Enhanced staff augmentation – a valuable tool in strategic sourcing?
According to recent research, 50% of current outsourcing deals are up for grabs (Source: HfS Research 2014, conducted in conjunction with KPMG). If nothing else this suggests that clients are looking at new ways of delivering IT and business services. In my first blog I am looking at one of the oldest ways of sourcing, which is morphing and becoming relevant again today.
I am seeing a number of clients looking seriously at, with some acting on, a move from full outsourcing to an enhanced staff augmentation model; particularly in the area of application development and support.
So what is the motivation behind this move and its impact on clients and suppliers alike?
Is this a move away from strategic outsourcing, or a refinement of sourcing models to develop further the value that can be driven out of combining different types of supplier relationship?
First of all what do I mean by staff augmentation?
I define augmentation as a framework agreement with one or more suppliers, based on providing resource against an agreed rate card. The client then manages the resource as an integrated part of the team, with the client retaining full accountability and responsibility for service delivery. The supplier arrangement may also include some level of minimum financial commitment.
I am neither seeing nor suggesting that clients will be building data centres or bringing transaction based processing such as payroll back in-house, but there is definitely a sweet spot with applications services, where enhanced staff augmentation is resonating.
The benefits of staff augmentation
There are a number of drivers making staff augmentation an attractive sourcing option, particularly to those client organisations in second or third generation outsourcing deals. These include:
- Clear linkage to business value - in augmented models, the client manages the business relationships and value and takes full service delivery responsibility; there is no confusion.
- Retaining knowledge - staff augmentation ensures that critical knowledge is retained by the client, technical as well as business, and doesn’t have to be shared externally.
- Visibility of costs - the client manages overall forecasting, planning and cost of delivery, meaning that augmented costs can be managed through the framework agreement.
- Reducing cost - knowing the full costs allows for effective removal of duplicate roles, commercial complexity and leveraging potential labour arbitrage.
- Flexibility - augmentation models provide variability in the cost base, allowing a quick and effective response to changes in demand for IT.
The negatives of staff augmentation
Be warned, augmentation is not the easy option. Firstly, the transition to this mode of working cannot be underestimated, particularly if there is currently an outsourced model in place, e.g. the recruitment of in-house skill requirements and the new processes and tools required. Secondly the steady state involves the client organisation taking all of the responsibility of service delivery, both day to day and for effecting business change.
So what is enhanced staff augmentation?
The enhanced element then defines and addresses opportunities that would perhaps previously have been cited in the decision to move to outsourcing, rather than to staff augmentation. This allows for investment by the supplier and engendering real proactivity around innovation and service improvement. This may include:
- Delivering change or innovation
- Knowledge transfer
- Training/learning methods
- Process improvement
- Investment in automation and tools
- Maintaining a “buffer pool” of staff ready to engage at short notice
The benefit however is measured in cost reduction, flexibility and speed of change and even more importantly, improved IT service driving real benefit for the business.
Where do the suppliers sit with all of this?
The initial supplier reaction may also be less than celebratory; it may come across to the supplier market as offering diminished responsibility, moving down the food chain and bringing a loss of potential margin opportunities.
However experience to date suggests that unlike historic augmentation where the rate card is king, the “enhanced” elements of this new model have a significant role to play in supplier selection and provide a great opportunity for the real innovators on the supply side.
Quantum Plus’s experience
Quantum Plus has recently been working with a number of client organisations to help determine the optimum sourcing strategy and then to procure and implement an enhanced staff augmentation model.
This is not a panacea, but it does provide an additional option to the traditional strategies of insourcing versus outsourcing and if used in the right circumstances, can deliver both cost improvement and added value.
Today client organisations have a real challenge on their hands, not only to define how IT best serves the business (it is often not exclusive anymore), but then to determine the optimum sourcing strategy (or should I say strategies).
The need for optimised sourcing strategies is as important today with the advent of Cloud and “X as a Service” as it ever was and there is still great potential in re-thinking some of the sourcing models we have been using for many years. “Enhanced” staff augmentation with its focus on the provision of relevant value added services is proving a relevant contender in today’s sourcing strategies.
If you would like to discuss or comment on this blog then please let us know.
Quantum Plus is an independent sourcing advisor providing sourcing consultancy, interim management and managed services to clients throughout the world. If you would like to hear more about enhanced staff augmentation or would like to discuss your overall sourcing strategy please do get in touch.