Choosing Between Staff Augmentation or Managed Services

Alternative sources of labor are becoming more vital in an economy that faces major shortages. In 2021 alone, approximately 47 million workers quit their jobs, which has contributed to understaffing and unfilled roles. Staff augmentation, or the practice of hiring temporary workers to augment a firm’s workforce, is one solution to address the need for more labor. Another is utilizing managed services, which is essentially outsourcing the work to a third party. The decision to utilize staff augmentation or managed services has many nuances that ultimately depend on the goals of the firm. 

Below, we discuss the pros and cons of each model and other key considerations to help firms make the best decision for securing additional labor.  

Pros and Cons of Staff Augmentation

The staff augmentation model is appealing for a number of reasons. Firms that need to scale up their operations find that hiring temporary workers can be done quickly. Conversely, if a firm is scaling down, it is far easier to do so without a full contingent of permanent workers. Whether skilled or unskilled labor is needed, firms can rapidly access these workers to mitigate unforeseen events. 

Staff augmentation also allows firms to cushion financial headaches from permanently hiring or laying off workers. In times of uncertainty, this can be a crucial advantage because firms do not have to perfectly predict the size of the labor force that is needed. Finally, the staff augmentation cost model is simple as temporary workers are typically paid on a fixed rate basis for the duration of a contract.  

The danger of staff augmentation, however, is when firms begin to rely on temporary workers for long-term operations. First, temporary workers are typically paid more than permanent employees. Thus, neglecting to hire individuals on a permanent basis for projects that become permanent fixtures in a firm’s operations can create greater overhead.  

Additionally, temporary workers who work in roles for long periods of time possess knowledge and skills that are vital to the company, but it is easy for them to leave. Becoming dependent on temporary employees is dangerous since firms have little leverage over individuals without actual commitment.  

Pros and Cons of Managed Services

The primary difference between staff augmentation and managed services is the guarantee of a result. While staff augmentation allows firms to potentially accomplish a goal by providing a key input, managed services guarantee that the outsourced task is completed for a fixed price.  

This is significant as it shifts the risk to the third-party and frees up capacity at the firm to focus on other tasks. It also allows a firm to fully understand the costs needed for a project. The cost of hiring temporary workers can increase with unforeseen delays or challenges as they are kept on the payroll for longer. In contrast, the fixed cost of a contract for outsourced work means that the firm knows exactly how much they are spending.  

If a firm needs a task done for a long period of time or in great volume, there may also be bulk incentives that are provided which can lower cost. Finally, the third party may have greater capabilities, efficiency, and knowledge than the firm because the task is one of their key operations.  

Firms, however, may dislike managed services because they have less direct control over the outsourced tasks. The tradeoff for letting another firm assume control of a project’s risk is that it is more difficult to exercise oversight of every aspect. For firms that prioritize scrutinizing every detail of a process, outsourcing work may not be the best decision. 

Additionally, if a firm ever decides to begin accomplishing the task in-house, it is difficult to build the necessary foundations without an existing division. Thus, firms that are uncertain whether they want to continue outsourcing a task forever should plan for the difficulties of creating their own teams.  

Staff Augmentation or Managed Services

There are three key components to deciding to use staff augmentation versus managed services. First, firms need to fully understand the length of the project. If they expect it to be relatively short term, staff augmentation may be better because it is easier to quickly adjust the size of their work force. If it may be longer, then considering a contract to outsource the work to a more efficient third party is important.  

Second, the urgency of the project may determine the direction that a firm chooses. Staff augmentation is valuable for how rapidly firms can scale their labor. If a project faces unanticipated challenges, staff augmentation can be a vital tool to pick up the slack. If the time horizon, however, extends well into the future, then firms may want to consider not having temporary workers on their payroll for such long periods. Instead, they can optimize other tasks that their firm focuses on by letting another party assume the risk for a set timeline.  

Finally, the confidentiality of the task is an especially nuanced aspect. Firms may not want temporary workers to have access to trade secrets for extended periods of time, regardless of legal confidentiality guarantees. They may also not want to create dependence for vital tasks on workers that may not have as much loyalty to the firm as permanent employees. Firms, however, may also not want to utilize managed services for many of the same reasons.  

Conclusion

Ultimately, the decision between staff augmentation and managed services will be different for each firm. Companies should develop short and long-term plans to make the most informed decisions about what their goals require. Fully understanding the mission of various projects can be a great step toward addressing labor challenges. Reach out to our experts at Bull City Talent Group for further guidance on staff augmentation or managed services.