Staff Augmentation Advantages:-
Staff augmentation is the easier of the two models to initially deploy. Once an organization realizes that more resources are needed for a particular growth initiative or project, it's relatively straight-forward to add contractors or temporary staff. There are other advantages that staff augmentation offers:
Control - you retain control over all staff members and their day-to-day work.
Risk - across a broad spectrum of risk elements, staff augmentation is less risky
Commercial and Contract Requirements - much less demanding and stringent
Dial Up/Dial Down - you can increase and decrease resources relatively at-will depending on the size of the contracting company
Internal Resistance - is typically much less compared with the decision to outsource.
Staff Augmentation Disadvantages:- As an organization experiences growth in its required head count to satisfy demand for specific services (e.g., IT, Contact Center, F&A, HR), the disadvantages of the staff augmentation model exacerbates the complexities of managing that growth. At this point, most organizations start to explore their options.
Resource-centric v. Results-centric - you are primarily getting a resource with a specific set of skills. Other than applying those skills professionally, you do not have much else butyou are still responsible for the results.
Training - you have to invest time and money in training the temporary or contractor staff on your methods, processes, tools, etc. These periods, or ramp-up time, often degrade productivity especially when you are replacing one contractor with another.
Process - contractors do not typically bring a process methodology that can be used to take the contracting organization to a new level of process maturity (e.g., CMMI Level 5, ITIL v3). Alternatively, contractors can come from a variety of background and training, each with their own methodology or way of doing things, causing a more complex delivery model for you.
Scale - you usually do not gain any economies of scale because it’s a resource-centric model, and the various temp/contractor staff lack a shared common set of outcomes; each is primarily performing individually. Their continuance is based on individual contribution.
Cost - the total cost in a staff augmentation model increases as a function of increased demand. The market determines individual rates for specific skill sets, and because they are "purchased" in a relatively piece-meal fashion, there is typically little leverage. In addition, in most cases, you will pay more for onshore labor due to the vendor requiring a profit margin on top of the salary the contractor is being paid.
Attrition - can be challenging, especially with individual contractors or small staff augmentation companies.
Management Overhead - as staff augmentation grows within an organization, the amount of supervisory overhead also increases. This is a major issue because internal management overhead is a fixed cost, thus counterproductive to the total cost of ownership in a model designed to "variable-ize" costs.
Exploring Managed Services:--
Some companies decide to invest and grow internal capabilities into a larger corporate shared services organization. Oftentimes, there is leverage in consolidation and standardized processes to serve diverse business units and geographies. Other companies decide to outsource. And where there is demand, supply will follow.
Outsourcing as an overall industry is approaching 50 years, itself progressing along a macro continuum not unlike the stages-of-growth model. Outsourcing evolution includes an offering where a company (client) can outsource the management and operations (including at times the transfer and ownership of assets) to an external service provider; this is often called Managed Services.
Managed Services tackles head-on the disadvantages of a staff augmentation model:
Results-centric - a service provider will sign-up for Service Level Agreements (SLAs) to ensure quality delivery as well as continuous improvement and productivity gains, which accrues to the client via lower per unit costs year-on-year.
Training - is now shifted to the service provider. To ensure results, service providers invest in significant training of their resources and provide access to a broad range of training programs (e.g., industry, client specific, and skill specific) and tools designed to facilitate and ensure best practice methods for their clients. When they engage at the client account, they are prepared to do productive work rather than soak up productivity time at your expense.
Process - industry best practices (e.g., for IT, CMMI Level 5, ITIL v3) are common in the Tier 1 and Tier 2 service provider community. Service providers invest significantly in these methodologies to ensure they can operate at maximum efficiency across the entire client account.
Scale - all of the Tier 1 and most of the Tier 2 service providers (ITO and BPO) have a much broader scale (thousands of professionals) than the vast majority of client organizations and boutique staff augmentation firms. For example, Tier One providers typically have between 5,000 and 10,000 well trained SAP engineers.
Cost - is set up to leverage that scale. For example: as scope of services (demand) increases, the relative incremental additional cost is less than a staff augmentation model.
Attrition - is the responsibility of the service provider. A limit to the amount of attrition for all staff positions is written into the outsourcing contract.
Management Control - of the outsourced resources is the responsibility of the outsourcer. A client will "retain" a staff to determine the overall needs of the organization and manage the contract and SLA compliance, however, the day-to-day management of the team who directly performs the work (e.g., manage the data center, triage help desk calls) is on the shoulders of the service provider.
When highly specialized skills are required, it is much more advantageous for the client to leverage the scale and capacity of a service provider’s staff than to add one more vendor to a growing list of management and governance responsibilities. In fact, in recently completed transactions, world-class service providers have committed to supplying aggressive rate cards by skill set in order to lock-in the right of first refusal to bid for and staff new projects.
The best solution may be found in a hybrid approach. "Organizations that have been utilizing staff augmentation as a sourcing strategy need to take some time to evaluate the new realities of the Outsourced Managed Services market. Beyond run-rate savings per headcount, a client will also realize a smaller retained organization. Additionally, the skill set of the retained organization would also need to change, with an emphasis placed on vendor, process and program/project management competencies."