Staff Augmentation vs. Managed Services: What’s Best for Your Business Needs? Our comparison guide covers the differences between the two models to help you decide.
Any company that develops software — whether for internal use or for sale — needs a competent team of engineers to realize its vision. This team can be formed in several ways. In previous decades, the traditional approach was to hire professionals directly as employees and have them work together in a central location. But as times and conditions changed, alternative models were introduced.
For example, employers can have employees work remotely, an approach that has become necessary and popular during the pandemic. The benefits include increased productivity, reduced costs and happier workers. In an entirely different arrangement, companies can delegate the hiring process to an outside vendor, a process known as outsourcing, which offers great flexibility to software development teams.
Outsourcing can happen in a variety of ways based on (1) the geographic location of the outsourced teams in relation to the companies they work for and (2) the purpose of the outsourced team members. Geographically, a team can be located in the same country as the company it supports (onshoring), in a distant country (offshoring) or close to the company (nearshoring). The goal may be to enhance an existing team ( staff augmentation ) or to provision an entire team ( managed services ).
| Staff increase | Managed Services | |
|---|---|---|
| Popularity | Common for companies that need temporary skilled workers or that deal with short-term projects. | Common for companies looking for comprehensive solutions and offloading non-essential tasks. |
| Forms | Ideal for companies that want to maintain control over their projects and need temporary skills improvement. | Ideal for companies that want to focus on core functions and outsource the rest. |
| Main advantages |
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| Main disadvantages |
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| Cost benefit | It may be cost-effective for short-term needs, but long-term costs can add up. | Often cost-effective in the long term, as companies can avoid costs associated with hiring, training and equipment. |
| The infrastructure | Requires existing infrastructure as an increased team will utilize your company's resources. | The infrastructure is typically provided and managed by the service provider. |
| Training | May require some initial guidance or training. | Minimum training is required as the service provider is expected to have the necessary skills and knowledge. |
| Communication | Communication can be seamless as an augmented team works directly with their teams. | It is necessary to establish communication mechanisms; could be less immediate than in staff increases. |
| Flexibility | High as you can size the team according to the project requirements. | It depends on the contract; expansion may require contract revisions or additional costs. |
| Security | Medium to High; you have control over the data, but increased staff access needs to be managed. Explain: You will have to ensure that the augmented team follows your safety protocols. | High; Managed service providers are expected to follow high security standards. Explain: The service provider is responsible for security and must adhere to agreed standards. |
| Tools and Processes | Follow the tools and processes established in your company. | Tools and processes are typically established and managed by the service provider. |
| Agreements | Short-term or project-based, can be extended as needed. | Typically long-term and comprehensive, covering multiple aspects of a company's IT needs. |
In the following sections, we explore staffing versus managed services in terms of the advantages and disadvantages of each and which may be better in specific situations. Both software outsourcing models have their place, and it's helpful for leaders of companies that develop software to understand where each fits into successful software development operations.
The Staff Augmentation Model
Benefits
We will cover the advantages already mentioned and a few more in the following sections.
- Scale up or down based on workload
- Gain access to skills the core team may not have
- Remove costs associated with onboarding and hiring full-time employees and reduce the time and costs associated with the hiring process
- Keep tabs on outsourced team members
- Work with potential employees before hiring them
These advantages lead to high-level benefits for companies, including higher quality products and faster time to market.
Adjust team size
The amount of work available to a development team is variable, which is why staff augmentation services are so valuable. Companies can use them to adjust team size up or down depending on what the team has on hand at any given time.
Get access to skills
A company may have an excellent software development team made up of highly competent engineers. However, the collective skills available within this team may not be sufficient for all the projects assigned to it. Team augmentation allows team leaders to expand their team's skill set to be able to meet the objectives of any project they take on.
Reduce or remove costs
Hiring full-time employees is expensive. HR teams must source, evaluate, interview, and make offers to candidates, which requires considerable time, money, and effort. Once employees are hired, they require even more resources for onboarding, training, salaries, and benefits. Staff augmentation allows companies to eliminate traditional hiring costs and reduce overall employee costs.
Keep control
When a company augments its development team with contract employees, these workers fall under the umbrella of the company and its methods. This process allows teams to maintain control over how project goals are achieved.
Work with potential hires
Companies can use staff augmentation in another way, which is to work with potential team members before hiring them. Not all outsourcing companies allow this type of arrangement, but those that do make it easier to vet workers who want to move to a permanent in-house position.
Disadvantages
We will address the disadvantages of the staff augmentation model in the sections below.
- Need for training and management
- Challenges with integration
- Limited availability
These disadvantages can impact the company as a whole, causing discomfort among existing team members which – in extreme cases – can lead to reduced productivity, or even burnout, by delaying or even stopping some projects.
Need for Training and Management
As with any new hire, team members hired through staff augmentation require training and management. This means team leaders must take the time to familiarize themselves with the project goals, methods, and workflows. Existing team members should be available to answer questions and provide guidance when the team leader is unavailable.
Challenges with integration
On every team, leaders roll the dice when they hire new members. The same applies to staff increase situations. In other words, not all new team members will integrate well with the existing team. They can bring their own ways of accomplishing tasks, their own work styles, and their own personalities. Additionally, existing team members may see them as a threat. Team leaders must be careful to use standard methods to instill team cohesion.
Limited availability
Using staff augmentation is somewhat risky because the hiring agency may not have the right team members available whenever needed. These agencies go to great lengths to ensure they have a deep pool of engineers available. However, companies that use them must be aware of this possibility.
When to use a staff augmentation provider
The use of staff augmentation can be useful in a wide variety of situations, including those listed here.
- A project cannot move forward because it requires skills that are not present among existing team members.
- The company receives requests for projects that temporarily extend the workload beyond the capacity of the existing team.
- A company wants to hire new team members and wants the opportunity to work with candidates before hiring.
The managed services model
Unlike the staff augmentation model, which adds staff to an existing team, the managed services model creates an entirely new team. The main benefits are the transfer of work that an in-house team may not have the capacity to do and the reduction of costs associated with finding, hiring, training and onboarding new employees.
Benefits
We will cover the advantages already mentioned and a few more in the following sections.
- Increase the range of available software development skills
- Make the cost of services more predictable
- Focus on core business concerns rather than software development management
- Improve security
- Reduce the risks associated with software development
These advantages lead to higher-level benefits for businesses, including the ability to significantly increase operations and cost efficiency.
Increase available skills
Companies using managed services have the option to expand the skill set available for their projects. For example, a company that primarily develops software intended for office use may want to start creating applications but have no one on staff who specializes in that area. An external managed services team can provide it.
Make costs more predictable
Managed services are charged according to specific pricing parameters, so companies using them know in advance what the costs will be. This predictability makes budgeting and forecasting much more effective.
Focus on core concerns
Companies that use managed services for outsourced software development can spend their time and energy on matters more critical to their core mission. For example, a manufacturing company may focus on R&D and increasing worker efficiency for the products it makes.
Improve security
Outsourced IT providers are well trained in the latest cybersecurity standards and practices, so they can ensure that the companies that hire them are up to date in this area. As a result, hiring companies can reduce data breach risks.
Reduce risks
When a managed team takes on a project, they assume the risks associated with that project. This includes ensuring that the software will perform its intended functions and be delivered on time.
Disadvantages
We'll cover the disadvantages of managed services in the sections below.
- Potential to get stuck in a bad deal
- Security risks
- Limited control
These disadvantages can impact the company as a whole, introducing problems that can result in wasted money, time needed to correct serious errors or security flaws, or projects not completed satisfactorily.
Potential for bad business
Managed service providers sometimes issue agreements that may end up working well for them but not for their customers. Agreements that lock customers into situations that don't suit them end up costing those customers time, money, and aggravation if they don't get what they're paying for.
Security risks
While managed services can improve security, as noted above, they also have the potential to undermine it. When a company hires a third-party vendor, it must grant access to some of its sensitive systems and data. Unscrupulous vendors or individuals working for them may take advantage of this information for nefarious purposes.
Limited Control
Managed services allow companies to deliver entire projects, which can be useful. But it also limits the control that these companies have over the project.
When to use a managed services provider
Using managed services can be useful in a variety of situations, including those listed here.
- A company does not want to hire an in-house software development team, but needs software development services to be performed.
- The company wants to expand into types of software development that internal resources cannot accommodate.
- A company wants costs related to software development to be more predictable.
Staffing vs. Managed Services: A Comparison Table
The following table summarizes the differences between staff augmentation and managed services. However, the choice does not have to be one or between these two options. Companies can effectively use staff augmentation and managed services to achieve a variety of objectives. They can also opt for a third possibility: software outsourcing, which involves completely transferring software development to third parties. This option is described in more detail in the following section.
| Aspect | Staff increase | Managed Services |
|---|---|---|
| Scope of Work | Specific skills or personnel provided | Complete solution or service offering |
| Control and Management | The customer maintains control and management | The service provider manages the entire process |
| Cost structure | Hourly or monthly per resource | Fixed or subscription-based pricing |
| Flexibility | High (easily increase or decrease) | Usually a fixed contract with specific terms |
| Skill set | Specialized skills for a project | Comprehensive, including strategy and operations |
| Duration | Short-term or project-based | Long-lasting and continuous relationship |
| Responsibility | The customer is responsible for the result | The supplier is responsible for the result |
| Focus | Task specific | End-to-end solutions |
| Integration | Integrates with the existing team | Can work independently from the client team |
| Use case | Temporary, project-specific skills gaps | Continuous and long-term services |
What are the other options?
- A company does not have an in-house development team.
- The in-house team does not have specialized knowledge for specific development specifications.
- The internal team is full and unavailable to take on a specific project.
Like staff augmentation and managed services, software outsourcing involves working with an outside vendor to perform a specific task. Benefits include access to world-class talent and not having to worry about hiring or maintaining a development team.
Organizations requiring outsourced help should keep in mind that both staff augmentation and managed services may involve working with professionals within the same country (onhoring), in a country located in a distant location (offshoring), or in a country located nearby (nearshoring). ). While onshoring is often more convenient and offshoring is typically less expensive, nearshoring provides considerable benefits, including similar time zones, languages and cultures, as well as reasonable costs.
Companies may also consider hiring contractors, who can be found as individual suppliers or through contracting agencies. This option is closer to increasing staff in your structure, but may require less commitment.
Conclusion
Staff augmentation and managed services are highly useful approaches to acquiring skills and support to achieve ambitious company goals. The choice depends on a wide variety of factors, including company goals, current capabilities, budget, work style and long-term plans. Often, outsourcing providers can help potential clients determine which offering or combination of services will work best in a specific situation.
