In a world of ever-changing technology and limited budgets, companies frequently struggle to hire the right people for their IT groups.
And in these days of economic downturn and uncertainty about the future, companies have been forced to rethink the way they do business. To meet their ongoing business challenges, many organizations have been forced to cut staff and/or freeze hiring. Yet, they’re still being called on to do the same or more with smaller budgets and smaller staffs.
And once firms have the right workforce in place, they have to keep them trained on the most up-to-date tools and technologies—an expensive proposition.
In addition, in-house IT workers, many of whom have been around for awhile, don’t always provide their companies with the necessary flexibility to rapidly develop and deploy new systems. That’s because they employ their own processes to get the work done.
So many companies have turned to staff augmentation to fill the gaps in their workforce, survive the weakened economy and maintain a competitive edge. Using workers from service providers, particularly in nearshore locations, on a per-project basis, organizations are able to augment their staffs with the workers who have the skills necessary to meet the needs of their businesses.
According to a 2009 report, even if the recession ended, 50% of the workforce added in 2010 was expected to made up of project-based contingent workers.
The report, “The Emerging New Workforce: Employment and Labor Law Solutions for Contract Workers, Temporaries, and Flex-Workers,” from Littler Mendelson, an employment and labor law firm, cited findings from a survey of large companies done by Staffing Industry Analysts Inc. (SIA) to support their prediction of the increase in the contingent workforce.
According to the SIA survey, done during the recession, 73% of companies surveyed said they would be “increasing their current contingent workforce by a median of 25% between late 2008 and late 2010. Additionally, one-third of these companies predicted their contingent workforce would grown by 50% or more.
But what exactly is staff augmentation?
“Staff augmentation is essentially renting bodies,” said John Parkinson, senior Vice President and the head of the Global Program Office at Axis Capital. “So if you think about the spectrum of getting help to do work that you need to do but you don’t want to do with your own people—there’s the complete outsource model, the managed services model and staff augmentation.”
Parkinson said in a complete outsource model, a company takes a piece of its business operation and gives it to a service provider and says, “I sort of don’t care how it’s done, I just care that it’s right.” Companies that use a managed services model give a piece of their business to a service provider to it for them but they do care how it’s done.
“Often you’ll take their advice on how it’s done but it’s somewhat more integrated into the way that you operate then an outsource model is,” Parkinson said.
Then there’s the staff augmentation model.
“You say, ‘I’ve got this piece of work to do and I don’t actually have the people to do it. And it’s not going to last very long so I don’t want to hire them and let them go again because I won’t need them forever,’” he said. “So you say to the service provider, ‘Why don’t you just give me some people who know how to do this. And they’ll work on this project for me for awhile under my direction and then they’ll go away.”
Depending on the job, the work can be done either at the service provider’s location or the skilled IT workers can travel to the customer’s location, stay for the duration of the project and then go home.
“That could be across the country, across the continent, across the world, depending on the economics of the staff augmentation process,” Parkinson said. “The rarer the skill set you’re looking for the further you’re generally prepared to reach out to get it, which is where nearshore is a great advantage.”
Some kinds of work can be shipped to the service provider’s location and when the work is done, it will be shipped back to the customer—sort of like outsourcing, but a bit different.
“It’s a nuance,” Parkinson said. “If I buy a managed service or I buy outsourcing, it’s normally for some significant duration and it’s normally a fairly sizable chunk of work; it’s a discrete part of the business, i.e. running IT, processing invoices, making payments building media campaigns. It’s a substantial effort that I give to someone else to do. But say I wanted to convert all the documents sitting in my filing cabinet to scanned images. I don’t want to have to employ someone to do that because when I’m done, I’m not going to have any more documents to scan. So this is three months of work and it’s pretty monotonous.”
Staff augmentation works well in the aerospace and defense industries as well as the pharmaceutical and utility industries because they’ve designed their processes to make it work that way.
In that case, Parkinson said because he would want to ensure the person doing the scanning is taking care and the images look good and that they’re not missing anything, he would have someone from his company supervise the work.
“So I want to augment my staff for three months with somebody who can run the machine, will pay attention to what they’re doing, will take care and who doesn’t cost me too much to get that done,” he said.
Parkinson said a company might need to run a project for six months and when it’s done it will never run that type of project again. Additionally, it doesn’t have the in-house talent to take on the work. So the company will turn to a service provider to hire workers with the skills necessary to do the job. Then when they finish, those workers will be assigned to work at another company.
“Or if I had a small project i.e., moving my calendar schedules from one CRM system to another and it involved maybe a couple thousand hours of work to do all the testing, I’d send it all to Brazil and have them do it all down there,” Parkinson said. “But if it was a larger project, it would probably look more like an outsource. But there are gray areas; some of it is optical semantics—you want it to look like it’s not outsourcing when it feels the outsourcing, looks like outsourcing and smells like outsourcing.”
One of the drawbacks to staff augmentation is that you have a different set of challenges managing the people doing the work for you if they aren’t actually your employees.
“You’re managing through contractual arrangements and the style of the operation has to be very different because of much of what gets done is in the style that you’ve contracted with, not that you own,” Parkinson said.
While that works in some industries, it doesn’t work quite so well in all industries.
Staff augmentation works well in the aerospace and defense industries as well as the pharmaceutical and utility industries because they’ve designed their processes to make it work that way. Organizations in those industries hire lots of subcontractors and individual consultants to work on their projects, which are generally large and last a long time. However, Parkinson said the price is heavy process orientation and bureaucracy.
But staff augmentation doesn’t work so well in some parts of the financial services industry because traders aren’t usually independent contractors, nor are investment bankers. It also doesn’t work in high tech where companies have to protect their intellectual property. But there are always exceptions to the rule and Microsoft is one of those exceptions, Parkinson said.
Parkinson said no one location stands out as being the leader in staff augmentation.
“For the longest time it was a patchwork of countries. So Canada, Mexico, the Caribbean were good sources for the project-at-a-time stuff—the short duration stuff. Because you don’t want to incur relatively high transit costs for the people so the service providers tend to be based close by and they tend to be based in places where getting in and out of the country is easy,” Parkinson said. “But the longer term stuff—the transitional staff augmentation—is a relatively new experience and companies like Yahoo [are using service providers] in Mexico and increasingly in Latin America. But I don’t know that there are any leaders yet, although there are quite a lot of aspirants to develop in this.”