Over the last few years, a number of IT departments have found themselves in a situation where they need to increase their agility whilst negating the impact of hiring restrictions and overcoming short to mid-term capability deficiencies. This is often done through the utilization of staff augmentation arrangements with third party IT service providers, or via independent contractors. As a temporary measure, this method has several benefits when compared to directly hiring staff.
The main difference between the two model is that under a managed services model, the provider is dedicated to delivering an outcome at a pre-defined price, rather than an input which is what is delivered under the staff augmentation model.
What is staff augmentation?
In its simplest form, staff augmentation is an outsourcing strategy which is used to provide staff for a particular project, or to respond to short-term business demands. The technique includes evaluating existing staff members and then deciding what additional skills and resources are required. The ultimate goal is to handle staffing requirements using existing talent and then to fill the gaps by hiring additional staff for a specified duration, usually a short term contract.
What are managed services?
Managed Services is the practice of outsourcing skill set or staffing requirements to a third party service provider. The service provider will then deliver what is required as well as being bound by a contractual, service-level agreement that specifies that performance and quality metrics that are to be met.
When utilising a staff augmentation model, the costs of hiring temporary staff and then disengaging them once they are no longer required, can often be more cost efficient than engaging permanent resources. Furthermore, the process of staff augmentation requires little effort in terms of contracts, has an easy to understand model (hourly rate x hours worked), can be easily scaled up or down depending on requirements, and has little effect on the operational model of an IT business or department.
When it comes to staff augmentation however, things can be problematic when what should be a temporary measures becomes a long-term or permanent operating model. As a long-term solution, managed services and outsourcing can result in a situation where risks such as higher costs, bad management planning practices, and increases in management workload, can become prevalent. Whilst it does offer a quick-fix for staff or knowledge shortages, aw well as negating hiring and de-hiring costs, a business needs to weigh up both the benefits and disadvantages before deciding on the best solution for them.
By its very nature, staff augmentation has higher costs due to engaging and disengaging staff members. Organisations that offer short term contracts include overheads and margins to their labour costs, and whilst it is possible to avoid some of these by contracting individuals directly, this requires additional administration costs within the business. If this model is adopted as a long-term solution, the perceived value in hiring staff on a short term, as opposed to long term basis is offset by the high costs of hiring and de-hiring.
There is also the risk that reliance on staff augmentation as a permanent model could lead to poor management practices that do not adequately plan or prepare for resource consumption. By promoting a method where resources are easily accessible, the need for adequate planning is removed resulting in a gradual “staff creep” and a head count that slips under the radar of human resources.
Another significant issue is that of loss of knowledge control. As a contractor becomes more and more embedded into an organisation, they are able to accumulate information and skills that are a part of the work undertaken by the company. When no service commitment or requirement to document gained knowledge is specified, contractors can often hold the business hostage, ensuring the permanency of their contract. Alternatively, when the contract comes to an end, the knowledge that is gained y the contractor is lost to the business for good.
Advantages of Managed Services Solutions
The benefits of transferring from staff augmentation model to a manages services model can be vast, if implemented correctly. Requirements for flexibility and better skills can be met, whilst most of the major disadvantages of staff augmentation can be overcome.
The manages services model requires that the supplier assumes control of all, or part of the execution component of IT and all commitments to service delivery are expressed as “service levels“. Pricing can be determined based on service levels and the volume of requirements, and the supplier assumes all risk related to transition and operations. Furthermore, all processes and tools are managed via the supplier’s delivery model and all impacted employees, assets and contractors must be documented and fully transferable back to the business.
One of the most important benefits of this model is the fact that pricing is tied to the outcome. Should a service requirement diminish or disappear, the costs that are associated with it, react in kind.
The level of value that is created through managed services is huge because the provide assumes the delivery risk at a fixed cost so they are highly motivated to establish productivity measures and excellent levels of service at every step of the process.
Going beyond lower costs, the additional ancillary benefits that can be attained through a managed services model are not to be ignored. When it comes to discussing the costs associated with staff augmentation, conversation trends to revolve around rate cards instead of addressing productivity and service dimensions, beyond the hours that are worked.
On the other hand, because the price is decided based on the service levels that are linked to the objectives of the business, discussions on the price when it comes to the outsourcing context mainly focus on value and the alignment between SLAs and business requirements. More often than not, non-outsourced IT departments have over-engineered service levels in an attempt to try and reach IT targets of excellence – often adding unnecessary costs in the process.
Develop a clear line of sight
By developing a clear idea of service levels, business needs, and costs, outsourcing often shifts the focus away from rate cards and towards optimising the service/cost equilibrium. Once this line of sight is established, clients often request lower service levels and therefore reduce their IT spend significantly.
Because pricing is fixed in the managed services model and usually providers costs are driven by the behavior of the client, the provider is driven to assist the client in resolving key issues that impact performance such as unnecessary complexity and a lack of adhering to standards.
Each model has its own place
That is not to say that staff augmentation doesn’t have a place in the IT department. Even in the managed services model, staff augmentation can often be used for certain services at certain moments in time. This is fine, but when it becomes the de facto mode of operating, it becomes a highly ineffective form of outsourcing that results in high costs, high risks, and low levels of commitment.
IT departments that are taking the de facto staff augmentation approach need to understand that they are already sourcing externally, and as such if their requirements are more long term, they should seek to adopt a proper managed services model in order to maximise value.