All across the U.S. the words ‘outsourcing’ and ‘staff augmentation’ make the working-class cringe. It’s a knee-jerk reaction embedded in the culture, economy, and politics. Because, for many, these words translate to ‘job loss’.
But why is that? And how are these negative connotations unfairly impacting the IT industry?
We’ll dig into these topics as well as the pros and cons of both work models.
- Why Outsourcing and Staff Augmentation Get a Bad Rap – A Short History
- What Are the Side Effects of So Many IT Positions Sitting Empty?
- IT Project Outsourcing Vs Staff Augmentation
- What Is Project Outsourcing?
- What Are the Advantages of IT Project Outsourcing?
- What Are the Disadvantages of Project Outsourcing?
- What Is Staff Augmentation?
- What Are the Advantages of Staff Augmentation?
- What Are the Disadvantages of Staff Augmentation Compared to Project Outsourcing?
Why Outsourcing and Staff Augmentation Get a Bad Rap – A Short History
As companies try to tiptoe around the taboo words, the list of jargon is always getting longer: onshoring, offshoring, nearshoring, team extensions, subcontracting, remote teams, out-tasking, co-sourcing, staff augmentation, resource optimization, externalization, services contracting, outstaffing, managed services, per project. And the list goes on.
We can all agree that the word ‘outsourcing’ needs to be replaced and rebranded, but no matter how you spin it, your team will know you’re outsourcing. Our gut instincts press the panic button and thoughts head straight for ‘Am I going to lose my job?’
What’s the Backstory?
Unfortunately, this isn’t an overreaction when we examine recent U.S. history.
Starting in 2000, the U.S. government incentivized the exporting of manufacturing jobs overseas where labor is less expensive. They passed domestic tax legislation that favored companies who wished to outsource production, allowing them to deduct outsourcing expenses from their taxes.
The U.S. Bureau of Labor Statistics calculates that over the last 24 years, the U.S. has lost over 5 million manufacturing jobs.
Because this is recent history, many members of today’s workforce personally lost their manufacturing job or grew up in a family in which a parent or guardian did. Today just 1 in 10 workers hold a manufacturing job, compared to 1 in 4 in 1960.
And voila, the outsourcing of manufacturing jobs led to unemployment and slow economic growth in the U.S.
How Are These Negative Connotations Impacting the IT Industry?
Unfortunately, manufacturing took everyone down with it, spoiling the word for each industry. Including those that rely on outsourcing and staff augmentation to fill talent gaps in a labor market where talent is limited, like in IT.
The difference is that with manufacturing, companies went abroad to cut costs and receive tax benefits despite a large pool of workers to choose from. Whereas IT companies look to outside sources because of the shortage of tech talent in the United States.
2019 saw over 900,000 unfilled IT jobs. HR departments are scrambling, taking an average of 3 months to fill specialized IT positions, only to lose 13% of their IT team each year.
Waiting to fill these positions is expensive, costing companies an average of $680 per vacancy, per day.
Even though IT project outsourcing and staff augmentation can alleviate these pain points, many IT departments remain averse to its use because they’re worried about their image. Studies suggest that as many as 71% of U.S. citizens believe that outsourcing harms the economy.
What Are the Side Effects of So Many IT Positions Sitting Empty?
Businesses, especially small to midsize, no matter the industry, are experiencing stunted tech growth. Companies can’t modernize, can’t compete, and can’t keep up with demand at an effective rate. Understaffed teams are stressed and overworked.
CIOs can have great ideas that automate processes and save companies time and money, but if they don’t have the manpower, the work doesn’t get done.
In a culture where ‘outsourcing’ makes people think of a slower economy, how can we change the narrative to show that outsourcing in IT spurs growth?
IT Project Outsourcing Vs Staff Augmentation
Let’s start by clearing up how these are different, what they can offer your business, and their limitations.
Demand can be as sporadic as the evolution of new technologies, and your clients’ tendencies. Your companies’ IT needs are constantly changing. You can never be sure how many specialists or what kind of IT specialists you’ll need.
That’s why a relationship with an on-call, remote IT team can be incredibly convenient. And even business-saving.
Two of the most common ways to work with an IT service provider are – project outsourcing and staff augmentation.
What Is Project Outsourcing?
IT project outsourcing is when you hire an IT service provider to externally complete a full project or aspects of the project.
Let’s say you need a web application. If you outsource the web app using this model, the external service provider will hire, train, and manage a team of IT specialists who handle all of the development requirements. You’re purchasing the end product.
This external team works independently and isn’t directly involved with your internal activities nor any of your other in-house programming.
What Are the Advantages of IT Project Outsourcing?
- No Training
When you choose project outsourcing over new hires, the remote team working on your project consists of experienced specialists that are ready to dive into the project brief and get started. You save the time it takes to train new hires.
- Meet Your Deadlines
An outsourcing company will strive to hit deadlines to maintain their good standing with your company and hopefully secure you as a long-term strategic partner.
- Focus on Other Business Needs
When projects are outsourced and you aren’t spread as thin, you get to focus on other aspects of the business. Companies using the project outsourcing model report a 15% increase in productivity.
- Scale Your Business Easily
When an unexpected project pops up, don’t turn your clients down just because you’re understaffed. You can take on more projects without worrying if you have enough hands on deck to get the job done.
Project management, for example, is handled by the outsourcing company, allowing your project manager to tackle more in-house projects.
- Turnover Isn’t a Problem
You don’t have to worry about how internal turnover rates can impact the deadline.
- Hard-to-Find Specialists
Let’s say the project requires a Java Architect. Your service provider will be responsible for filling that requirement, and you don’t have to worry about all the HR obstacles that come with those hard-to-fill roles.
- Easy Budgeting
You get a quote before the project even gets going. You’ll know the estimated cost of the full project in advance, helping you decide if the project outsourcing model is cost-effective for you or not.
- Lower Costs
The remote team provides their own equipment, infrastructure, and employee benefits. You save on recruitment, training, and management costs.
- Best Practices
To take advantage of industry best practices, simply use an outsourcer who follows them. Outsourcers are invested in the adopting, maintaining, and improving best practices.
What Are the Disadvantages of Project Outsourcing?
- Much Less Control
In project outsourcing, the remote team works independently from your team and therefore controls all aspects of the project.
That being said, responsible outsourcing companies will treat the project as if it were their own, hoping to form a long-term strategic partnership with your company.
Do your research and choose a service provider that you trust, one you don’t feel the need to control. Outsourcing a project should be a relief and not a source of stress.
Ask the right questions, meet with their team, examine their portfolio, read their reviews, testimonials, and case studies.
- Finding the Right Service Provider
Finding the right service provider isn’t only about finding quality work. It’s about finding a team that you can work well with.
When working with a remote team who’s located abroad, you must take into account how flexible you’re willing to be with cultural differences, language barriers, and time zones.
Mexico, Central America, and South America are increasingly more popular for U.S. companies using project outsourcing. This is because they’re in the same time zone and they don’t have drastically different cultures.
Because these countries are now accustomed to working with the U.S., language is no longer the barrier that you may imagine. If you have doubts about the language barrier, hop on a discovery call.
- Smaller Projects Not as Cost-Effective
Some outsourcing companies may shun smaller projects, or charge a premium for them, because they prefer to take on larger projects. This can make the search for a service provider frustrating.
But if you look for them, there are service providers who will work hard on smaller projects. It’s because they value the potential to partner with the same company repeatedly.
Nativo, for example, specializes in partnering with small to midsize enterprises.
- Privacy Concerns
“If your company is handling highly confidential data, you should consider conducting occasional site visits to evaluate your remote team’s security and protocols for data protection.”
- Internal Resistance
Because of the negative connotations brought on by the U.S.’s recent economic history, first-time project outsourcing can spark rumors within companies and make teams self-conscious.
People may feel threatened for fear of losing their job. It’s best to be upfront with your staff, explain the benefits that IT project outsourcing offers them and the company. And inform them their jobs are secure.
What Is Staff Augmentation?
Staff augmentation is a kind of outsourcing. It’s an outsourcing work model in which you hire staff, like developers, from a third party for a specific amount of time. You can flexibly add staff to your team based on the set of skills that the current project requires.
Staff augmentation is very much like hiring a new team member except without the recruitment hassle. This specialist works virtually alongside your in-house team as an extension of your team. In this model, you provide the resources and manage the specialist as one of your own.
The big differences are that you’re not responsible for their benefits package, and when the project is finished, the contract is finished.
What Are the Advantages of Staff Augmentation?
- Hiring Specialists
For the projects that require a special set of skills, staff augmentation can be used to hire hard-to-fill positions.
For example, if you’re having trouble finding the right software QA engineer for a project, you can save time and money on recruitment by utilizing the staff augmentation model.
- Easy to Adopt
Some companies find staff augmentation easier to adopt than project outsourcing because it is so similar to hiring.
It’s also less intimidating for internal teams when you incorporate one or two specialists from outside, rather than outsourcing entire projects to a third party.
- More Control
Because the staff incorporate with your team, you retain full control of the project and you can also create MVP (whats an MVP?)
- Perfect for Small Projects
For small projects, it can be easier, and more cost-efficient to incorporate specialists as part of your team, rather than outsourcing the project. When you use project outsourcing, you have to align your expectations with a service provider.
- Flexible Deadlines
Sometimes you need to bump up a deadline. When the specialists involved in the project are part of the team you’re managing, they’ll work at your pace, no problem.
- Scale Easily
Much like in project outsourcing, this is another work model that allows you to tackle more projects and scale your business up and down according to demand.
On-demand, remote workers ensure you enough brainpower on a project to get it done, without relying on uncertain recruitment in a competitive market. Staff augmentation is also ideal ethically because in the event of a drop in demand, you don’t have to go through termination processes.
- Lower Costs
With staff augmentation, you cut costs in recruiting and benefits packages. You also don’t have to worry about extra staff on the payroll when demand is low.
What Are the Disadvantages of Staff Augmentation Compared to Project Outsourcing?
- The ‘T’ Word – Training
Although the remote specialist that you hire will already possess the skills required to do the job, they will need to become acquainted with your company’s specific processes and tools.
- Resource Intensive
This ‘disadvantage’ is bittersweet. Business growth and a growing team require more management and supervision.
When you’re using staff augmentation, you’re purchasing a resource and not an end product. You remain responsible for managing the project, tasks, resources and deliverables. For some, this is an advantage because they prefer to have full control of their projects.
Despite requiring more management resources, staff augmentation remains less resource intensive than in-house hiring.
Has Covid-19 Produced the Shift in Mentality that the IT Industry Needed?
Covid-19 has obliterated the idea that we all need to be seated together in the same location to develop a trusting relationship. The way we work has undergone drastic changes as more and more businesses have gone remote.
Organizations have become more comfortable with virtual meetings, virtual handshakes, electronic signatures, Zoom interviews and even online office parties.
Many companies, seeing more pros than cons, have already declared permanent work-from-home options, such as Microsoft.
They’ve indirectly declared, ‘it doesn’t really matter where you work from.’
Remote work culture has taken root.
In the past, one of the biggest obstacles service providers faced, was that their remote team, no matter how skilled, still felt like an outsider to the client.
Perhaps this move, from the office to online, will be the step that finally integrates remote team acceptance. And more importantly, it could finally free IT from the stigma that irresponsible manufacturing placed on the words outsourcing and staff augmentation.
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