Defining Staff Augmentation And Outsourcing

Whether called contractors, consultants, or rent-a-body firms, the primary function of these IT service providers is to supplement existing IT staff. They are typically engaged when the IT department is unable to obtain or retain permanent staff, or when it needs specialized skills for a short period. As may be surmised from the term "staff augmentation," contractors function as members of the department, taking their day-to-day direction from IT managers. Except for the fact that their paychecks come from a different company, and that their assignments can be terminated on short notice without cause, contractors are virtually indistinguishable from other members of the IT department.

Although some companies have exclusive agreements with one service provider, it is more common for a single IT department to use contractors from a number of firms. The reason for the use of several firms is the IT manager's desire to find the individual whose skills most closely match the department's needs. That is because the key component in staff augmentation, as in permanent staffing, is the individual person. Success or failure tends to be measured at the task level, and is dependent on specific staff. Because of this focus, when it contracts for staff augmentation, IT faces many of the same risks that it does with its own staff. Contractors may not perform as expected, or they may quit before a project is complete.

Contractor agreements are frequently informal, and, while engagements may be long-term, many are of short duration. From a contractual perspective, staff augmentation can be viewed as the dating stage of a relationship.

If staff augmentation is dating, outsourcing is marriage. It is legally binding, is typically monogamous, has long commitments, and — in most cases — divorce clauses. In contrast to staff augmentation, outsourcing focuses on services rather than individuals, and success is measured at the engagement level.

Some IT departments use a manufacturing analogy to describe outsourcing, explaining that they have chosen to "buy" a service rather than "make" it in-house. They argue that this is similar to the situation where a plant might choose to buy a standard part rather than make it itself. The analogy is valid; the risks and rewards of outsourcing IT services are similar to those of buying parts. Just as a manufacturer may sacrifice the ability to customize a part for its use, but gains speed or cost savings by buying it, IT outsourcing involves similar trade-offs in flexibility against cost and speed.

Outsourcing differs from staff augmentation in several fundamental ways. When an IT department outsources, it turns over day-to-day responsibility for specific services to a supplier. Although overall accountability for the success of the relationship remains with IT, detailed management and direction is provided by the outsourcer, and measurement is not of individual tasks, but rather of compliance with service level agreements (SLAs).

By design, outsourcing distances IT from the service provider. Work may be done on-site, but it is frequently performed remotely, further reducing IT's involvement with the service. Because outsourcing creates a distance between the IT department and the service it formerly provided, and because agreements are typically long term with penalties for early termination, companies do not undertake it lightly. It is normal to spend months going through a formal request for proposal (RFP) and selection process before actually beginning an outsourcing engagement. Exhibit 1 provides a summary of the differences between staff augmentation and outsourcing.

Exhibit 1. Staff Augmentation versus Outsourcing Matrix

Characteristic

Staff Augmentation

Outsourcing

Formality of contract

Frequently low (or none at all)

Normally formal

Length of engagement

Typically short

Long (normally 2 to 5 years)

Time to engage/disengage

Short (days)

Long (months)

Number of suppliers

Many

One or two

Management of staff

IT department

Supplier

Location of staff

Normally within the IT department

Can be either on- or off-site

Measurement of success

Individual project tasks

Service level agreement

Key to success

Individual contractor

Entire service provider company

Pricing

Time and materials

Fixed fee

Right to hire supplier's staff

Occasionally

Infrequently

Characteristic

Staff Augmentation

Outsourcing

Co-employment concerns

Possible

No

Flexibility

High

Low

Overall program

Tactical

Strategic

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