It has been observed that organizations using contract resources long-term for onsite staffing will face increasing costs and decreasing productivity year over year. Whereas, organizations that have effectively implemented outsourcing models using offshore vendors have significantly improved the productivity and value of their internal team. However, the internal teams require a different mindset to manage a global delivery model.
Why are organizations reluctant to change their staff augmentation model?

Managers that continue to use the staff augmentation point to certain reasons for continuing with the staff augmentation model. A careful look at these beliefs clarify that most of these are just some myths and the reality is quite different from these beliefs. Some of these myths are explained below.

Myth 1: There is higher level of protection for intellectual property when using staff augmentation

Reality: A well written contract with an outsourcing provider can be much more enforceable than any contract with an individual contractor. The vendors are likely to have assets and insurance coverage that can be recovered in case of any breach of intellectual property. Also, it will be easier to trace the vendor clients to identify breach of intellectual property rights than to trace the individual contractor’s future assignments.

Myth 2: The contractors have institutional knowledge and it will be difficult to replace them

Reality: The contractors are more likely to hold clients hostage by not documenting and disclosing institutional knowledge that they have gained over the years. The service providers usually develop very good documentation and follow processes to mitigate any loss of their own resources and easily move resources between projects. A knowledge management plan and exit strategy can be included in the contract with vendors but may be difficult to enforce contractually with individual contractors.

Myth 3: The contractor rates are negotiated annually and they are cheaper than using outsourcing

Reality: Any negotiated contract for onsite work will be definitely higher than the rates that are achievable by using a global delivery model. An effective global delivery model with the right mix of resources onsite and offshore will be able to yield an average rate that is much cheaper than onsite staff augmentation.

Myth 4: There is more risk in sending application development and maintenance to a third party vendor

Reality: In actuality the risk is higher by using the individual contractors because it is difficult to mitigate the risks. Most of the risks arising from the global delivery model can be mitigated using appropriate language and protections within the contract and developing a governance model to manage the relationships. It will be easy to recover any financial losses from the outsource provider than from an independent contractor.

Myth 5: Clients have more control over the work done by the contractors

Reality: In order to have the control, the internal team management will have to spend a lot of time on low value activities such as monitoring and reviewing the daily work done by the contractors. Typically client IT managers spend a lot of time scheduling and managing the day-to-day activities of resources. It is important for clients to evaluate the value addition to the business from these controls. In a global delivery model, if deliverables can be clearly identified with appropriate service levels for schedule, quality and budgets, the management overhead is greatly reduced. The client managers will be able to spend the additional time available to them with their business users to understand their requirements more clearly. They can also spend time in more strategic activities that bring higher value to the organization.

Myth 6: There is no need documentation and processes because the contractors never leave

Reality: The main reason why the contractors do not leave is that they are paid higher than the market rates. The organizations should also prepare themselves for loss of contractors due to illness, death or termination due to other causes. Having proper documentation and processes is necessary to eliminate dependencies on certain individuals. The global delivery model requires documentation and processes to be in place. Most offshore vendors have a higher process maturity than most client organizations. These processes are also required for regulatory compliance.

Myth 7: It is difficult to ensure that the right price is being paid unless the timesheets of the resources are verified

Reality: The project managers should learn to pay for value than for time. There are industry standard methods and tools to estimate efforts for projects and the organizations to measure the deliverables based on schedule and quality.

Myth 8: It is difficult to ensure right expertise when the day-to-day work of the project team is not monitored?

Reality: If you measure the deliverables based on its quality, the experience and expertise of the individual resources become irrelevant. If the vendor is able to provide quality deliverables with industry standard metrics of reported bugs, the clients should not care about the expertise of the team.

Why should we move away from onsite staff augmentation?

Clients using onsite contractors stand to benefit significantly by moving to a global delivery model. These benefits include

1. Reduced Cost – Clients will be able to execute projects much cheaper using global resources than onsite resources

2. Better Processes – The offshore vendors have a higher process maturity which can be leveraged by clients to improve their internal processes

3. Reduced Risks – Clients will be able to reduce and mitigate significant amount of risks due to resource dependency by using contractual terms

4. Better quality – Better processes can lead to better quality. Also, quality can be enforced as a service level to be met by the vendors. This may be difficult to enforce using staff augmentation when the vendor resources have limited control

5. Higher value activities – The client IT managers will be able to focus on activities that produce a higher value to the business. They do not need to spend time on managing resource issues and day-to-day delivery issues

6. Resource flexibility – The vendor will be responsible for appropriate ramp-ups and ramp-downs and the client does not need to spend any time and money in identifying, interviewing and recruiting resources required for sudden ramp-ups

7. Better documentation – The vendors will develop better documentation in order to ensure that they have no resource dependencies. This documentation can be leveraged by clients as well.


The author is General Manager – Offshore Operations (National Accounts) at UST Global.