Hiring vs. Outsourcing: What Works Better for IT Businesses?

Almost half of all US companies (43%) are outsourcing IT-related tasks today. 58% of these companies noticed only a slight difference in the quality of the provided services compared to the work of their permanent employees. Nevertheless, the popularity of outsourcing is increasing rapidly, and the discussion of outsourcing vs. hiring is getting much more prevalent. In this article, our hiring expert, Snezhana, will reveal how to balance these two types of talent engagement and use them in accomplishing your business needs. 

Outsourcing in IT

In 2023, the global outsourcing market may reach $731 billion, and 71% of this amount falls on the IT sector. It is a 19% increase compared to 2019. Let’s see why the demand for outsourcing tech specialists is growing so rapidly before we start the outsourcing vs. hiring discussion.

IT outsourcing is the process of obtaining services from external providers to increase the efficiency and cost-effectiveness of different business processes. Providers can be not only individuals, but also other businesses — for instance, those who supply cloud-enabled software as a service (SaaS). We will talk a bit about standard outsourcing engagement models to better understand how they work in real life.

Types of outsourcing engagement:

• Outstaffing – is used to increase the size of the in-house team with the help of outsourcing using the providers’ staff or freelancers. This can be used as a budgetary short-term solution.
• Project-based – an outsourcing company’s team controls the development of an entire project and the implementation of quality assurance and control.
• Consulting – can be tactical or strategic. It is about using the services of an expert or a team of experts to guide your staff through some difficulties or advise you in achieving some business goals.
• Offshore/nearshore development – a type of cooperation when businesses delegate their development projects to teams from the same (nearshore) or different (offshore) location.
• Product development services 2.0 – is a model where an outsourced vendor is a co-creator of a product and is bound by an outcome-based contract. The vendor is engaged in optimization even after the product release. 

Now that we have a deeper understanding of how diverse outsourcing in IT is, it’s time to learn more about the pros and cons of this type of business cooperation.

The pros of outsourcing in IT

• It gives you access to a wide range of external resources;
• It cuts costs on staff for short-term projects;
• Compared to traditional hiring, it is easier, faster, and cheaper to replace teams or specialists if they turn out to be ineffective.

The cons of outsourcing in IT

• Outsourcing using a providers’ staff is less engaged and motivated than in-house employees;
• Regular employees can feel easily replaceable and frustrated when some of their responsibilities are delegated to third-party specialists;
• Slow communication is a common issue for outsourcing. For some projects, such as cybersecurity, it can be the decisive factor. 

To summarize, this approach is suitable for small businesses or for short-term projects with no financial profitability to hire permanent employees.

It is an entirely different situation if you are an IT outsourcing provider and most of your workers are outstaffing for other businesses. In this case, you should invest in employee retention. Half of our clients are outsourcing companies looking for permanent staff. So, if you need the service of recruiters with more than 5 years of experience in the field to close some tech positions, drop us a message and keep reading. We have many helpful tips for your effective in-house hiring. 

In-house hiring in IT

Permanent employees are a core of any business. Management feels safe with them because these people share the company’s values, agree to adhere to established practices, and are aware of internal processes.

To be fair and objective in our outsourcing vs. hiring debate, let’s look at the advantages and disadvantages of having an in-house IT staff. 

The pros of an in-house staff in IT 

• Management has more control over their employees’ performance and their final results.

This type of engagement makes it easier to track the progress of separate tasks, the entire project improvement, or even the individual performance of each team member. It provides plenty of opportunities to improve the overall result by incentivizing each team member’s productivity according to their needs or merits.

• Immediate communication allows for changing deadlines or requirements faster and without unnecessary spending.

Outsourcing is regulated by contracts where the requirements, deadlines, and the amount of corrections are limited. You might be obligated to pay some penalty if you decide to change your plans. Negotiating such things with your own team is much easier.   

• Permanent employees are more reliable.

Hiring permanent employees is a more prolonged and expensive process, but this is compensated by having people in the company to whom you can entrust essential tasks and not worry about the result.

The cons of in-house staff in IT

• Longer hiring process.

The average time to hire an in-house engineer is 60 days. It takes half the time to find freelancers or an outstaffing team. They need to pass a less thorough selection process because their cultural fit has little interest to their employers.

• Additional expenses for benefits, team building activities, and other retention measures.

High turnover is one of the main problems business owners face these days. 40% of the US workforce is actively looking for a better opportunity and are ready to change their jobs. Considering the costs of attracting employees, letting them go and finding replacements costs a pretty penny. That is why investing in retention is so crucial.

• Procrastination and weak time management

If your employees are not motivated to meet deadlines and do not face performance review measures from time to time, be ready for decreasing productivity.

To conclude, in-house staff in IT is longer and more expensive to find than outsourcing workers. An employer must spend more financial and managerial resources on maintaining permanent teams. Nevertheless, it is still the most reliable solution for conducting long-running projects and fulfilling consistent duties (such as cybersecurity).

“Soft skills and cultural fit are even more critical than technical mastery regarding in-house hiring. So, ensure that the HR interviews are conducted correctly and use a competency assessment scale matrix.”

— Snezhana Khadzhy, Global Recruitment Team Lead at StaffingPartner

So what works better?

Outsourcing is suitable for tight budgets and short-term projects. IT outsourcing providers and product companies should consider an in-house type of engagement. 

Consider permanent part-time employees if there is a need for some duties to be performed regularly, but their performance requires less than the standard 40 hours per week. They are similar to full-time in-house staff but work fewer hours. This type of employment differs from freelancing because permanent part-time specialists share the same values and are included in the company’s corporate life.   

Looking for in-house tech specialists? This is our niche! StaffingPartner recruiters have 5+ years of experience in gathering effective teams. We have the expertise to form an entire new office under a country manager and help to build a team under specific team leads. Contact us to get a well-coordinated staff with the necessary soft skills and values.

StaffingPartner advises on efficient hiring practices

Get ready to hire the best permanent staff with a checklist prepared for you by our Global Recruitment Team Lead, Snezhana Khadzhy. She works with product companies and IT outsourcing providers all the time, and there are a few things Snezhana advises you to keep in mind. 

How to hire in-house teams successfully:

1. Give recruiters clear characteristics of the ideal newcomer and those who don’t fit. Specify their soft skills.
2. Prepare a presentation of the company’s values that candidates must match.
3. Give accurate information about the team that is needing to expand (how long have they been working together, a little info about the team lead).
4. Share your HR interview questions and competency assessment scale matrix that your in-house recruiters use with the outsourcing recruiters. It will make the whole recruitment process more harmonized and smoother.
5. Use the services of trustworthy outsourcing agencies to have access to their vast databases and resources.

What’s best for your business

Regarding engaging developers and other tech candidates, in-house hiring works better for IT outsourcing providers and product companies. For short-time projects, it is better to turn to outsourcing. By outsourcing the recruitment process, you will get access to extensive candidate databases and shorten the time needed for hiring permanent staff. Struggle with many open positions and tight deadlines? Use our RPO service. A StaffingPartner seniority level recruiter will join your team and adjust your recruiting processes from the inside to achieve your hiring goals. Just drop us a line to get started!