Staff Augmentation vs Outsourcing: Key Differences

Aleksandra Velickovic

May 17, 2024

The post-pandemic era has brought a lot of grief to businesses across the globe. Due to financial struggles, many IT companies made massive layoffs to cut operational costs and keep their doors open. This is where the introduction of seeking third-party support came into play. Staff augmentation vs outsourcing – which path is better for your business? This is what we’re here to help you figure out.

In this article, we lay out how staff augmentation and outsourcing diverge. You’ll learn the pros and cons of each, from flexibility and expertise to quality control and management. We’ll also provide real-world examples of both strategies in action. This comprehensive comparison should help you choose the path that best fits your business goals and takes you where you want to go.

What is Staff Augmentation?

Staff augmentation services focus on temporarily expanding your in-house team by hiring external contractors or freelancers with specialised skills for a fixed timeframe. Unlike outsourcing where an entire business function is transferred outside, professional staff augmentation supplements your existing staff with additional resources.

Flexibility and control

Staff augmentation provides flexibility since you can scale your team up or down as needed. You maintain control over the work and contractors function like temporary employees following your company’s processes and culture. They are directly managed by your internal staff allowing close collaboration.

Access to specialized skills

Staff augmentation allows you to tap into a larger talent pool and find resources with niche or highly specialised skills that may be difficult to hire full-time. Contractors can hit the ground running with little ramp-up time. Their experience from various projects also exposes your team to new skills and ways of thinking.

Cost-effectiveness

Hiring temporary contractors is often more cost-effective than recruiting full-time employees since you only pay by the hour or the project. You also avoid costs like:

  • Recruitment;
  • Training;
  • Benefits;
  • Paid time off;
  • Bonuses;
  • etc.

Contractors can be let go once their services are no longer needed, eliminating redundancy.

Maintaining work quality

Proper oversight and management are required to ensure staff augmentation achieves your quality standards. To get contractors up to speed, you must clearly define the scope of work, key performance indicators (KPIs), and your company values & processes.

It’s best to provide regular feedback and evaluate their progress to ensure project milestones and targets are met. Staff augmentation done right allows you to complete high-quality work at lower costs.

What is Outsourcing?

Outsourcing is when a company hires an outside specialist to handle ongoing tasks previously handled by in-house employees. This could be anything from graphic design and social media marketing to business analysis and IT support & maintenance.

Lower costs

One of the main reasons companies outsource is to save money. According to a Harvard Business Review study, outsourcing can lead to significant cost savings, potentially reducing expenses by 20% to 30%.

Outside organizations can often perform tasks at a lower cost and the same quality, allowing the company to reallocate resources to focus on core business activities. Outsourcing also eliminates the need to hire and train specialised staff.

Improved efficiency

Companies specialising in a particular service tend to be very efficient at what they do. They have the expertise, resources, and scale to handle specific tasks in an optimised way. Outsourcing to one of these companies can help improve business processes and the quality of the work.

Reduced risk

There are risks associated with every business activity. Outsourcing transfers some of these risks to the outside organization. For example, if a company outsources payroll, the outsourcing provider assumes responsibility for ensuring compliance, accuracy, and timeliness. The company avoids the costs and consequences of potential mistakes.

Focus on core competencies

By outsourcing secondary activities, companies can devote more time and resources to activities that matter, such as minimum viable product development, sales, customer service, etc. Outsourcing frees management to focus on growing the business rather than overseeing routine tasks.

Outsourcing allows companies to cut costs, benefit from specialized expertise, reduce risks and focus internal efforts on core priorities. For the right activities, it can be an effective way to optimize resources and gain a competitive advantage.

Staff Augmentation vs Outsourcing: The Differences

Three images showing the differences between IT staff augmentation vs outsourcing.

Type of resources

With staff augmentation, you temporarily hire additional staff to join your existing team. These individuals work alongside your current employees to provide extra help on projects or during busy periods. 

On the other hand, outsourcing involves hiring an external company to handle an entire task or process for you. They provide the resources and manage the work themselves.

Management and control

When you augment your staff, you maintain full management and control over the work. The temporary hires report directly to you and your team and follow your company’s procedures. 

With outsourcing, you hand over control of the work to another company. They will manage the process and resources according to their own standards and practices. You will have limited visibility into how they operate day to day.

Cost structure

Staff augmentation typically costs more since you are paying additional salaries and benefits. But your costs scale directly with the work required.

Outsourcing is often more cost-effective as you can negotiate a fixed fee for the work. The outsourcing company can also achieve economies of scale by servicing multiple clients. However, there is a risk of hidden fees or price increases over time.

Knowledge transfer

Augmenting your staff allows knowledge to be transferred between temporary and permanent hires. Your current team can get temporary workers up to speed and pass on institutional knowledge. 

When outsourcing, there is limited opportunity for knowledge sharing and transfer between the companies. The outsourcing provider may have a steep learning curve to understand your systems, products, and processes.

In summary, while outsourcing may seem appealing for its potential cost savings and efficiency, staff augmentation can offer more control, flexibility and knowledge transfer— which could be more valuable for your business in the long run.

The right option depends on your priorities, budget, and how critical the work is to your company’s success.

Staff Augmentation vs Outsourcing: When to Use Which

Staff Augmentation

This is probably your best bet if you need short-term help for a project or to fill a temporary staff shortage. With staff augmentation, you’re essentially “renting” contractors to join your team temporarily.

Say you just landed a big new client and need extra hands on deck to meet deadlines. Or maybe you’re launching a new product and want to tap outside experts to help during the initial rollout. In these cases, bringing in contractors through a staffing agency to work onsite or remotely for a fixed period can be an ideal solution.

You can end the contracts once the project is complete or you’re fully staffed again. This flexibility and scalability are what make staff augmentation appealing for many companies. The contractors are not your employees, so you don’t have to provide benefits or commit to long-term retention.

Outsourcing

If you want to hand off entire business functions or processes to outside partners on an ongoing basis, outsourcing is the way to go. Outsourcing is a long-term strategy where you contract with another company to handle the work.

Common examples of outsourcing include:

  • IT outsourcing: Contracting with an IT consulting company to manage infrastructure, software development, and support.
  • Call centre outsourcing: Using an outsourced call centre provider to handle customer service calls and inquiries.
  • Accounting outsourcing: Outsourcing payroll, bookkeeping, tax filing, and other finance functions to an accounting firm.

Outsourcing makes sense when another company can perform certain non-core functions more efficiently and cost-effectively. However, you give up control and flexibility. Outsourcing contracts are often multi-year agreements, and switching providers down the road can be complicated.

Summarising: tap into staff augmentation when you need temporary help for short-term or project-based work. Consider outsourcing for long-term, large-scale transfer of business functions to specialized companies. The key is choosing the right approach for your unique needs and situation.

Staff Augmentation vs Outsourcing: Pros and Cons

Staff Augmentation

This plan involves hiring contractors or temporary employees to supplement your existing staff. This allows you to scale your team up or down as needed without the commitment of hiring full-time employees.

ProsCons
Stronger Integration: Augmented staff become part of your team, fostering better communication and collaboration.Lack of Control: Contractors are not direct employees so you have limited control over their work.
Direct Management: You maintain control over the project and directly oversee the augmented staff.Knowledge Transfer Issues: Valuable knowledge can be lost when contractors leave.
Scalability: Easily scale your team up or down as project requirements evolve.Hidden Costs: While hourly rates may be lower, you still need to invest in onboarding and training contractors.
Skillset Match: Recruit specialists for specific needs without long-term commitments.Management Overhead: Requires additional time and resources for onboarding and managing temporary staff.

Outsourcing

Outsourcing involves contracting an external organization to handle certain business functions or tasks. This is a more long-term solution where you delegate responsibility for an entire role or department.

ProsCons
Cost-Effectiveness: Typically cheaper than hiring augmented staff, especially for long-term projects.Hidden Costs: While base fees may be lower, you account for contract management, technology, security, and quality control costs.
Expertise: Access to specialized teams with deep expertise in specific areas.Communication Challenges: Managing outsourcing relationships requires effort and can be difficult across borders and time zones.
Reduced Workload: Frees up your internal team to focus on core competencies.Loss of Control: Less oversight and control over the project and deliverables.
Minimal Management: Less time spent on onboarding and managing external teams.Job Loss Concerns: Outsourcing may result in job cuts for in-house staff in the areas outsourced.

Also read: Top IT Outsourcing Benefits for Small Businesses

The Takeaway

The decision between staff augmentation and outsourcing depends on several factors:

  • Project duration: Is your need temporary or long-term?
  • Control: How much direct oversight do you require?
  • Cost: Are you optimising for short-term cost-effectiveness or long-term savings?
  • Core competency: Is the task central to your business’s core competencies?

So, staff augmentation vs outsourcing – the first equips you with a specialised talent for precise needs without diluting your culture, while the latter offers a broader stroke, handing off functions to achieve efficiency and focus.

Capaciteam is adept at both and ready to craft a custom approach that aligns with your strategic goals. From QA services to full-stack development, our staffing solutions meet your needs, ensuring you have the right support, whether you’re augmenting your team or outsourcing functions.