Over the years, many companies and institutions have seen the benefits of IT outsourcing. Remote outsourcing companies can help you finish your project or software solution faster. However, the process to determine how to best approach outsourcing can leave you overwhelmed and with questions. We’ll compare two popular types of outsourcing: team extension and project-based outsourcing. While both of these models can be beneficial to your business, each company has specific needs. Find out which one is right for you!
What are the Types of Outsourcing?
As you may have encountered some of the expressions people use when discussing outsourcing, the term indicates much more than a few methods. In addition, there are different types of outsourcing models, and many are categorized based on location, relationship-based outsourcing, IT functions, and by scale.
Each company has specific requirements, and since the Internet opened the world market, there have been millions of possibilities. For instance, if your company is located in western Europe, you might use location-based outsourcing and find a nearshoring partner in the neighboring countries. You want access to skilled software developers, but you must find a cost-effective solution because of your budget.
Nearshoring is the solution many companies use, as it provides them with multiple benefits and yet stays within the same time zone.
However, when your requirements are more specific, the most commonly used types of outsourcing are relationship-based outsourcing models. There are three of them; the most popular ones are those we will discuss in detail later in the text.
So, the three types of outsourcing or relationship-based models are managed team model, staff augmentation or team extension, and projects based models. Of these three options, team extension and project-based model are the most popular in practice. Many companies opt for either of the two as they provide benefits they cannot find otherwise within their organizations.
What are the Benefits of IT Outsourcing?
Companies are increasingly aware that access to skillful developers and innovative approaches will overshadow the borders and locations of the world. Increased use of remote work and Internet access to all corners of the world are making things easier to find the right team for your software development project. Grand View Research has released a report that says, among other things, that the popularity of outsourcing is increasingly high, and we will see an annual market growth of 8.5% by 2028.
The majority of this increase is due to the benefits of IT outsourcing. So, let’s name a few of the most important ones.
According to the EY European survey for outsourcing, 42% of respondents list cost reduction among their top three reasons for IT outsourcing. Additionally, they found that organizations in Finland, Spain, and the United Kingdom outsource to external service providers more frequently than organizations in other nations.
Central and Eastern Europe are increasingly popular for outsourcing in recent years as there is a vast talent pool, and governments are backing the IT sector. The reason why it’s cost-effective is that when you outsource IT services or software development, you are making a flat fee agreement in most cases. So there are no additional or overhanging costs after that.
Access to Talent Pool
There is a significant shift from supply to demand in today’s market, where companies ask for specific expertise and knowledge from outsourcing suppliers. Opening to the global market, you can find a vast talent pool even for the most complex projects. Furthermore, there is no limit to the number of people you can hire for the project, and it’s all according to your business needs.
Technologies in Use
Many organizations cannot keep up with the latest technological changes, determining their market positioning. Technology is one of the reasons why many companies decide to let external partners handle their projects. To keep up with current developments, most firms pay for in-house training. Nevertheless, outsourcing IT gives you access to technology stacks that your current personnel may not have. The best part is that you won’t have to pay for IT training.
Flexibility and Scalability
Outsourcing itself is flexible, providing a variety of models for collaboration. This characteristic counts as one of the main benefits of IT outsourcing. You can hire a team of specialists and scale their numbers according to your business needs.
What is the Project-Based Outsourcing Model
Project-based outsourcing is for companies with a clear vision of the product and its requirements. These needs are transferred to the outsourcing team, which usually consists of a Project manager, UI/UX designer, frontend and backend developers, and QA specialist.
These are often unchangeable projects; they complete the task independently once the team is briefed. Their project manager will inform you of the status, ask for approvals, and finally hold a demo. Hence, this model provides you with minimal time commitment to the project.
What is Team Extension Model
The extended team model is the most popular way of outsourcing, usually due to a lack of in-house expertise. It means you are hiring specialists to work on your project until it is completed. It’s a way of adding experts to your existing team while maximizing the efficiency and skills of your team. In a team extension model, you have complete control over a project.
The Showdown: Comparing the Types of Outsourcing Models Team Extension Vs. Project Based
Regarding differences between team extension vs. project-based outsourcing models, the distinction lies in your company’s needs. It depends on whether or not your in-house team has the knowledge or do you have one that can handle your project. Finally, a few factors can influence your final decision on choosing between these two types of outsourcing models.
As mentioned, both outsourcing types offer flexibility in one way or another. However, certain aspects have some limitations, especially when speaking of long-lasting complex projects.
For example, with team extension models, clients have flexibility in adding or reducing the number of developers they hire for the project. It’s essential for projects that tend to change over time.
On the other hand, a project-based model is agreed upon upfront with a clear scope and requirements. It’s a model where milestones are marked and reached; a client can make changes only if they are within the scope initially agreed upon.
That said, it’s clear that the team extension model offers more flexibility on the project, and it’s ideal for projects that last up to two years.
Often companies need quick access to expertise for their project, and hiring an outsourcing company is ideal. Both models offer the ability to scale expertise according to the project. However, again there are some limitations.
Team extension is often ideal for companies aiming for the software and flexibility to scale their teams to reach their goal. Sometimes, one expert is no longer needed as a project reaches a particular phase, but it opens the gap for another tech stack. The only actual limitation in the scalability of this model is the access to resources that outsourcing partners may or may not have.
In a somewhat different manner, a project-based outsourcing model offers limited scalability. The agreement limits it initially, and there is little or no room to change the team members daily, like in the team extension model.
In other words, if your project requires additional resources frequently, then team extension is a much better choice for you.
There is no doubt that project ownership is in clients’ hands in either of the types of outsourcing. The only difference here is the involvement from the client’s side, which gives the impression that in the team extension model, it’s much more significant than it is in project-based outsourcing.
The difference is that the client gives instructions at the beginning of the project in a project-based model and occasionally gives input or decisions during the stages.
On the other hand, team extension ownership is mandatory by its very design. In most cases, project management is the sole responsibility of the client.
So, in essence, neither of these options prevails in this instance.
Many clients are concerned about how time-consuming a project can be for them. In both types of outsourcing, a client has to spend some time on the project. However, the difference is in the amount of time they spend on each of the projects.
Team extension is a type of outsourcing that requires time from the client as the entire project management rests in their hands. External developers often need guidance and briefing on specific roles to ensure their alignment with your team.
On the other hand, a project-based type of outsourcing is mainly self-sustaining and requires occasional inputs.
That said, if your project is something you don’t have time and resources for and it’s not your core business, you should opt for project-based outsourcing.
The choice between team extension and project-based outsourcing comes down to the type of outsourcing model that best suits the needs of your business.
- Team extension offers a long-term, ongoing outsourcing solution with dedicated teams of specialist staff assigned to your business.
- Project-based outsourcing is better suited to shorter, one-off projects, with dedicated teams working on specific tasks, often to tight deadlines.
Both types of outsourcing offer cost savings and access to specialist skills, with team extension offering a more structured, long-term solution. In contrast, project-based outsourcing is more suited to immediate, one-off tasks.
TNation is a Belgrade outsourcing software development company that can help you seamlessly scale your teams.