In an increasingly service-oriented market, you may well prefer to hire a specialist to fix your car or build your house. Likewise, businesses are increasingly looking to outsourcing providers for expertise to help recruit top technology talent.
According to a study by Grand View Research, the process outsourcing market will reach an estimated $525 billion by 2030, so the outsourcing trend is expected to continue to grow.
In recent years, the trend of outsourcing some of the functions of the HR department, such as recruitment, administrative and payroll issues, has grown significantly. While in-house or traditional HR models may have some benefits, in general, outsourcing brings great benefits to companies such as optimizing the tech budget, reducing time-to-market, improving flexibility, and allowing companies to focus on core business and innovation.
In the article, we will see what the pros and cons of both models are so that you have the necessary information when deciding on your HR department.
What are the differences between the traditional HR model and HR outsourcing?
We will begin by giving some guidelines for each model. Firstly, a traditional HR model implies that all processes in the area are performed in-house. For example, in a software development team, all team members are direct employees of the company and HR oversees recruiting the necessary professionals, as well as the administrative tasks that arise from it.
The HR outsourcing model, on the other hand, is distinguished by the fact that it is a third-party provider. When you hire a third-party provider, you can employ part or all of the outsourcing company’s staff as well as resources to achieve previously agreed-upon results.
HR functions that can be outsourced
In the outsourcing model, these are some of the processes that can be delegated so that your company can focus on the goals that are most urgent for the core business:
- HR Recruitment: In charge of finding talents with the necessary skills for the development team.
- HR Management: In charge of training, employee benefits, and compensation, etc.
- HR Administration: In charge of legal and administrative issues of hiring employees.
Benefits of in-house development teams
In addition to the functions that you choose to keep or delegate from the HR department, both models also involve certain ways of forming teams we will analyze IT development teams.
While the in-house model is more reliant on presential teams, outsourcing teams rely on a modality that has grown in popularity in recent years: remote work.
We will see below the benefits offered to companies by traditional outsourcing models for the formation of software development teams:
Fluency in communication and interaction
When you have an in-house development team, even if its members work in person or remotely, communication will be more fluid since they share the same time zone, similar cultural values, and language.
Awareness of company culture and objectives
Having undergone lengthy selection and induction processes, in-house employees tend to be more familiar with the company’s cultural values and business goals.
Knowledge of available resources
Staff is often more aware of the company’s tools, systems, and processes.
Disadvantages of in-house development teams
On the other hand, traditional HR models bring with them several disadvantages that are causing many organizations today to begin to consider alternative models. The main reasons why companies with in-house development teams are looking for another model are the high costs and the difficulty to get the necessary talent quickly.
These are the main disadvantages of building in-house teams:
Undoubtedly, cost reduction is one of the main axes that will mobilize organizations during 2023 due to global economic difficulties.
Building a software development team in the US is expensive, as the hourly wage for a programmer is between $40 and $80, while in other regions such as Latin America, rates are between $30 and $45 per hour.
In addition, having a team that works on-site may also add costs related to the rent and maintenance of an office, as well as the expenses derived from equipping it.
Less flexibility in hiring
Having a team of full-time developers is expensive, so project budgets can skyrocket. It is common in development projects that delivery deadlines are brought forward to stay ahead of the competition, or that more programmers are needed to resolve an update quickly. Therefore, the outsourcing model offers much greater flexibility through staff augmentation, which allows hiring per project and according to the needs of the moment.
Absenteeism tends to increase
If an employee is temporarily absent due to illness, vacations, or personal problems, this will cause delays and problems in completing the project. In the outsourcing model, the vendor will oversee replacing the absent person so that the project can continue.
Attrition rate is higher
Attrition is a problem that affects the tech market, and generates great difficulties for the traditional HR sector due to the difficulty of finding highly specialized talent in technology in a short period of time. Therefore, the outsourcing model has an advantage in this aspect, since they have a large pool of talent at their disposal.
3 tips for recruiting in-house talents
1. Look for what you need: It is important to look for talent that complements the team well, both in terms of technological knowledge and soft skills that allow it to adapt successfully to the team.
2. Know where to look: In-house recruiters must find a search engine focused on where talent can be found. For example, on recruiting platforms such as LinkedIn, at hackathons and boot camps, or at educational institutions.
3. Write an attractive job description: Having a good job description can make the difference between having many candidates and not catching the attention of any programmer.
Benefits of outsourcing development teams
Now we will focus on the creation of development teams with the outsourcing model. This model is growing and so is the demand for developers. Commit’s 2022 survey indicates that 48% of HR leaders see outsourcing as an opportunity to reduce costs, while 42% of CTOs see this model as one of the keys to scaling quickly.
These are the main benefits of outsourced teams:
The outsourcing model is significantly less costly than traditional HR for two reasons: firstly, because extends the search for talent to regions with lower salaries, and secondly because the recruitment and adaptation process is much shorter so that the resource will be working on the project without delay. Outsourcing companies have a large number of experienced professionals, so their adaptation to the projects will be much faster than if junior developers are hired.
Focus on core business
With the outsourcing model, companies can focus their efforts on core business such as increasing sales, improving customer service, and focusing on innovation or the search for new business opportunities.
Expand the talent pool
Thanks to the popularization of remote work, it is possible to build remote teams and improve productivity.
In this way, it is possible to get talent in unexplored markets and with salaries that are more accessible to your tech budget.
Getting the best talent
In recent years, getting the best tech talent has been a challenge for companies. The talent shortage is affecting the industry and hiring an outsourcing provider can help you hire the developers that will allow your project to move to the next level.
IT leaders also have the challenging task of choosing a vendor in the region that best suits their needs. In general, the Nearshore model is the most beneficial for US companies due to factors such as a shared time zone, English proficiency and cultural similarities.
On the other hand, the region that will be in high demand in 2023 is Latin America because it is a good cost-effective choice, and the region is considered Nearshore.
During the software development process, unforeseen events and last-minute changes can arise, so flexibility is important. If you need to increase the number of developers, with the outsourcing model, you can easily strengthen the team.
Suppliers are used to this work dynamic, so they will have no problem providing you with solutions in a brief time.
Reduce time to market
Another advantage of outsourcing your HR process is that you will save time. Outsourcing allows you to delegate the hiring process to an external HR service provider with more experience.
Furthermore, development teams have extensive experience with agile work methods such as POD teams, which significantly reduce delivery times while also improving product quality.
Increase Talent Retention
The outsourcing company will be in charge of retaining employees. Keep in mind that these are companies that specialize in managing conflict and keeping developers happy so they can deliver their full potential.
Disadvantages of outsourcing development teams
Just as the outsourcing model offers significant benefits to companies, there are also some questions that organizational leaders should consider before contracting the service:
Choose the most convenient model
It is important to consider the outsourcing model to hire. For US companies it is usually more convenient to think of a Nearshore model since you will be able to optimize costs but without compromising on other important aspects. In the case of the Offshore model, when hiring a company from a distant region you could have difficulties for the teams to overlap working hours and difficulties in communication due to cultural differences. Therefore, when thinking about outsourcing models, you should not only consider the price, as there are other factors that could severely influence the results of the project.
Beware of cheap outsourcing
Sometimes, trying to save as much as possible, you can make the wrong decision and hire a low-quality provider. And those dollars you saved will be spent on development delays and perhaps even on having to hire another provider because of the impossibility of achieving the objectives set.
Here we share a guide on how to optimize your tech budget with confidence, and how to detect red flags that may indicate that the provider you are about to hire is not reliable.
In sum, you may ask: Which model should I choose for my company?
As we discussed above, both models have advantages and disadvantages. The traditional HR model allows having more control over the organization’s resources. Still, with inflated costs and especially in a market like the technological one, the biggest disadvantage is that if you do not have the necessary experience and knowledge, it will be exceedingly difficult to find and keep the best talent.
On the other hand, in the HR outsourcing model, the provider has a wide knowledge of the market and technology that will allow your company to nurture itself with innovative technological solutions.
However, you should look for a reliable provider that offers a high-quality service at a reasonable cost and with verifiable success stories.
If you are looking for a Nearshore vendor with vast experience in the market and with positive customer reviews that certify the quality of our service, you can contact us.