There is an increasing drive to reduce costs and improve operational efficiencies through technological innovation. This naturally translates into a growing number of IT projects, where success or failure of a business can often hinge on the ability to complete these projects on time, within budget, and to specification. Developing in house capabilities to complete these projects can be a costly and risky venture, particularly when the IT needs of an organization are constantly changing. Moreover, in today’s business world where falling behind the IT innovation curve can lead to disaster, very few companies have static IT needs. Even companies who are content with IT business as usual can easily find themselves relying on outdated legacy systems which, upon failure, could cripple a business. When companies look for outside help in completing IT projects, they are generally considering two delivery models: staff augmentation and project outsourcing.
IT staff augmentation allows a company to add staff to their teams based on the additional skills required to support their initiatives. Resources are employed by the staff augmentation firm.
"Companies may easily ramp up and down to meet changing demand without shouldering the cost and liabilities of additional full time employees," said Kristin Tucker, Managing Principal, TDK Technologies.
- Control over staff: When there is a need to closely manage resources, staff augmentation is ideal.
- Integration with internal processes: Companies can find it more effective to integrate staff augmentation resources with existing business processes than to align those processes with external project teams. After all, an individual can adapt more quickly to the processes of an organization than two separate organizations can align with each other.
- Leverages existing resources: By adding new skill sets to the team, a company can take advantage of both external and internal resources for the completion of their IT projects.
- Specialist expertise: When project team gaps mainly consist of specialized skills, staff augmentation can efficiently fill those gaps.
- Rapidly changing staffing needs: Companies with staffing needs in constant flux can meet those needs through staff augmentation. It’s relatively easy to add or subtract resources to match demand.
- Reduce cost of acquiring skills: Avoids the cost of investing in internal skill development.
- Reduce employer burdens: Avoids costs and liabilities of direct employees.
- Meet aggressive project timelines: When an active project has a need for more resources in order to be completed on time, staff augmentation is typically the best option, and is often the only option.
- Internal acceptance: Existing employees often embrace a staff augmentation model more than a project outsourcing model. Existing employees are less likely to feel threatened by augmenting staff with a few individuals than by outsourcing entire projects.
- Ease of adoption: It’s easier to adopt a staff augmentation model than a project outsourcing model. Companies are already used to hiring employees. Staff augmentation is just a small shift from what companies already do.
- Can still be training intensive: Although companies avoid the cost of training staff augmentation resources in the skills they are bringing to the table, there may still be training involved in bringing resources up to speed with the company processes, tools, and general domain knowledge.
- Reliance on internal processes: If there are flaws in internal processes, staff augmentation resources will be affected negatively by these just as internal employees. Companies with process flaws are typically not going to enjoy the benefits of implementing industry best practices through staff augmentation.
- Lack of economies of scale: As a company’s need for more resources grow, the cost structure doesn’t typically improve in a significant fashion, since resources are added incrementally and rates are typically negotiated on a per resources basis.
- Management overhead: Adding resources through staff augmentation will increase management overhead due to the increased need to supervise the growing number of staff augmentation resources.
- Resource centric model: Ultimately the goal of staff augmentation is to deliver results. While using a quality staff augmentation firm will aid in the delivery of those results, the responsibility for the results stays within the company when using a staff augmentation model. Companies are purchasing resources, ideally high quality resources, but not results. Companies remain responsible for planning and managing the project, tasks, resources and deliverables.
- Employee vs. contractor distinction: Companies shoulder the burden of ensuring that their staff augmentation resources cannot be construed as employees.
IT project outsourcing allows a company to execute entire projects using the resources of another firm. In some cases, this can also take the form of “out tasking”, where specific tasks of a project might be outsourced to a sub team which is staffed and managed by the outsourcer.
"The project outsourcing approach allows companies the benefits of external expertise, cost management and risk mitigation so they can concentrate existing resources on their core operations," said David Kocs, Principal, TDK Technologies.
- Reduce training costs: Training and skill development is the responsibility of the outsourcer.
- Best practices: Taking advantage of industry best practices can be accomplished simply by using an outsourcer who follows best practices. Outsourcers shoulder the responsibility of investing in the adoption, maintenance and improvement of best practices.
- Scalability: Just as it is easy to add or subtract staff augmentation resources, it is also easy to ramp up and down with project outsourcing.
- Economies of scale: There is significant leverage when negotiating large contracts with outsourcers. Outsourcers also take advantage of their own internal economies of scale for project work within their core competencies.
- Reduce management overhead: Management is the responsibility of the outsourcer.
- Results centric model: The responsibility for delivering results lies with the outsourcer. Companies are buying agreed upon results. Outsourcers are sharing in the risk and rewards of the IT project.
- Keeps the focus on the core business: Because the responsibility for delivering results lies with the outsourcer, companies can stay focused on the results and their core business.
- Employee vs. Contractor: Project outsourcing avoids navigating the legal landscape of employee vs. contractor issues.
- Overcomes a lack of internal capabilities: Companies that lack the internal capability to complete certain projects will typically find it more cost effective to outsource their project needs as opposed to developing those capabilities internally. This is especially true for one time and intermittent needs and companies with no IT department or no development staff.
- Variable cost structure: Shifts fixed costs (employees) to variable costs (project costs) which change in proportion to the current level of project activity. This improves operating leverage.
- Opportunity for legal redress: When a project is performed internally, any project failures or liabilities which arise are the company’s responsibility. When a project is outsourced, contracts are typically structured such that the outsourcer takes on that risk.
- Lack of control: Control of everything from high level processes down to individual resources rests with the outsourcer.
- Internal resistance: Some within a company may feel threatened by a project outsourcing model. Although most project outsourcing serves the purpose of overcoming a lack of internal capabilities, some internal employees may be concerned that this model will lead to cutting back internal staff in favor of project outsourcing.
- Finding a quality outsourcer: When a company looks to meet a need which is beyond the scope of their core competencies, it may be difficult for them to assess the quality of potential outsourcing firms.
- Smaller projects: Smaller projects may be less cost effective under a project outsourcing model than a staff augmentation model. Some outsourcers may be reluctant to take on small projects and may charge a premium to take on such work.
- Integration with internal processes: Integration with complex and unique internal processes may be more difficult under a project outsourcing model, which increases demand on Business-IT alignment.
A Hybrid Approach
For most companies there is no one size fits all approach. Some needs are best met through staff augmentation, others through project outsourcing, and sometimes these needs overlap. Consider an example of two interdependent projects: the first project lies within a company's core competencies but additional specialists are required to complete the project successfully, the second project lies outside of the company's core competencies altogether. In this case a hybrid approach may work best, where staff augmentation is used to acquire the required specialists for the first project and project outsourcing is used to complete the second one.
Selecting the Appropriate Delivery Model
Choosing the right delivery model can be a complex decision. Many of the factors covered above may become part of a detailed cost benefit analysis. While some companies feel comfortable making this decision internally, others may find it helpful to seek out the advice of an IT consulting firm. Below are some basic guidelines that can help navigate the decision-making process.
Selecting a Vendor
When selecting a vendor, consider working with one which provides both staff augmentation and project outsourcing services. This allows you to get the best of both worlds, without the increased burden of managing multiple vendor relationships. Find a vendor you can trust to take the time to understand your business and deliver the desired results, whether you need a single specialist or to outsource an entire project.