How does an organization manage its resources? We’ve seen organizations fumbling at the basic points. The common mistake is to aim bigger when you’re not prepared for it. You cannot fight Goliath without being prepared. Your organizational strategy needs to be different and needs to be tailored to what you need.
In a competitive scenario, you will need to be prepared to fight the basics. For instance, you will need to have to decide between outsourcing projects versus choosing the seemingly more reliable option of staff augmentation. Here is a look at what a normal IT Consulting firm has to take care for instance.
For them, staff training is important, as well as the question of security. Staff augmentation can take care of both these incidents but it might not be able to solve network or software issues that the in-house team cannot handle. For that, they might need to outsource the projects.
What is Staff Augmentation?
Staff augmentation can be a great way to reduce costs and improve operational efficiencies. If you’re looking to expand strategically and are looking for more human resource, staff augmentation is the way to go. Staff augmentation refers to where can add in staff to your organization as you want. Staff augmentation refers to adding in staff as per the needs of the company. You do not permanently hire the employees so you can scale up and down as needed, offering you the flexibility to manage important projects and needs as well as avoiding the liabilities of hiring full time employees. After the work is complete, the staff will no longer need to be paid by the employer.
What is Project Outsourcing?
Suppose you’ve a specific task that needs to be done. You might not have the staff expertise to do it. This can put you in a dilemma. What do you do to ensure that you’re right on track with the project? Project outsourcing helps outsource specific tasks and resources with other people or agencies. Sometimes, project outsourcing can even take the shape of staff augmentation, but in a different way. Let’s say you outsource the work to Company B, which uses staff augmentation in its own workplace to complete it.
The wrong strategy can have an effect on employee morale. For one, the wrong HR strategy made an employee vent his frustration on the company, equating employees with staff augmentation. A recent survey stated that the outsourcing market in the U.K. is expected to grow, with service providers meeting expectations more often than not. The survey, carried out by Whitelane Research in collaboration with PA Consulting Group, had 69% of respondents stating that they will increase the amount of IT services that they get from their service providers.
So, which one’s the better option?
That’s the billion-dollar question. It’s like asking, should I prefer a Chocolate or a Strawberry cake. You need a strategy that can help you complete your projects on time and within budget.
Let’s talk about investing in project outsourcing while not compromising on staff augmentation. Here is a table for what works for both and where they lack in.
||Great for having control over staff and ensuring quality and confidentiality. Everything remains within the organization.
||Great for doing specific tasks that require to be completed asap but there might be a need of confidential information sharing – which can go wrong at times.
||Requires staff expertise which means that you will have to invest in training staff.
||Can directly go for assigning tasks and not worry about training and other related costs.
||Greater integration with internal processes and understanding company culture, helping offer better products. Management overhead costs can increase though.
||Can make use of the best practices without being hindered by organizational bottlenecks. The ignorance of the company culture can also be a downside. Management overhead costs can be eliminated.
||Great for handling rapidly changing staff needs and improving internal skill development. However, staff can get to know the in-house working methodologies without being a permanent employee.
||Extremely easy when it comes to scalability. Keeps the focus on the business and helps in procuring the right talent for the right needs, without wasting time with training staff for project needs that only rise periodically.
||Less employer burdens as staff can be scaled up and down as needed to meet project deadlines without worrying about normal employee liabilities.
||Significantly reduces the cost burden as you only pay for the work. Great for one-off or periodic tasks but not that right a choice if the work required is a regular one.
||Great if you’ve a long term project and are looking to hire staff specific to that project.
||Better suited for strict deadlines that are urgent as it can take time to build staff and train them.
||Larger projects and smaller projects can both be looked after with staff augmentation
||Great value if you will need some expertise in larger value projects and can outsource part of the tasks that your team is not experienced in.
In today’s competitive world, businesses want to be careful when deciding whether a large software development project should be done in-house or done by outsourcing the work.
Some companies have an in-house software development setup (captive centre subsidiary), but they are so flexible that they outsource work to reliable vendor partners.
Other organisations no longer outsource major software development work, because of their captive centre setup which has long-term goals.
You can select the best one that suits your business’s purpose in the short-term and in the long-term, by comparing the two setups.
So let’s take a look at a comparison of the key drivers and challenges for a captive centre set up with those for a vendor partner set up.
Key Drivers for the Captive Centre Setup
- Does your business have a captive centre in a low-cost area? Do you want to benefit from the cost-savings of offshore resources? Then this model is the one for you.
You can choose to set up your own captive centre to make the most out of its large-scale offshore plans.
- Does your business deal with sensitive information? Do you want to prevent the potential risk of data leaks to third parties? Then you may prefer this model.
For example, if your business is based on banking, insurance or the stock market, you deal with a lot of monetary transactions and sensitive customer data.
- Do you want complete control over your sensitive operational activities, like product costing and new product launches? Then this setup is suitable for you.
- Does your business handle a complex software development project? Then the knowledge gained by the resources working on such projects will be invaluable. It will stay in the organisation with this model.
Challenges for the Captive Centre Setup
- It is usually rapidly set up to scale up your business and you may start with lenient service level agreements (SLAs). But, when you need to make the SLAs stricter and better, you might have to spend more than you thought.
- Some internal employees might be resistant of this setup. They may fear new projects being assigned to the captive centre which will lead to a lack of work for them with potential job cuts in the future.
- Your company’s top management may start to focus less on the captive centre, due to it being viewed as a cost centre (instead of a profit centre). This is because it takes a long time to show decent returns on investment and results, despite it being costly to set up.
Key Drivers for the Vendor Partner Model
Most drivers for this outsourcing model stem from the shortcomings of the captive centre model.
- Unlike the captive centre model, this model does not require a lot of time to start and the operations can be ramped up quickly. This is because the vendor generally has an established setup. For example, if you are a big retail company and wish to build an enterprise app, it makes more sense to start off using this model.
- You do not need to invest a lot of money or time to enter a vendor partner relationship.
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- Your company can opt for a pilot project execution, before getting into large scale operations. This allows you to first gain valuable experience in setting up a low-cost centre. You can then decide to continue to scale with the vendor partner or you can start your own captive centre.
- You can smoothly close out offshore operations without hassles or high costs. This is possible with a clear contract with the vendor partner with a transparent exit clause. However, you may find it too tedious and expensive to close down offshore operations with the captive centre model, since labour laws in several low-cost countries are quite strict.
Challenges for Vendor Partner Model
- You may find it challenging to maintain the security of confidential data for banks, insurance companies, etc.
- Your business may have to spend a lot to ramp up your vendor partner setup with those who have expertise in the niche skills. This may also be difficult, because you may be unsure how long the resources and knowledge will be kept.
Many companies may want to balance the two models based on the nature of their business.
However, Fortune 500 companies, such as Citigroup, Dell, Unilever and Deutsche Bank, have recently shut down their captive centres and opted for the cost effective and efficient vendor partner setup. This is due to the increased competition and the need to save costs and deliver instant results within strict deadlines.
So, which model will you opt for? Do you have any points to share?
Application maintenance outsourcing (AMO) is an important part of application outsourcing. With AMO, you can outsource all the maintenance activities, such as enhancements, corrections and patch developments.
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You can get the resources that you need for the maintenance phase of your project on a contract basis. These resources include the manpower with the required technical skills, technology and other required resources.
Application development and maintenance form about 80% of the total work that is outsourced. The number of outsourcing companies is also increasing due to the huge demand.
Thus, let’s take a look at the several pros and cons it comes with.
Pros of AMO
AMO is a cost-effective solution and improves your operations and technology well.
Here are some benefits of AMO:
- Cost and time saving
- It lets you have more time to develop the app and for other operations.
- It lets you concentrate on the core business.
- It makes use of external expertise.
- Gives you access to industry experts without paying a big compensation as you would for a normal employee.
- Allows your work to be flexible.
- Gives you access to talented IT professionals, better tools, equipment, and technology.
- Improves the performance, productivity, and customer satisfaction.
- It allows work to be continued in different time zones.
- Enables you to go without a payroll system.
- Nullifies the worry about losing key employees.
Cons of AMO
There are many benefits of AMO. But, if you choose the wrong partner or if you don’t take care of the basic guidelines, you could end up losing rather than gaining.
Here are some disadvantages of AMO:
- You may lose control over the workflow.
You could have a conflict with the contractor about the differing workflows.
For example, you may want the contractor to use a different approach than what they usually use.
So, you should ensure that the approach that you want the contractor to follow is clear before you sign the contract.
- The outsourced staff may be disloyal.
You may not have proper communication with your outsourced team and so you may lose control over the team.
- There is a management overhead.
You will have to deal with extra management duties, since you also have to take up the management issues related to outsourcing.
- There may be a slow response time to problems.
If there is no proper project management and communication, your customers will experience a slow response time and they may be less satisfied.
Tips to Implement AMO
Thus, you first need to choose the right partner for outsourcing. You also have to follow best practices and guidelines and you need to ensure everything goes smoothly.
Here are eight tips to help you.
1. Set Your Goals
You should set well-defined criteria and quantifiable goals.
You should know what you want from the outsourcing and you need to specify them as measurable objectives. You should then measure the progress of your project with these.
2. Understand the Process
The activities involved in maintenance outsourcing are:
- Service level agreements (SLAs)
- Asset transfer
- Knowledge transfer
- Architecture reconstruction
- Environment replication
- Pilot programme
- Process propagation
- Work execution
- Testing (verification and validation)
- Monitoring and reporting
- Review and improvements
You should understand the workflow, other specifics and how the maintenance process will be carried out.
You should clarify everything with the contractor and only sign the contract once you are clear about everything. This includes the approach that the vendor will use.
You must follow a well-developed maintenance lifecycle. Each phase (the planning, transitioning, delivery and close out) should occur at the right time and you should have a proper plan for each.
You must ensure that the knowledge transfer is done properly. So, you must maintain a good documentation and keep it updated. This will also help you during training.
You must choose experienced and skilled professionals. Such employees will require less training and you can use work trials to select key personnel.
You should also set aside a budget for training. They need basic training; since they must understand the app they are working on. You can optimise your training costs by choosing employees with the required technical skills and experience and by having good documentation.
5. Make Use of Metrics
You must establish metrics to evaluate the performance and to determine whether the contractor abides by the SLA.
You can these metrics:
- Customer demand metrics
- Enhancements work backlog
- Maintenance work backlog
- Priority request ageing
- Performance metrics
- Maintenance work volume
- Enhancement work volume
- Quality metrics
- Rework requests
- Efficiency metrics
- Utilisation metrics
Verify your measurements using audits and monitor them continuously. You should also regularly hold review meetings and ensure that you are on the right path.
6. Team Integration
You must integrate your in-house team with the outsourced team. There should be good communication with your external staff to reduce misunderstandings and conflicts.
You should also understand the cultural and geographical differences of the offshore team and try to bridge these differences to work as a single team.
7. Production Management
If you believe in productive work, then must establish a proper monitoring and reporting system as well.
You should also have a strong production management to help you smoothly carry out the joint operations. Everything should be planned and executed according to the plan.
8. Improve Your Infrastructure
If you have a mature infrastructure, you will achieve better results.
You should have a good communication platform, good connectivity and good technology support. Recovery features can also help you improve your efficiency.
So what’s your tip for AMO? Do you have any questions? Please feel free to leave your comments below and thanks for reading!