Staff Augmentation vs Managed Services: Key Differences, Pros and Cons and More

According to research, the global business process outsourcing market is projected to reach $124.10 billion by 2029^[1], which is growing at a CAGR of 10.60%. This growth is expected to benefit businesses in terms of flexibility, access to specialized skills, and the ability to focus on core business operations. While exploring and implementing outsourcing approaches, business leaders often find themselves at a crossroads between staff augmentation and managed services. The debate and confusion surrounding ‘staff augmentation vs. managed services’ needs to be resolved to ensure businesses move in the right direction.

Are you also wondering which one is the best-suited outsourcing model for your business? Let us walk you through this blog post to help you have a clear understanding of staff augmentation and managed services, their pros and cons, and quick and in-depth key differences.

Table of Contents:

• What is Staff Augmentation?
• What are Managed Services?
• Head-to-Head Differences Between Staff Augmentation and Managed Services
• Managed Services and Staff Augmentation: Key Differences
• Staff Augmentation vs Managed Services Model – Which One Should You Choose?
• How can Rishabh Software Help You Choose the Right Fit for Your Business?
• Frequently Asked Questions

The outsourcing model refers to the process of bringing in additional talent to fill the skill gap in the existing project. The augmented staff works as an extended arm of the in-house team. In response to the evolving market trends and customer demand, this business growth model has proven to be an adaptable and cost-effective solution for short-term staffing needs. The global staff augmentation services market is expected to grow gradually and reach an additional $81.87 billion by 2025^[2].

For example, an e-commerce company has decided to build a revolutionary mobile app to enhance customer experience and boost sales. They have in-house web development talents but lack the expertise of a cross-platform developer. Rather than outsourcing the entire project and losing the valuable inputs of their in-house team, they may opt for staff augmentation and hire cross-platform developers to strengthen the capability of their existing team.

Pros of Staff Augmentation:

• Flexibility & Scalability: The shift to staff augmentation offers extended flexibility as compared to the slow and rigid process of hiring full-time in-house resources. It allows business to scale their team up and down whenever needed, based on the project’s demand, thus allowing them to respond to evolving market trends more effectively and remain responsible and agile.
• Cost-Effective: Full-time hiring for short-term work or projects can be a cost-prohibitive decision for any business. Adopting staff augmentation enhances the capability of the in-house team in a cost-effective way. It eliminates the burden of salaries, payroll taxes, and office space investment. Businesses only have to pay for external resources as long as their expertise is needed for the project.
• Instant Access to Global Talent Pool: The staff augmentation model gives businesses access to a vast talent pool through widely used applications/recruiting agencies that connect them with global talent at affordable prices. This model offers a portfolio of diverse skill sets, including developers, specialists, engineers, and more.
• Complete Control & Ownership: Staff augmentation empowers businesses to retain complete control over a project, including initiation, timely execution, quality, and monitoring each deliverable to ensure the project aligns with business objectives.
• Faster Time to Market: Instant access to specialized skills and the ability to scale the team without the need for extensive training allows projects to start sooner, adapt to changes faster, and meet project deadlines, accelerating time to market.
• Reduces Management Overheads: Aside from augmented resources and skill set experts, most resources work in-house and directly oversee project management through communication channels, helping to reduce management issues.

Cons of Staff Augmentation:

• More suitable for short-term projects: The staff augmentation model may not be suitable for long-term projects because augmented staff may not be retained once the contract ends. It can lead to challenges for long-term projects that require sustained expertise and continuity.
• Training Requirements: Handling and executing projects internally with augmented staff burdens the business with the task of training these supplementary staff about internal processes, communication channels, workflows, and more.
• Need for well-established processes: Seamless coordination between your in-house team and external staff is critical for maintaining effective work relationships. Therefore, your organization must focus on establishing well-established workflows and communication.

The managed services model enables businesses to delegate a specific part of the software project or even the entire project to a third-party provider, also known as a managed services provider (MSP). These MSPs are responsible for overseeing everything from integrating to implementing, developing, deploying software applications, and achieving the defined end-result as per Service Level Agreement (SLA).

Nowadays, businesses are relying on managed services for long-term support with respective expertise and experience to build high-quality software solutions. This allows businesses to focus on their core operational activities while the MSP will take care of people, processes, and timelines. As the demand for managed services grows, the managed service market is projected to reach $731 billion by 2030^[3], growing at a CAGR of 13.6%.

Here is an example: An eCommerce company wants a unified platform to streamline supply chain, inventory management, POS, and customer relationship management. For this long-term software development process, the business is looking for a trusted tech partner who takes an end-to-end software development operations that aligns with the business objective and deliver high-quality solutions.

Pros of Managed Services:

• Scalability: Managed services provide scalable project management through the integration of project development methodologies, proactive risk management, and the adoption of new tools and technologies to adapt to evolving market trends
• Increased productivity: Under the managed service model, the service providers focus more efficiently on developing and managing day-to-day project-related activities. This allows businesses to focus on core activities to drive growth, beat market competition, and increase revenue.
• Expertise and Competitive Edge: Managed services provider expertise ensures that software applications are developed and maintained using best practices and industry standards. In the process of developing to deploying, they ensure the integration of technological advancements and maintain a competitive edge while delivering solutions.
• Focus on Core Business Operations: Software development with the adoption of a managed service model, businesses are allowed to concentrate on core business operations, product development, and strategic initiatives rather than being bogged down by the complexities of software development and maintenance.
• Proactive Management: Managed service providers work proactively to assess risks, adjust plans in response, and guarantee the delivery of quality products, software, or solutions.

Cons of Managed Services:

• Privacy and Data Concerns: Outsourcing a project through a managed service model may involve the process of handing over sensitive business information and data with MSPs, which introduces potential security risks. It is crucial to establish robust security measures and protocols and ensure strict compliance with relevant data protection regulations and industry standards.
• Monitoring Issue: Project handling by managed service providers presents the challenge for businesses to monitor the progress and performance of the project in-depth, which can sometimes miss crucial updates as the MSP works independently.
• Communication Challenge: Another challenge that arises with managed services is communication breakdown. Due to the different locations of the MSP and the client’s business, there can be significant time zone differences. This can create difficulties in addressing urgent decisions or problem-solving.

Satisfying software development project needs through either of these models requires a clear understanding of various aspects. This section explores in-depth differences between managed services and staff augmentation.

Flexibility and Scalability

When comparing staff augmentation vs. managed services in the context of evolving project requirements across different phases, staff augmentation offers higher flexibility for easy scalability. This allows businesses to easily meet deadlines.

On the other hand, while the managed service is a more reliable outsourcing model, it yields lesser flexibility. This model includes contractual commitments that encompass well-defined resource ranges, expertise, timelines, packages, tools, processes, and more. Consequently, implementing any required changes is complex and necessitates renegotiation and delayed adjustments.

Cost-effectiveness

Under staff augmentation, companies hire additional resources on a contractual basis, which can be more economical than maintaining a full-time in-house team, especially for short-term or specialized projects. On the other hand, the managed services model offers a more cost-effective solution in the long run, as the service provider takes on the overhead costs associated with hiring, training, and retaining specialized IT personnel, as well as the costs of maintaining software development infrastructure. However, managed services can be considered a cost-effective solution only for long-term project or operation management.

Level of Control

In staff augmentation, the in-house team ensures a thorough understanding of the project vision, goals, business objectives, and workflow to supplement resources. They are directly managed by an internal project manager, who also creates the project path, milestones, and deliverables while closely monitoring progress.

In comparison with staff augmentation, managed services provide less or no control over day-to-day operations, activities, and decision-making. This can lead to limited visibility and sometimes cause the project goals to go off track.

Scope of Work

Staff augmentation aims to fill temporary gaps for a particular project or period of time. It focuses on adding and subtracting staff to achieve specific goals. This approach offers the flexibility of choosing augmented resources.

Managed services have a broader scope of work in contrast to staff augmentation. MSPs hold responsibility for everything from defining day-to-day tasks to executing and achieving final results. It is a long-term solution with a well-defined structure, expertise, and a guarantee of quality service/solution offerings.

Suitability

In the debate of staff augmentation vs. managed services, suitability is the core factor that differentiates them. Staff augmentation is particularly suitable in the circumstances such as having a short-term project, like adding a specific feature or an area of enhancement, having a large team of professionals except for a single skill set resource, or when budgeting is a constraint.

Managed services are more suitable in scenarios of ongoing projects or business operations. Long-term commitment is fruitful for businesses, especially in handling complex tasks that require hiring a bunch of new resources or when there is a list of more valuable tasks or activities to focus on.

In this section, we explore the difference between staff augmentation and managed services through a quick comparison.

The choice between these two models depends on multiple factors, such as specific business goals, project requirements, long-term and short-term strategies, and more.

If your project has a defined timeline, such as a short-term project, and there is a skill gap requiring specific skills or expertise without the need to invest time and costs in permanent hiring, then staff augmentation is the right choice.  Additionally, if you need flexibility along with complete control of the project, then staff augmentation can effectively meet your needs in this scenario.

On the other hand, opting for managed services is preferred if you require long-term support in operation/project, encompassing everything from development to management and deployment. This option is suitable if you need to keep up with fluctuating technological advancements or require a range of expertise across different aspects of the software development lifecycle while you focus on your core business activities and strategic goals.

As a prominent software product development company, our focus has always been on helping our development partners in navigating toward the right software solution while adopting the best-fit business growth model, be it staff augmentation or managed services model.

Are you at a crossroads and trying to decide which outsourcing model is right for your business but are unable to make the right decision? Here, we come to your disposal. Rishabh Software specializes in helping you find the most effective engagement approach. Whether you need an extended arm to bridge the skill gap or you need skilled software development partner with years of experience and expertise to keep up with technological advancements, we can be your one-stop solution for both the scenarios and have practice-proven expertise to fulfill your business objective.

Q: How does staff augmentation provide increased flexibility?

A: Staff augmentation offers the added benefit of flexibility, which allows businesses to scale up and down team members based on project demand, requirements, and market trends. This model makes businesses more adaptable without any long-term commitment.

Q: How do managed services providers enhance security?

A: There are multiple constraints through which MSPs can enhance security, such as continuous tracking and monitoring, proactive responses to mitigate risks, following top-tier security protocols, and providing robust protection for IT infrastructure and data.

Q: Which is more cost-effective between staff augmentation and managed services?

A: The cost-effectiveness model among staff augmentation and managed services depends on a few specific factors such as project requirements, duration, expertise, etc. However, for short-term projects, staff augmentation has proven to be more cost-effective, while managed services are cost-effective for long-term projects.

Q: IT managed services vs staff augmentation- Which consumes less time?

A: In terms of time consumption, managed services typically require less time as they involve outsourcing IT management to experts, reducing the burden on internal teams, while staff augmentation may necessitate additional time for resource onboarding and management.

Footnotes:

1. https://www.statista.com/outlook/tmo/it-services/it-outsourcing/application-outsourcing/worldwide
2. https://www.prnewswire.com/news-releases/global-staff-augmentation-services-market-sourcing-and-procurement-intelligence-report-top-spending-regions-and-market-price-trends-spendedge-301540415.html
3. https://www.grandviewresearch.com/industry-analysis/managed-services-market