IT project outsourcing allows a company to outsource entire projects. In some cases this can also take the form of “out tasking”, where specific tasks of a project (but not the entire project) might be outsourced to a staffing firm or an outsourcer.
- Reduce training costs: Training and skill development is the responsibility of the outsourcer and staff augmentation firm.
- Best practices: Taking advantage of industry best practices can be accomplished simply by using an outsourcer who follows best practices. Outsourcers shoulder the responsibility of investing in the adoption, maintenance and improvement of best practices.
- Scalability: Just as it is easy to add/subtract staff augmentation resources, it is also easy to ramp up and down with project outsourcing.
- Economies of scale: There is significant leverage when negotiating large contracts with outsourcers.
- Reduce management overhead: Management is the responsibility of the outsourcer.
- Results centric model: The responsibility for delivering results lies with the outsourcer. Companies are buying agreed upon results.
- Keeps the focus on the core business: Because the responsibility for delivering results lies with the outsourcer, companies can stay focused on the results and their core business.
- Employee vs. Contractor: Project outsourcing avoids navigating the legal landscape of employee vs. contractor issues.
- Overcomes a lack of internal capabilities: Companies who lack the internal capability to complete certain projects will typically find it more cost effective to outsource their project needs as opposed to developing those capabilities internally.
- Variable cost structure: Shifts fixed costs (employees) to variable costs (project costs) which change in proportion to the current level of project activity. This improves operating leverage.
- Legal commitment: When a project is performed internally, any project failures or liabilities which arise are the company’s responsibility. When a project is outsourced, contracts are typically structured such that the outsourcer takes on that as a contractual risk.
- Lack of control: Control of everything from high level processes down to individual resources rests with the outsourcer.
- Internal resistance: Some within a company may feel threatened by a project outsourcing model. Although most project outsourcing serves the purpose of overcoming a lack of internal capabilities, some internal employees may be concerned that this model will lead to cutting back internal staff in favor of project outsourcing.
- Finding a quality outsourcer: When a company looks to meet a need which is beyond the scope of their core competencies, it may be difficult for them to assess the quality of potential outsourcing firms.
- Smaller projects: Smaller projects may be less cost effective under a project outsourcing model than a staff augmentation model. Some outsourcers may be reluctant to take on small projects or may charge a premium to take on such work.
- Integration with internal processes: Integration with complex and unique internal processes may be more difficult under project outsourcing model.
Some companies opt for a Hybrid Approach.
For most companies there is no one size fits all approach. Some needs are best met through staff augmentation, others through project outsourcing, and sometimes these needs overlap. For example, if you have two interdependent projects: the first project is within a company’s core competencies but additional experts are required to complete the project successfully, the second project is outside of the company’s core skillsets altogether. In this case a “hybrid” approach may work best, where staff augmentation is used to acquire the required specialists for the first project and project outsourcing is used to complete the second one.
Selecting the Appropriate Delivery Model
deciding on the right delivery model can be a tough decision. Many times it boils down to the company direction. If the mindset of the company is to NOT hire full time workers and to sub or outsource everything then that is what they do. Some companies actually go through an ROI but that is rarer. Usually it is a culture thing. While some companies feel comfortable making this decision internally, others may find it helpful to seek out the advice of an IT consulting firm. We are seeing a trend more and more towards the staff augmentation and outsourcing. Companies are less likely today than they were 20 years ago to assume responsibility of full time staff.