A Definitive Guide to Outsourcing & Offshoring
Today, as the world moves to working from home and remote locations, there is now a global talent pool of skilled employees vying for the same positions. Both outsourcing and offshoring are being adopted by startups as quicker ways to reach their success milestones.
Today, we’re going to give you an honest breakdown of offshoring and outsourcing. What they are, when to choose which, and which one is better in what situation.
What is Outsourcing?
Contracting a function or service to an outside agency, usually outside your core area of expertise is outsourcing.
In the real world, we have seen that outsourcing is often used as a means to delegate problems and their related solutions.
If you are a healthcare provider and your expertise lies in medical services. Technology isn’t your forte or strength. So you outsource the task of transferring the manual admission procedures digitally or build a technical front for your service. Some outside agency is assigned this task through outsourcing as it’s not your skillset.
What is Offshoring?
Offshoring is extending your operations by hiring individuals that are not in your geographic location. It is like building a branch or extension of your home team in another country.
There is a tech startup that has just raised a Series A and already has a small in-house team of developers. Once they raise that money, they need to scale and fast!
Approaching an offshoring agency like ours, helps expand your in-house team. You still own the process and the results, but you’re onboarding a dedicated team of culturally and technically sound engineers to meet your goals.
When done right, offshoring results in an integrated effort to meet the same goal, with two teams working as one.
Now that we have demystified the air surrounding the terminology, let’s dig deeper.
When Companies Use Outsourcing
- Offload the Problem
When you need to offload a business problem that you have no control over.
- Not Enough Resources
When a challenge presents itself, you might not have the time or resources to deal with it internally at the moment.
- Sharper Division of Work
With clear and distinct roles given to the in-house employees and outsourcing agency, the division of work is sharper. This streamlines business processes and reduces turn-around time for output delivery.
Why Companies Use Offshorin
- Cost Benefits
While offshoring, a lot of costs like overhead, benefits packages, building brand or hiring top talent, etc are saved. Plus there’s the added benefit of extending the skill of the team geographically through a local company.
The hiring of 20 people in India is an achievable feat. But the idea of hiring 20 people in the US isn’t as easily conceivable and many companies lack the skill set to do that. Offshoring helps bridge this gap.
- Skill Gaps
Many skill sets just aren’t available for companies in the home country. They are forced to look and find the required skills elsewhere. Offshoring helps find skilled personnel for the job.
So now we know why outsourcing and offshoring are chosen as options over handling the task within the company. Up ahead, we discuss the behind-the-scenes working of the two models.
The Outsourcing Process
We have a 5-step process for outsourcing which we call the 5 D’s. It follows the traditional Waterfall Model wherein the next step is dependent on the previous one. So it’s a linear process model. In this model, completion of the first step is necessary to move ahead and there is no overlapping.
The 5 D’s:
- Discovery– This is where the scope of work and requirements are discovered and decided.
- Design– This is the stage where technical and visual designing happens.
- Development– As the name suggests, here is where the development of our required product/service happens.
- Debugging– After the initial development, in the test phase, there might be some errors that need to be rectified. This is the stage where it happens.
- Deployment – Here is where our product/service is ready to be launched after eliminating the errors.
Understanding this with our earlier discussed healthcare service provider, they want to digitize the admission process which is done manually at present. So the scope of work is decided to create a digital admission process.
After this, they approach an outsourcing agency which helps them structure and develop the technical front of the requirement. They run an alpha test of the product and perform troubleshooting if needed. After the beta test run is successful, the product is launched.
The work for each phase is pre-determined and there’s no scope for overlapping. The next phase is initiated only after the completion of the first. It moves ahead in a linear path from the first step to the last like a waterfall.
At Reliable Group, the offshoring model we’ve seen success with is the Agile Method.
In Agile development, we presume to not know what our next step is until we are closer to the work actually being done. We know the overall goal, but don’t always pre-define the path to get there.
What Agile does is work in sprint cycles where a list of tasks are prepared. There is a basic plan laid out and the work and tasks are prioritized according to the development flow, technical and business priorities, and many other factors. The plan can change every sprint, which results in a robust project scope.
The offshoring model gives the benefit to align the resource plan along with the sprint plan and keep it flexible.
Let’s understand this through an example of the Funded Start-up that requires technical expansion.
- The in-house and the offshore teams work as a unit together.
- The in-house team sets the goals to be achieved and a plan to tackle them.
- A course of work is laid out which is to be completed in 2 weeks.
- Both the teams work in sync to achieve the targets in the first sprint.
- If some tasks are pending, they can be rolled over in the next 2-week sprint.
- This cycle keeps repeating itself till the targets are met.
This cycle of sprints helps in the development of the digitization of the firm’s processes and helps resolve the issues that arise during the development stages. It saves a lot of time should the firm demand changes after the whole digitization process is “complete.”
It allows the opportunity to evolve along the process rather than wait till the end and start all over again to incorporate the changes. If the business or the requirements change, the offshore partner should be able to easily adjust the resources from their bench.
Every choice you make comes with its own set of challenges and triumphs.
Challenges in Outsourcing
- Interpretive Challenges
When a startup outsources a product to be built because of a time crunch, things can get frazzled. There’s an inherent interpretive challenge, as in the ownership of the product has stayed with the person who is investing in outsourcing… but the outcome is entirely left up to a team that has no idea of the inspiration, philosophy, and inner workings of the final product. The Startup expects the outsourced company to be mind-readers, which is a recipe for disaster.
- Loyalty with Vendor
When a task is outsourced, the people working on the project are employed by the outsourcing vendor. It’s a challenge to have both parties on the same side due to the lack of a free flow.
- Me You
In the outsourcing model, the client creates the scope of work, and the vendor tries to achieve it. This unintentionally creates a ‘Me vs. You’ scenario. The aim of the vendor is profit maximization by reducing the efforts and the client aims to maximize the gains from the scope of work. The clash that results may lead to dissatisfaction on both ends.
Challenges in Offshoring
- Geographical Challenges
The geographical distance and time zone differences can add a strain on the in-house team but also the off-shore team. It stretches both teams in terms of time commitment. Striking a balanced schedule where team members openly communicate their check-in and check-out times is often a quick-fix for this challenge.
- Cultural Barriers
There is a lot to be said about culture. Indian teams often eat lunches together, as a group – as in every team member in the office is unavailable at the same time. Eating while commuting or at the desk has become even more common now in the work from home environment. Instead of imposing one culture over another, it’s helpful to set company culture and bring everyone to the same virtual table.
The facilities available in the offshore team’s country may not be as advanced as in the home country. Facilities like internet, electricity, telecommunication, etc may not be up to par and lead to several complications. Learning about the shortcomings is the first step in overcoming them.
Overall Advantage: Offshoring.
Primary Differences between Outsourcing and Offshoring
- Product Owner
In offshoring: The product is owned by the one who hires the offshore team, maintaining quality, ideation, and technical integrity.In outsourcing: you have a vendor with a scope of work and they’ll make the product based on their understanding.
Overall Advantage: Outsourcing.
- Extending YourTeam’s Capability
By extending the team globally, offshoring allows flexibility and an increase in productivity.The time differences may work in your favor. By the time the in-house team gets ready to get down to business, the offshore team may have already powered through a heavy load of work.The in-house team has to pick up from where it’s counterparts left-off.Offshoring inherently builds loyalties and at Reliable, we have witnessed offshore teams going above and beyond their roles to get it done.
Overall Advantage: Offshoring.
- Allows Wiggle Room for Changing Needs
For the growth and development of any business, it needs to keep on changing.In an outsourced model, you have a set requirement and deliverable. If it changes even in the smallest degree, the project can fail.The agile method of the sprint can be modified to aid greater development.
Overall Advantage: Offshoring
Is Offshoring better than Outsourcing?
We are not saying that one model is superior to the other. Both the models have their niche in business operations. Either can prove an excellent choice when chosen wisely. The trick lies in finding the correct strategy to boost your growth.
For example, the Start-up we talked about earlier decided to offshore and expand its technical team.. But it may choose to outsource its social media marketing to a digital marketing agency. This strategy may prove wise as the digitization process may require the involvement of the higher officials whereas social media marketing doesn’t require such involvement.
Up until now, we have discussed and understood what outsourcing and offshoring are and what they entail. Let us now look up at these models in action and how they helped companies boost their growth!
Here’s how Slack Benefitted through Outsourcing
Slack, a business communication platform was formed in 2013. You’re probably being interrupted by your Slack chats as you read this.
In its initial stages, Slack outsourced the design of its prototype to a designing agency called MetLab. The outsourcing agency helped Slack revamp its website as well as the app, its logo, and other graphics.
This wasn’t a core competency of the founders and by outsourcing it, they saved time and achieved great results.
BigCommerce Success through Offshoring
Headquartered in Austin, Texas, BigCommerce is an IT company that offers a SaaS e-commerce platform. BigCommerce was in the process of expansion but couldn’t recruit IT professionals with the skills required for the job in their home country.
So, they turned offshore and set up an R&D center in Ukraine and found the resources and talent to meet their needs and at quite a low cost.
This is a classic example of how offshoring can fill the gap created by lack of skilled professionals in the home country and extend their team’s capability with the addition of the offshore team!
Why Reliable Group?
At Reliable Group, we’ll steer you in the right direction, with the right teams at the right time. Guiding you into a fully developed plan of action to attain results.
Reliable Group is a US-based firm and has helped hundreds of companies – startups, mid and large-scale enterprises in the last 40 years to set up talented offshore teams. With an extensive resource pool, expansive experience, whole-hearted commitment, and clear communication – we know what it takes to help you!
We are prepared to take your business to a new high, are you?