Making hires is one of the most difficult challenges you face as a team manager, regardless of company size.
This is especially true for tech companies, given the high cost of engineering talent in major US cities and the fast-moving competition.
Staff augmentation has quickly grown as an alternative to making full-time hires, particularly for companies looking to scale on a tight timeline. But it isn’t always the right choice.
I’ve personally seen companies like Masterclass leverage IT staff augmentation effectively to rapidly while rapidly doubling their subscriber base. On the same coin, I’ve seen clients struggle when talent hired through a staff augmentation vendor reached the end of contract and left, with no-one on the in-office team ready to pick up the slack.
In this guide, I’ll walk you through the pros and cons of IT staff augmentation vs new hires so you can understand which solution is best for which scenario.
Pros and Cons of IT Staff Augmentation
Depending on the personnel and project needs of the hiring company, staff augmentation can confer significant advantages over a conventional hiring model. Below are just some of the ways that staff augmentation is revolutionizing workplace efficiency in the technology sector.
The biggest obvious benefit of IT staff augmentation is reduced cost. Full-time hires in-office will usually be in a major city and costing you major city rates. IT staff augmentation, on the other hand, allows you to engage vendors anywhere in the world.
While I usually recommend nearshore, you can literally go anywhere based on the talent pool and price. You can expect the cost per-developer to go down anywhere from 30–90% depending on where you source, and the expertise level needed for the project.
Managing payroll is cheaper and less complex as well, when compared with managing your own payroll for international teams.
Reduced Time Investment
Traditional hiring is time consuming and expensive for many companies, entailing rounds of interviews, skill testing, background checks and onboarding. This is time that many startups simply do not have, especially when faced with an immediate opportunity for growth.
One advantage of staff augmentation is that it allows startups to bypass the cumbersome hiring process by working with an agency to identify experienced, vetted candidates who can begin meeting the needs of the hiring company as soon as required.
An additional advantage of the IT staff augmentation model is the efficiency with which it adapts to the needs of a project or company.
For instance, if a startup requires project-based access to a skill, such as a team of React Native developers to rapidly build out a product feature, there is no need to hire a year-round employee for that short-term need.
Instead, that talent can be obtained on a contract basis that more accurately reflects the company’s needs.
Additionally, for rare skills that are unlikely to be found in the company’s immediate market, the staff augmentation agency will take responsibility for helping match the business with the sought-after talent. This saves the business the hassle of working with a recruiter, or negotiating the exorbitant rates required of top talent in-house.
Another advantage of IT staff augmentation emerges at the end of the employment relationship. Even in states in which non-contractual employment is considered “at-will,” terminating an employment relationship can expose the company to legal action or frame the company in a negative light. However, since staff augmentation arrangements are inherently project-based, a company is not bound to an extended relationship with an employee whose services are no longer required.
Advantages of New and Full-Time Hires
Staff augmentation is a major cost-saver, but it’s not always a practical long-term solution.
Companies that need specific skills on a continual basis may benefit from simply hiring the required talent in-office, or engaging a single contractor for a long-term contract.
Additionally, when new team members are introduced to any established dynamic, conflict can arise. This depends on existing company culture more than anything, but suffice it to say in-office developers don’t always react well to nearshore developers entering the repository.
Furthermore, while augmented team members are frequently reliable and motivated, their presence may pose challenges for managers who are used to direct supervision. Team leaders and executives who are inexperienced with this model may be tempted to check in too frequently or require excessive updates, thereby decreasing the efficiency that staff augmentation is designed to offer.
One of the hidden costs when working with a staff augmentation vendor is the loss of talent when the contract ends.
Full-time employees can grow with your company for many years, and will have their full attention focused on growing the business throughout the year. They’re particularly invaluable for high-level work that can’t be easily documented or automated.
With a full-time hire, you’re making sure that everything you teach that employee stays in-house for the maximum time possible, and isn’t applied directly to their other clients instead.
It’s challenging to maintain a strong company culture when working remote. In-house hires ensure that your team feels like a team — this ultimately drives a lot of efficiency for tech companies, especially on projects that require frequent cross-functional collaboration throughout the day.
Is Staff Augmentation More Expensive Than Making a New Hire?
At first glance, staff augmentation can appear more expensive than conventional hiring.
However, comparing hourly rates 1:1 doesn’t provide a strong indication of value when comparing contract hires to full-time hires.
The true cost of onboarding a new employee is quite high, once you factor in bonuses, equity, health-related benefits, life insurance, 401k matches, and other value provided to staff.
In business, this is often referred to as “total rewards,” and depending on the employee’s role in the organization, it can easily amount to thousands, or tens of thousands, of dollars above the base pay of the employee.
When compared to the total rewards cost associated with hiring a year-round staff member, it is almost always more affordable to consider staff augmentation. (At least, for engineering roles.)
What are the Roles and Projects Best Suited to Staff Augmentation vs Full-Time Hires?
Staff augmentation is best utilized for specific, implementation-based work.
Full-time hires are best for ongoing business functions that require a high level of skill and dedication over time.
In this context, project management functions, including determining the scope of work, should be fulfilled in-house by your core team.
For example, consider a startup that wishes to quickly create an application, but needs a specific software design or development skill that is outside of their current expertise.
This business would have their full-time management hires determine the project goals, the exact experience needed, and the timeframe for project completion.
They would then contract with staff augmentation vendors and/or contractors as-needed to ensure the project is completed on time and to spec.
In summary: project components that can be clearly defined, and have specific goals and end-dates, are best suited for staff augmentation.
Case Study: Rapid Growth with Team Augmentation
One example of a company that I’ve seen experience rapid growth and success with the support of staff augmentation is the Software-as-a-Service company, Masterclass.
Masterclass is an online education platform, founded in 2015, through which individuals can access pre-recorded tutorials and lectures by famous experts in various fields, from software design, to business management to classical dance. Classes can be purchased individually, or as part of an all-access pass.
This company has experienced an explosion of growth, with over 80 educational programs currently available, and new content is added regularly. Users can keep access to courses they have purchased indefinitely and support for mobile devices is also available.
This lighting-fast growth and innovation resulted in an 80 million dollar injection of venture capital in 2018.
However, amid this increase in opportunity and demand, Masterclass struggled to find technology talent to assist with rapid systems scaling. As more customers signed up for the service, they required efficient and reliable access to their desired content. Needing assistance to scale their service in pace with increased demand, Masterclass turned to staff augmentation to expand capacity. As a result, they were able to achieve a dramatic doubling of Average Recurring Revenue from 50 million dollars to 100 million dollars.
Furthermore, engaging in staff augmentation allowed the company to control expenses, demonstrating maximum stewardship with their income.
Local vs Onshore vs Nearshore Staff Augmentation
If you’re considering staff augmentation for a project, one of the first decisions you need to make is whether to engage with offshore, onshore, or nearshore vendors. This will determine the timezone, culture, and degree of co-working that takes place throughout the day.
Nearshoring is particularly recommended if pair programing and agile/scrum are a big part of your company process.
Team Augmentation vs Creative Agency: What Roles are Best Suited for Team Augmentation?
A creative agency is a company that offers a variety of marketing and advertising services, including creative strategy, social media, and content development. Similar to staff augmentation, they will often make services available on a project-specific basis.
Yet, while there is increasing overlap between creative work and IT solutions, and creative agencies may have some technology services available, they aren’t specifically dedicated to software and technology work.
IT team augmentation firms are entirely focused on technology work, with 80-90 percent of IT staff augmentation workforce offering specialized technical assistance, such as with Python or Ruby on Rails projects.
Frequently the clientele for these agencies is highly technical as well, seeking to fill a clearly defined niche for a short-term endeavor.
IT Staff Augmentation vs Managed IT Services
IT staff augmentation and Managed IT Services are common approaches to tech staffing for mid-large companies.
IT staff augmentation involves hiring contract teams per-head from a third-party vendor. Talent is paid on time spend per-project and works directly with the client’s in-house team. This is different from managed IT services contracts, which are paid on outcome to manage business areas like infrastructure or security from top-bottom.
Essentially, staff augmentation outsources the staffing, while managed IT services and agencies outsource the solution — new hires to build your full-time team, meanwhile, insource the staffing and problem solving.
Both models are subsets of outsourcing, and are popular because they allow companies to hire, fire, and scale their workforce more quickly and efficiently than if they had to make all hires full-time in-house.
It’s no surprise companies need help scaling technical staff quickly. Studies show that the average time needed to hire for tech roles is a staggering 60+ days, compared to less than 30 days in other industries like hospitality or healthcare. 1
However, the model you pursue depends greatly on the size, scope, and current staffing of your company or project.
I’ve personally seen the staff augmentation model produce results for clients like Masterclass — but does that mean you should use team augmentation to solve network infrastructure issues for a Fortune 500? Probably not.
In this post, I’ll walk you through the details of how IT staff augmentation differs from managed IT services, and how to make a wise choice based on your business goals.
IT Staff Augmentation vs Managed IT Services client profiles
IT Staff augmentation is most common for fast-growing companies that need to hire additional engineering talent quickly, and for projects with short turnaround time or duration. This staffing strategy is accessible to small-mid size companies as well as larger corporations.
Managed IT services is most common for large corporations, as the high contract cost is a good fit for companies with large budget and a need for white-glove technical service in managing functional areas of the company.
IT Staff Augmentation vs Managed IT Services: Cost and Price Structure
- Managed services tend to go by yearly retainers. They’ll pitch their price based on staffing with a profit margin for their proposed solution.
- Staff augmentation pricing is explicitly resource-based, often broke out as Dedicated Developer Per Week, which makes it a good fit for sprint timelines.
The biggest difference between IT staff augmentation and managed IT services is the degree of involvement you want to have in the tech side of your business.
Businesses that pursue IT staff augmentation contracts are generally tech-first businesses with existing tech talent in-house. Staff augmentation is just a way to move faster.
When a business chooses managed IT services, it’s generally because they want to focus solely on what they do best. Letting a qualified partner handle the tech side of things is the easiest way to make that happen — provided it’s within budget.
Closing Tips & Tricks on Working Smoothly with Augmented Teams
It is important to keep in mind that trust is one of the most important factors when working with augmented teams.
While some businesses are reluctant to experiment with staff augmentation, fearing that remote work is more difficult to verify, there are some considerations that managers should keep in mind.
First, staff augmentation shops select qualified, motivated team members and holds them accountable to meet project objectives. Even though a member of your augmented team is working outside of your direct supervision, they are still motivated to meet your expectations and integrate effectively with your staff.
Second, the notion that employee proximity equates to employee diligence is specious. Research indicates that the average employee spends less than half of their 8-hour day engaging in productive work.
This lack of productivity can stem from chit-chat in the break-room to poorly run meetings. However, considering this more realistic view of how in-house employees spend their days, there is little logic to the idea that remote workers are less effective than their supervised counterparts. At the end of the day, company culture and internal motivation drive productivity, not geographic location.
Taking this into consideration, the question is not, “Can your business afford an augmented team?” but instead, “Can your business really thrive without one?”