Staff Augmentation is a common approach to managing engineering capacity more flexibly than relying 100% on full-time employees. However, the approach to staff augmentation in many organizations we work with is suboptimal, resulting in poor quality, loss of critical subject matter expertise, and high or inefficient cost relative to the results obtained. In the following post, we summarize best practices and pitfalls to maximizing the value of staff augmentation in your organization.
Staff augmentation is one type of outsourcing where a purchasing company uses temporary resources to supplement their full-time employee team for the delivery of product on short or long term basis. Although staff augmentation is just one way to extend engineering team of employees, it is often referred to interchangeably with the term Outsourcing. For the purposes of this discussion, we define Outsourcing as an arrangement where the third-party provider is fully responsible for a body of work with minimal to no involvement of the purchasing company's team (e.g. outsourcing all of management of your datacenter footprint for example), whereas Staff Augmentation is an arrangement where the augmenting staff are an extension of the existing full-time team and work relatively close with the full-time employee team.
WHY Consider Staff Augmentation?
There are several compelling reasons why companies choose to leverage staff augmentation:
- Time to Market(TTM) - Companies commonly accelerate their product's time to market by utilizing third-party staff. A company can swiftly deliver top-priority initiatives by parallelizing work and increasing the workforce.
- Flexibility - Adding non-full-time employees provides flexibility in scaling a workforce up or down. This approach minimizes the need for reductions in force (RiF's) as it costly (e.g. exit packages, cost of lost subject matter expertise), mentally and emotionally challenging for employees being laid off, and can inflict long-term damage on a company's employment brand (ability to attract talent in the future).
- Cost optimization/reduction - Many companies, especially those with larger development teams, primarily use staff augmentation to reduce the overall cost of their software development by using third-party providers in a lower-cost location than their primary (employee) development centers.
- Access to specialized skills – Companies stay ahead of the technology curve by augmenting their team with specialized skills that may not be readily available as full-time hires. This allows them to remain competitive without compromising on cost or compensation fairness.
While the above benefits are relatively standard, the models of staff augmentation based on the organizations' needs vary.
Generally, companies either use staff augmentation as part of the delivery of major initiative(s) or on an ongoing basis. Ongoing engagements usually involve maintenance, small enhancement work, and potential 'bursts' of capacity for larger deliverables. In a larger organization, both models often exist simultaneously.
BEST PRACTICES FOR CEO'S: Maximizing the Value of Staff Augmentation
Many best practices are common for either large initiative staff augmentation or ongoing staff augmentation. However, some factors become more critical depending on the type of work along multiple dimensions.
1. Proactively and explicitly manage subject matter expertise on an ongoing basis.
Subject matter expertise has two key dimensions relative to a staff augmentation strategy.
The first consideration is relative to competitive advantage. We recommend against using staff augmentation in the competitive areas of your business. Although the main reason may be implied, the objective is to avoid exposing the areas of the product that you derive to have the most competitive advantage. Put another way, competitive advantage should be guarded as closely as possible so as not to risk the deterioration of your competitive edge by making it more widely available and understood.
Remember that staff augmentation is a temporary arrangement. Therefore, it's essential to have a strategy to bring the expertise back in-house (work shifts back to full-time employees) if needed.
Following are subject matter management best practices for staff-augmented work:
- Plan the subject matter transition at the beginning of the initiative, do NOT leave until later in the progression of the initiative's delivery. Many companies will plan to address the knowledge transfer near the end of the engagement, which increases the risk of incomplete knowledge transfer and/or additional costs to do a proper handoff. Be sure that any cost for cross-training, extra documentation, or handoff is included in the contract with the third party.
- Ideally, the knowledge transfer should be 'integrated' into the initiative on an ongoing basis as the company should embed experts (think Application Architect &/or Tech Lead level) from their full-time staff into the staff-augmented delivery team(s). Embedding team members serves the dual purpose of helping to drive the ongoing quality and consistency of the software product against the company's standards and making the knowledge transfer smooth and efficient.
- While this need to transfer knowledge back to your full-time employees is obvious in the case of a well-understood large burst initiative, it needs to be addressed for ongoing maintenance-type work. Using staff- augmentation for ongoing maintenance work becomes an issue when there is an economic downturn (or other adverse economic drivers) and the purchasing company wants to transfer ongoing maintenance and small enhancements back to their team. In these scenarios, it is common for the company to learn that no full-time employees understand the code because the augmented engineers were the only ones doing small enhancements and maintenance on the product for the last few years.
2. Be clear on your objectives of using staff augmentation in the first place as an organization.
Most larger-scale organizations use staff augmentation for a combination of the above benefits, ie. Faster TTM, lower cost due to global labor arbitrage, and the ability to flex engineering capacity up and down without impacting full-time employees.
However, most companies miss or gloss over the additional costs of staff augmentation such as:
- Cost to ramp up and subsequent loss of SME when the extra staff leaves
- Additional coordination and communication – both the time and the impact of more parallelization
- Additional oversight – additional reviews and scrutiny that would not be necessary if the work was in-house
- Impact on time to market if the augmented staff is significantly geographically separated from the rest of the team.
3. Think about geography in addition to cost.
Most companies overemphasize the focus on cost and under-emphasize other key factors. As previously described, geographic distance will impact communication, collaboration, total cost, quality and time to market. Where possible, use metrics and tools to understand the impact of geographic distance as well as the communication overhead of working with third party and increasing team size (more parallelization).
4. Try to avoid or minimize use of staff augmentation for initiatives that are most closely aligned to where you create competitive advantage
Initiatives closely associated with where you drive product differentiation and competition should ideally NOT be outsourced. In the case there is a strong motivation to outsource based on the size of the initiative (TTM), during the planning phase, it is important to:
- Carefully choose which areas the outsourcer is used for. For example, suppose a new feature involves refactoring existing well-understood code. In that case, that may be more appropriate for the outsourcer to execute on while the full-time team works on new functionality that will be more strategic going forward.
- Have a solid plan to manage IP during and after delivery.
5. Monitor key aspects of quality and productivity on an ongoing basis as transparently as possible and incorporate them into the contract.
All outsourcing contracts will have deliverables and acceptance criteria associated with their payment. For larger initiatives, it's useful to include monitoring of ongoing quality into the contract and plan to measure automatically throughout the engagement. For example, tools like Sonarqube can be used to look at code quality and construction on an ongoing basis. Similar tools can look at the contributions of individual engineers. This may not be necessary, BUT some outsourcers will load up engagements with more junior engineers without adequate oversight and having these ongoing quality tools and metrics in place helps to avoid poor underlying quality/construction of the final product.
COMMON QUESTIONS FROM CEO'S
Should I consider using more than one outsourcing company?
In short, for smaller organizations it usually does not make sense to have multiple staff augmentation vendors. However, there may be situations where more than one vendor is used at a small company when specific skills are needed.
As an organization scale, it often makes sense to use multiple outsourcers primarily for negotiating leverage and therefore optimized cost. However, always remember that the overhead in your Purchasing team and for Engineering leaders may be significantly higher than when using only one firm. Ideally, when more than one outsourcing firm is used, engineering alignment to the multiple providers is set up to minimize how many front-line leaders have to deal with two (or more) outsourcing companies.
What size of Staff Augmentation vendor is optimal?
It is important to consider your firms' size relative to the Outsourcing provider. The vendor should be chosen, heavily considering the size of your own company. The main rationale for this philosophy is that you will likely get much better service from a company where your business really matters. For the very large outsourcers, they will in most cases not be a good fit for smaller companies. Although it may work just fine for a smaller company to work with one of the 'behemoth providers,' especially if you hope to have an ongoing staff augmentation relationship, it is likely to be much more successful is size of the provider is 'aligned' to the purchasing company.
Should I use fixed price or Time and Materials (T&M)?
Companies often lean towards fixed price for larger initiatives that they think are well-defined. This can work but realize that there is always a premium added to the price when fixed price is used since the outsourcing party needs to manage their risk exposure. While fixed price can seem safer, in our experience, it often leads to a high amount of change management (ie. scope creep), more ongoing friction, and various forms of 'gaming' relative to change management. In addition, most larger initiatives are actually NOT well-defined, especially if the initiative involves significant new development (as opposed to a re-write of a portion of an application). That is, even if you think you understand the requirements, you are likely overestimating how clearly defined the work is based on your own bias of understanding your business.
T&M is usually the best choice for ongoing maintenance work because each piece of work will be relatively small. T&M can feel very uncomfortable for the company buying the outsourcing since it, by definition, is a 'blank check', but this risk can be managed by having well-constructed outcomes, as well as the tools to manage quality in the process and the end deliverables.
How should I think about geography in my selection process?
Considering geographic separation from the full-time employee team is critical. The outsourced team should have a maximum duration of daily overlap with the full-time team during working hours.
In addition to time zone considerations, there are also locations globally that have differing levels of talent. There are good engineers everywhere, but the landscape is constantly shifting. For example, many companies in the US are currently outsourcing to Mexico and many locations in Central and South America. This was less common ~10 years ago but has shifted. It is worth taking the time to understand the global landscape and choose accordingly rather than 'blindly following the herd.'
WHAT STAFF AUGMENTATION IS NOT
Staff augmentation should NOT just be a cost play
This point cannot be understated. While many companies see cost reduction via labor arbitrage as the primary motivator, there are other factors to consider as previously outlined (e.g. type of work, competitive advantage/IP management, talent sourcing flexibility).
Being clear and deliberate in aligning your staff augmentation objectives helps drive better decisions on how to leverage outsourcing, where and with whom.
Using staff augmentation just to 'follow the sun' usually does not result in the intended benefits.
Some companies use staff augmentation just for QA, with the idea that engineers build during the day and QA tests overnight in another location. The idea of this strategy is to reduce TTM and cost simultaneously. This can be workable, but in our experience with clients, the benefits are usually lower than initially estimated since the QA team lacks ongoing context on how the product should work based on their geographic (& organizational) disconnect. The result is there are still significant delays in the process because no one is available to answer questions in real time. In addition to communication delays, there is usually a much higher percentage of invalid defects that waste engineers' time since they have to triage and reject more defects.
Staff augmentation is an essential outsourcing strategy for many small and medium to larger size companies in order to add engineering capacity flexibly, manage cost and optimize time to market (TTM). However, making it work optimally in practice is challenging. We work with our clients frequently to help them think through their execution strategies, including working with outsourcing partners. If you are struggling with staff augmentation or any challenges for your digital transformation, please contact us; we can help.