models are used in various fields, here, we’ll limit our discussion to the IT industry.
Outsourcing is the process of assigning specific tasks or projects to a third-party service provider. The company and its employees are not affiliated with your business in any way. After the contract is signed, they complete the tasks and deliver the expected results. It is a cost-cutting solution to reduce the number of employees you hire and the resources required to perform the activities. The outsourcing company uses its resources to work on your tasks, and you pay them a pre-determined amount as per the contract terms.
Staff augmentation is a form of outsourcing where you temporarily hire external professionals to augment or expand your in-house teams. This is done to increase efficiency and empower your team with the right talent to complete the project. The outside personnel collaborate with your employees and use their expertise to fill the talent gap. It is also a cost-effective method to quickly strengthen your team by onboarding experienced professionals with the required skill set. This is done by hiring the services of a staff augmentation company.
Subcontracting is when a business hires a third-party company to perform specialized tasks that cannot be handled internally. Unlike outsourcing, subcontracting is limited to temporary durations and shorter periods. A subcontract can be awarded to an individual (freelancer) or a company. Some IT staff augmentation companies also accept subcontracts to provide skill-based services to organizations. The association between both parties ends with the contract terms being fulfilled satisfactorily. The subcontracting model is chosen to find the best personnel for the job rather than as a cost-cutting move.
Outsourcing is one of the famous tech hiring models in the global market. It is a cost-effective solution when you choose the right service provider. With outsourcing, you can reduce labor costs (no need to hire extra employees or pay them benefits) and overhead costs (no extra resources will be used). Instead, you pay the outsourcing company a fixed amount to complete the project on your behalf and hand it over. If you outsource your regular activities, then, the service provider will continue to deliver results for a lesser cost. However, choosing the wrong outsourcing partner can be cost-intensive due to delays, errors, miscommunication, and hidden costs.
IT staff augmentation is also a cost-reduction model. However, the focus here is on balancing expenses with quality and knowledge. With staff augmentation, you can hire experts on a short-term basis. This reduces the cost of recruitment and the need to employ them even after you no longer need their expertise. That said, you have to pay salaries for the duration of hire. So, even if resource augmentation is not as cost-effective as outsourcing, it is still a reliable method to reduce expenses and overheads. Moreover, you have more control over the process and can replace the temporary employees with others or scale the team as required.
IT subcontracting can result in cost reduction and cost increase, depending on your requirements. Though the subcontractor will use their resources for the project, you still have to pay them for the services. Since it is a bit similar to outsourcing but deals with specialized skills, businesses may have to spend more to hire experienced professionals. If there is high demand and less supply for a skill, the cost of subcontracting such talent will likely be higher. However, it is cheaper than what an organization will have to spend on recruiting the same talent.
We can summarize that all three models are cost-effective but in varying proportions. So, how do control and flexibility differ between these approaches? Which staffing model provides more flexibility and allows you to monitor the progress throughout?
Flexibility and control are major deciding factors when comparing outsourcing vs. augmentation. Typically, staff augmentation services are more flexible and give better control than IT outsourcing or subcontracting. That’s because you don’t entirely hand over the project to a service provider. Instead, you bring temporary candidates from outside to work with your employees on your project. These candidates can visit your office for the duration or work remotely. You will always stay up to date about the project and can monitor the performance. Any time you want to expand the team or reduce it, you can do it by contacting the staffing company. Similarly, you can ask for replacements to ensure only the best talent works on your project.
IT staff augmentation also has several sub-categories/ pricing models that help retain control over the process. IT staffing companies tend to recommend staff augmentation over other models like outsourcing and subcontracting for this reason.
In outsourcing, you hand over the project to a third-party company. You can get periodic reports but cannot micro-manage the process. It’s the same with subcontracting, though you have a bit more control than outsourcing. However, staff augmentation is more flexible and scalable. It gives greater control as well as access to talented professionals. However, the augmented team uses your resources like the other two models.
Among the IT outsourcing models, staff augmentation is the best option to quickly scale a team. Though each service provider has a different approach, they follow a similar procedure to help businesses find the right candidates to expand their teams. Also, it takes two days to a week to complete the process and include the new candidates in the team.
Talk to the staff augmentation company about your requirements. You can get a quote to compare it with your budget and discuss the details. The service provider will assist in choosing the right number of candidates based on your project.
This step is handled by the IT staffing company. After analyzing your requirements, they screen the candidates in their talent pool and shortlist the ones who meet the specifications. The process can take a day or three, depending on various factors.
The next step is to conduct interviews to pick the final candidates for the roles. Here, you can ask to sit on the interviews or let your HR team take over the process. That way, you have more control over who gets hired for the jobs. In some instances, the staffing company finalizes the candidates and then sets up another round of interviews with the client.
Before the external experts start working for you, an agreement has to be signed by both parties (you and the service provider). This contract details the terms like duration, pricing model, payment process, NDA, etc. All parties involved should adhere to the terms to avoid legal complications.
When the paperwork is complete, the selected candidates will be ready to join your business as temporary employees. The staff augmentation company will conduct a short onboarding process in collaboration with your representatives to help the new employees familiarize themselves with your business and project. Training is not necessary since you hire experienced professionals who know how to do the job.
When the outside candidates start working on your project, you can monitor their performance and send feedback to the service provider. The company also keeps track of the progress and sends regular reports. This helps align the outcome with the requirements. If you are not happy with a candidate or want to expand the team again, you can easily do it by discussing the details with the staffing company.
Sometimes, IT staff augmentation services are a better choice than outsourcing or subcontracting. Here’s when staff augmentation services will give greater results for your business:
If your requirements are for a few days/ weeks/ months, staff augmentation is a better choice. You can expand the teams by hiring a fixed number of experts for a given duration. Moreover, the service providers offer different pricing models like hourly wages, project-wise payment, etc. You can save money and hire external employees for a limited period.
Dedicated teams are a popular IT staff augmentation model. Here, experts with specific skill sets and domain expertise are added to an existing team. They work with your employees to guide them on the project and ensure the desired outcome is achieved. You can determine how many experts you will need and include them in the augmented team as required.
With staff augmentation, you retain control over the project. This is necessary when working on complex or sensitive projects with confidential data. You can control who has access to the files and how much to share with external employees, without compromising the quality of their work. You can choose how much control and responsibility to delegate to the augmented teams. Furthermore, some staff augmentation companies allow clients to interview the shortlisted candidates and finalize their presence in the augmented teams.
While outsourcing doesn’t require integration, staff augmentation relies on how well you collaborate with the service provider. If you want to keep the outside professionals in the loop and ensure they work with your employees, staff augmentation is the right choice. In most instances, training won’t be necessary but there will be a short onboarding process to integrate the augmented employees into your in-house team.
Compared to outsourcing, you will need a greater budget for IT staff augmentation. That’s because the augmented teams are likely to use your internal resources for the project unless specified otherwise in the contract. That said, this allows you to control how much resources to allocate to the project. If you opt for the hourly wages pricing model, you have to pay salaries to the external employees.
Another reason to choose IT staff augmentation is when you want to control the quality standards and minimize risk. You can set benchmarks for each level and create guidelines/ frameworks for the teams to follow. Moreover, you can ask the service provider to replace the assigned team members if their performance doesn’t align with your requirements.
Now that you know the similarities and differences between outsourcing vs. subcontracting vs. IT staff augmentation, take time to understand which model is the right choice for your current needs. The same enterprise can choose all three models at various stages of growth. This depends on your mission, vision, budget, and long-term objectives. Discuss your budget, timeline, and other requirements with staff augmentation companies and finalize the right hiring model to achieve your goals. Most service providers offer all three models and other tailored solutions like dedicated teams to help clients strengthen their businesses.
Staff augmentation services can be beneficial in the short term and long term, depending on what an organization wants. Augmenting internal teams with outside talent can empower your employees and help them improve their productivity and efficiency by collaborating with experienced professionals. With support from a reliable IT staffing company, a business can gain a competitive edge and increase its market share.
Read the below links to learn more about how IT staff augmentation can boost your business performance and revenue.
Fact checked by –
Akansha Rani ~ Content Creator & Copy Writer
