Maximize revenue and minimize spend with Freelance, Outsourcing and Outstaffing

The growing need for flexibility and efficiency challenges businesses pushing them to look for cost-effective and scalable operations. The three models of work delegation to external units are freelance, outstaffing and outsourcing. Which suits you the most?

To help you make an informed decision, Yulia Bataltseva, EasyStaff CMO, provides a comprehensive guide on these mechanisms to help you draw the line and effectively assess your needs.

Freelancing, outstaffing, and outsourcing are three different approaches to organizing work where businesses delegate part of their operations to external work units, either individual contractors or legal entities.

Freelancing is a form of work relationship where individual contractors work independently on a project offered by their client. Customers and freelancers are independent of each other, and the format is generally opposed to full-scale employment.

When a business outstaffs workers it means that it leases teams from a third-party outstaffing company, i.e. their factual employer.

How does it work?

• Employees of the outstaffing company work for clients under a contract.
• The client company supervises the work of the outstaffed employees but is not their employer.
• Payment for services is usually based on a specific rate per outstaffed employee.

Real-life examples

• Software Development: A client company outstaffed a team of developers to create a new online sales platform, which significantly reduced development time and lowered personnel maintenance costs.
• Human Resources Administration: A firm engaged an outstaffing company to manage all aspects of human resources, allowing them to focus on their core business and improve operational efficiency.
• Accounting Services: An organization used outstaffing for financial reporting and tax accounting, reducing the costs of maintaining an internal accounting department and increasing reporting accuracy.

Advantages of outstaffing for businesses

• Business integration. Outstaffing allows companies to integrate external specialists into their business processes, ensuring effective collaboration with in-house teams. For example, a large IT company might outstaff a small team of developers to build new software. These external developers actively interact with internal teams using Agile methodologies, participate in daily stand-ups and regular code reviews, effectively integrating them into the development process.
• Reduced admin burden. When outstaffing a team, you basically hire talents. All things HR and payroll remain with their factual employer, so you carry no responsibility in terms of tax management for outstaffed workers.
• Hireable market intelligence. To remain ahead of the curve in the volatile markets, companies need to gain expertise quickly to make the right moves. Outstaffing the necessary expertise provides a significant competitive edge to your business.
• Readily accessible skilled teams for complex projects. Through outstaffing, companies can gain access to cutting-edge technologies that might be unavailable or require significant investment in employee training. For example, an automobile manufacturer might outstaff a consulting firm specializing in developing electronic engine control systems to improve the fuel efficiency of their vehicles. Experts from the external company provide access to advanced technologies and knowledge, which helps optimize engine performance.

Disadvantages of outstaffing for businesses

• Confidential data leaks. Hiring a team from a third-party entails sharing sensitive information. Inadequate information protection measures could lead to serious consequences for the company.
• Inconsistent service quality. The quality of services provided by the outstaffing firm can vary depending on the qualifications and experience of the personnel working on the project.
• Management challenges. Managing and coordinating internal and external teams can be a complex task. If performed poorly, there is a risk of delays and resource overspending.

Outsourcing is the delegation of specific business processes or functions to a third party, often another organization.

How does it work?

• Companies engaged in outsourcing typically specialize in particular services or processes.
• Outsourcing can involve the delegation of both operational and support functions, such as IT support, accounting, marketing, etc.
• Long-term contracts are usually established to govern obligations and expectations regarding the quality and timely completion of work.

Real-life examples

• Financial and HR Administration: A company outsources its accounting services to a financial firm, allowing the latter to maintain accurate and timely records, reducing the risk of errors and minimizing the workload on its own staff.
• IT Infrastructure: A large corporation outsources the management of its IT infrastructure to a specialized company, which ensures continuous system operation, reduces downtime, and provides protection against cyber threats.
• Customer Service: An online retailer outsources call handling to its customer service partners, enabling them to handle a larger volume of inquiries and provide fast, high-quality customer service during peak demand periods.

Advantages of outsourcing for businesses

• Reduced risks. External service providers can take on specific obligations and tasks, thus to an extent freeing the client company from some responsibilities. For example, a pharmaceutical company outsources clinical trials for new drugs to specialized research organizations to mitigate risks associated with operational and regulatory aspects of the research.
• Faster response to change. Professional service providers can provide a quicker and more flexible response to changes in market conditions or internal business needs. For example, a technology startup might outsource technical support for its mobile app to an external company, allowing them to rapidly adapt to evolving market demands and implement improvements. Professional service providers are already skilled enough in the area you might just be entering.
• Access to cheaper labor force. Outsourcing helps improve the utilization of a company’s resources, directing them toward more strategically important tasks and projects. For instance, a multinational corporation might outsource part of its operations to countries with lower labor costs, maximizing resource utilization and reducing overall production and maintenance expenses.

Disadvantages of outsourcing for businesses

• Quality control. Because the company no longer fully controls the task execution process, quality management gets challenging. For instance, after transferring its farms overseas, an international milk production organization (based in Russia) faced a loss of product quality control as they couldn’t monitor the process and ensure its compliance with standards.
• Limited customization flexibility. In some cases, the external provider may offer limited possibilities for customizing services to a company’s specific needs. For example, a furniture manufacturing factory decided to outsource its human resources management system. However, the firm had specific requirements that the external provider didn’t consider. As a result, the established management system suffered.
• Complex contract termination terms. When ending a partnership with an external service provider, difficulties can arise in transferring data and processes back internally. For example, an electronics manufacturing enterprise decided to terminate its partnership with an external component assembly provider. However, when the contract ended, difficulties arose in transferring processes back inside the company due to differences in management systems and quality standards. This led to delays in production processes and decreased operational efficiency.

Let’s imagine you’re an IT startup specializing in cloud services. You need a strong marketing strategy to enter the market and establish your presence. Let’s consider the steps you need to take to determine who to entrust this task to: a freelance marketer, an outsourcing agency, or an outstaffing team.

1. Define Your Marketing Campaign Needs

• Formulate your promotional strategy goals and objectives. Brand awareness, attracting new clients, generating more sales, or a combination of all three?
• Identify your target audience. Which market segments do you want to reach?

2. Analyze Your Resources

• Internal marketing resource. Do you have marketing specialists, copywriters, designers, etc.
• Budgeting. Consider available money for implementing marketing initiatives (of course, if you’re a startup, your budget will be limited).

3. Analyze Risks

• Consider potential risks associated with your chosen strategies, such as low conversion rates, insufficient target audience engagement, etc.
• Develop an action plan to anticipate risks.

4. Evaluate Specialization

• Determine what types of marketing services your IT company requires: content marketing, SEO (search engine optimization), social media advertising, email marketing, etc.
• Research the market and select specialists or agencies specializing in the required area (for freelancers, large platforms like UpWork, EasyBusy, Freelance.ru are ideal).

5. Consider Flexibility

• Consider the possibility of changing your promotional strategy based on audience feedback and market trends.
• Consider using flexible methods and tools, such as A/B testing and marketing automation (can you do this yourself or are you willing to delegate tasks?).

6. Compare Costs

• Compare the cost of developing an internal marketing department with the cost of outsourcing or outstaffing services or hiring a single freelancer. Spoiler alert! Outsourcing is significantly more expensive, as a large group of people are working on the project who are not directly affiliated with you.
• Consider the potential benefit and return on investment (ROI) in marketing. If you’re aiming for large-scale coverage and ongoing updates, outsourcing might be your option. If you can successfully implement the strategy yourself after its development, freelance works better. If you haven’t decided but are sure you can’t handle it yourself, choose outstaffing.

7. Make a Decision

• Based on the analysis of needs, resources, risks, and costs, decide whether you’ll develop the marketing strategy in-house or turn to external specialists or agencies. But remember, you can always try all the models and not limit yourself to a single option.

Yulia Bataltseva
July 8, 2024