In recent years, many information technology (IT) departments have sought to
increase their agility, overcome short-term capability deficiencies, and/or
accommodate the impact of hiring restrictions by utilizing staff augmentation
arrangements with IT service providers or by contracting directly with independent
contractors. As a temporary strategy, this approach has a number of advantages
compared to the alternative of directly hiring staff.

Under a staff augmentation model, the cost of hiring for temporary requirements
and disengaging once those requirements have been met can more than offset the
higher cost of engaging more permanent resources. Moreover, staff augmentation
requires minimal contracting effort, has a simple cost model (rate times hours
worked), can scale up or down quickly and has minimal impact on the existing
operating model of an IT organization.

Staff augmentation, however, can become problematic when it morphs into a
permanent operating model. As a long-term solution, it has none of the benefits of
alternative long-term external sourcing models, such as managed services
(outsourcing) and, in fact, can create a number of serious risks and potentially
destroy value.

Staff augmentation has its place in an IT department’s arsenal. Even in a managed
services (outsourcing) model, staff augmentation is often utilized for selected
services at specific points in time. However, when staff augmentation becomes the
de facto operating model for an IT organization, it constitutes an ineffective form of
outsourcing that involves high cost, low commitment and high risk.
IT departments utilizing staff augmentation in this manner should recognize that
they are already “sourcing externally” and should seek to adopt a true managed
services (outsourcing) model to maximize value.