No other business decision will have as much of an impact on your organization’s growth as choosing the right IT resources. With that in mind, it’s crucial to understand the differences between the two major operational models in the IT industry—staff augmentation and outsourcing. Our this post is about Staff Augmentation Vs. Outsourcing.
According to industry research, 80 percent of companies plan to outsource or retain non-core activities in 2021. Additionally, the global market for IT outsourcing will expand at a CAGR of 5% from 2020 to 2024, reaching $98 billion.
Image Source: Fortunly
Organizations are looking to increase agility and reduce costs by outsourcing IT work when they can. However, deciding when to outsource or augment your organization’s in-house capabilities. You need to understand what each model offers to make the best choice.
Staff Augmentation- A Brief Introduction
You engage in staff augmentation when you hire an IT professional through a staffing agency. Staffing agencies recruit, outsource and consult on the best talent for your organization’s needs.
As per the recent survey, 34.6 percent of sales were in technology or IT consulting, whereas staff augmentation had 6.3 percent in overall sales by professional services organizations worldwide.
Image Source: Statista
The goal is to augment—rather than replace your existing staff with other talents. Thus, it includes short-term projects, ad hoc tasks, or full-time needs.
You can expect your staffing agency to offer access to experienced IT professionals who are experts in the latest technologies and processes. Moreover, staff augmentation is highly flexible and have several benefits:
- Reduce direct hiring costs- By reducing your direct hiring costs (e.g., recruiter fees); firms can deploy limited resources on new projects.
- Access to the best talent- You can leverage your staffing agency’s market knowledge to find the perfect fit for your IT projects.
- Scalable resources- Utilizing staff augmentation services, you can hire people on an as-needed basis (e.g., surge/peak work).
Outsourcing- A Brief Introduction
You have a service provider that completely manages your IT needs in an outsourcing arrangement. The service provider will either use their employees or hire contractors on your behalf to fulfill the work they are contracted to do.
Most outsourcing engagements revolve around applications development, application maintenance, data center operations, or business process outsourcing. The ITES-BPO industry contributes over 60% of India’s software exports.
Over the last decade, Indian outsourcing companies have successfully captured a significant market share in global outsourcing deals. As per Deloitte’s survey, 59 percent of companies surveyed had already outsourced to India, with another 22% planning to or contemplating doing so.
Image Souce: Backofficepro
Outsourcing offers several benefits:
- Lower costs due to increased use of contractors (which are typically billed hourly) rather than hiring new full-time staff members
- Little to no overhead costs due to the service provider doing all hiring and training for you
- Speed to market by having experts who are already familiar with your systems and processes do the work
Staff Augmentation vs. Outsourcing: What’s Right For You?
There are advantages and disadvantages of both staff augmentation and outsourcing, so it’s essential to consider your business’s needs. If you’re considering either path, here are a few things you should weigh:
1. Staff Augmentation vs. Outsourcing: Cost Factor – Which Is Cheaper?
Staff augmentation is a more expensive option because you’re paying both the employee and the agency.
Outsourcing is typically less expensive because you’re only paying the service provider. However, the service provider may have its own employees that it could hire to fulfill the work instead of going through a third-party agency.
For example:
ABC Inc. engages in staff augmentation with an agency when they quickly hire someone for a 6-month project. The agency recruits, interviews, and makes the hire for ABC Inc. The company pays both the agency and the new staff members.
Imagine the same situation, but ABC Inc. outsources the project to a service provider instead of an agency. They contract with a service provider for six months, and the provider manages all aspects of the engagement, from recruiting to onboarding. In this case, ABC Inc. would only pay one fee to the service provider.
Moreover, research says cost-cutting(59%) and being able to focus on core business(57%) are the two big reasons why companies outsource.
Image Souce: Backofficepro
2. Staff Augmentation vs. Outsourcing: Project Management -How Things Done?
A project comprises multiple tasks that are completed within a time frame. A project manager manages each task to ensure it’s on track and stays within budget.
Staff augmentation allows you to control the entire project because it’s managed in-house. However, since you’re balancing other priorities along with the project work, there is a risk that tasks may be pushed aside or deadlines missed.
With outsourcing, your focus can remain on your core business while the service provider manages all aspects of the project. You’ll have the quality of results in less time.
In short, staff augmentation involves assigning project managers to manage entire projects, while outsourcing only handles specific tasks in a project.
3. Staff Augmentation vs. Outsourcing: Scope of Control- What Can You or Cannot Do?
When you choose staff augmentation, you have complete control over the project. You can reject any individual the agency sends you to be part of your team.
However, when you outsource a project, your level of control is more limited. The service provider has complete control over who fulfills the work. Besides, this might be a drawback if you’re not confident in the service providers’ staffing choices.
Staff augmentation is for companies that want to retain more control. Outsourcing works best when you’re willing to transfer some decision-making processes over to the service provider.
4. Staff Augmentation vs. Outsourcing: Time To Market
If speed is critical to the success of your business, then outsourcing may be a better option for you. The service provider begins work as soon as the contract has been signed.
Staff augmentation takes time to find suitable candidates, interview them, and onboard them before starting working. While the agency will act on your behalf during this process, it takes time to coordinate schedules and the logistics of bringing the candidates from Point A to Point B.
In short, staff augmentation generally requires more lead time because it’s a project that needs to be handled in-house, while outsourcing can start almost immediately.
5. Staff Augmentation vs. Outsourcing: Communication Infrastructure- Can You Talk To Your Staff Directly?
When you choose staff augmentation, communication is handled in-house. You speak directly with your employee and the agency to share information and stay updated on progress.
With outsourcing, you’ll communicate more with the service provider than the individual assigned to work on your project. Thus, it can be a drawback for many companies, as they prefer more direct communication.
In addition, if a staff augmentation employee leaves a project before it’s completed, you’ll have to find a replacement and start the hiring process again from the beginning. Outsourcing is less of an issue since the service provider will find another agency or freelancer to take over when a specific task is completed.
6. Staff Augmentation vs. Outsourcing: Legal Aspect – Which Is Better For The Client?
While staff augmentation can be more flexible, the agency must follow specific legal processes. If your company is based in the US, you must abide by the Fair Labor Standards Act (FLSA). These laws specify how many hours an employee has to work per day and week.
Outsourcing does not have the same level of regulation. While it is hoped that service providers will abide by local laws, there are no guarantees. You also can’t ensure that the specific individual assigned to work on your project does so.
In short, staff augmentation includes legal processes and restrictions, while with outsourcing, you’ll have to trust the service provider to follow local laws.
7. Staff Augmentation vs. Outsourcing: Relationship with Service Provider
It’s also important to consider how you want your relationship with the service provider. Outsourcing typically includes a contract that specifies how long the work should take and what responsibilities both parties have.
With staff augmentation, your relationship is more personal. You may have built a stronger relationship with the service provider if you’ve worked together multiple times. You can also enjoy a personal connection with the staff augmentation employee who’s assigned to your project.
In short, working together on a long-term basis is easier when you choose staff augmentation. Outsourcing tends to be for companies that need help with projects that last from one day to a couple of weeks.
Final Words!
Outsourcing and hiring a staff augmentation option can be great ways for your company to help with basic tasks or more complicated projects. There’s no one-size-fits-all approach, as every business has unique needs and expectations.
Ultimately, it comes down to what you hope to achieve with your project. Do you need someone immediately who can complete the task at hand? If so, then outsourcing is likely a better fit.
Staff Augmentation Services Company is a better option if you want the freedom to choose your preferred candidate and work with them at your own pace.
Moreover, consider that outsourcing and staff augmentation are only two available hiring options. The point is to choose what works best for your company based on its needs, resources, and budget.
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