Staff Augmentation vs. Managed Services: Cost, Flexibility, and More

A company’s employees are one of its most important assets. And now, businesses have more choices than ever. With the rise of technology and remote work, they no longer need to limit themselves to a geographic location and can tap into a worldwide talent tool. 

A growing number of companies choose to outsource critical tasks and project development. In fact, the global outsourcing market is estimated at over $260 billion and is expected to double by 2030. 

There are various outsourcing models, each with its own benefits and risks. Let’s compare staff augmentation and managed services so that you can determine which is right for your company. 

Staff Augmentation vs. Managed Services: What Are They?

Staff augmentation and managed services are two outsourcing business models, and these terms are often used interchangeably. Nonetheless, there are differences between the two, and it is important for companies to be aware of them to choose the most suitable model for their needs. 

What Is Staff Augmentation?

Staff augmentation is an outsourcing business model in which companies temporarily contract outside personnel to quickly augment the capacity of their current team. You can tap into onshore, nearshore, and offshore talent and scale your team up and down based on demand. 

In the IT industry, businesses can use staff augmentation for various stages of the development process, such as programming, workflow optimization, quality assurance, or quality control. As a result, you can overcome certain roadblocks, contract key skills your team may be missing, meet budget and time constraints, fix bugs, and accelerate product launch. 

Staff augmentation is cost-effective and provides your business with flexibility. It’s usually a temporary solution that allows you to leverage your existing team and resources while benefiting from outside talent and reducing operating costs. 

What Are Managed Services?

Managed services is an outsourcing business model in which a company entrusts certain functions to a third-party provider, known as a managed services provider or MSP. Businesses can outsource virtually anything to managed service providers. This can be cybersecurity, data migration, or database administration, as well as software development. 

As opposed to joining the company’s in-house IT team, managed service providers operate on their own. They provide a client with a quote and project timeline and, after approval, work on their designated task while maintaining regular communication with their client.

The managed services model is cost-effective as it reduces the need for overhead, HR work, and resource management. The company can focus on other business tasks and connect with their managed service provider for daily or weekly progress update checks rather than oversee work on a day-to-day basis. 

The Pros and Cons of Staff Augmentation

Pros

• Staffing flexibility: You can reduce or increment your staff according to demand. In addition, individuals that augment your in-house team tend to integrate and start working faster than complete teams.
• Choice of professionals: Staff augmentation allows you to gain access to top talent and pick the experts that best meet your requirements in terms of skills, experience, and certifications. 
• Seamless integration of new team members: Your outsourced staff works alongside your existing team as a single unit. You’ll not only be able to onboard them quickly but will also be able to continuously oversee progress.
• Additional skills at a lower cost: Staff augmentation is an especially effective solution when your in-house team lacks specialized skills to successfully perform a task or complete a development project. There is no need to train these employees as they will have been hired because of their specialized skills and/or their senior-level experience. You also don’t have to cover their full-time salary, but rather pay for as long as you have them on your team. 
• Complete control of the project: Staff augmentation allows you to retain control over the project timeline, execution, and quality. You won’t have to alter deadlines or workflows and are less likely to experience unexpected issues throughout the process as you will be continuously able to keep an eye on it. 
• Meeting deadlines: As staff augmentation can help you fill in the gaps in your in-house team’s expertise, there is no need to pause or stop project development. You can continue your usual workflows and business processes and meet strict deadlines. 
• Fewer management issues: Staff augmentation helps you reduce costs and liabilities associated with hiring full-time employees. You can also directly oversee project development, make critical changes and decisions, as well as remain involved throughout the varying stages of the development process. 
• Reduced risk of intellectual property loss: You can request your supplemental staff to sign NDAs that ensure that sensitive information remains within your organization. Since you are in charge of project management and communication channels, there is a lesser risk of sensitive information being accessed by an unauthorized third party. 

Cons

• More suitable for short-term projects: While staff augmentation helps you fill the gaps in knowledge and expertise and provides effective short-term support (less than 12 months), it’s usually more cost-effective to contact an in-house team if you are looking for dedicated long-term support. 
• Internal training requirements: Staff augmentation helps you gain access to specialized skills and expertise. However, you will need to instruct your supplemental staff in your organization’s internal processes. 
• Need for well–established internal processes: For your in-house team to effectively work with external staff, your organization needs to have well-established workflows and communication, especially if you will be outsourcing tasks to professionals in other time zones. 

The Pros and Cons of Managed Services

Pros

• Skills and expertise: Instead of needing to put together an in-house team, you can gain access to an entire team of experts who have access to the necessary tools and technologies and can get started right away. 
• No need for training: You can eliminate recruiting, training, and onboarding costs as a managed services team comes in fully and independently operational “out-of-the-box.” This team comes with a business partner and/or project manager that ensures your deliverables are always on track.
• Access to premium tech stack without the associated cost of ownership. IT tools and technologies are relatively expensive and require training and practice to be proficient in them. This is something that individual talent may not have access to. Managed services providers, on the contrary, tend to acquire tooling that helps them service their clients and assume the associated costs as a business expense. Therefore, you can expect a team that has access to the latest tools and expertise in how to use them effectively. 
• Focus on core business operations. When working with an in-house IT team, you or a dedicated staff member will need to have active involvement in the development process, thus limiting their ability to focus on other tasks. Outsourcing your IT needs to a reliable managed services provider allows you to dedicate your time and efforts to other aspects of your business, such as increasing sales and servicing clients. 
• Dedicated project management. To stay on time and on budget when developing software, your IT team will benefit from project management and DevOps practices. If you work with an in-house team, this may require you to hire additional staff. Expert managed services providers will usually take on the responsibility of project management as well as have the necessary tools and technologies to ensure an effective and streamlined development process. 
• No need to rehire individual professionals. Even if you hire top talent, individual workers may quit for either professional or personal reasons. This would require you to repeat the hiring, training, and onboarding process with another professional, and the process will likely cause project delays. If you outsource development to a managed services provider, they’ll assume the responsibility of replacing any necessary talent, without needing additional input from you. 

Cons

• Need to provide a thorough project brief: You must prepare and provide a managed service provider with thorough project specifications. This will maximize the chances of a successful project outcome and accurate cost assessment. Otherwise, your project may require modifications which can increase its overall cost. 
• Security and control issues: When outsourcing aspects of your business to a third party, you provide them with access to your organization’s sensitive information and data. It can lead to significant security issues if your managed service provider turns out to be unreliable. 
• Less frequent communication: Since the entire process or project will be outsourced to an external team, your communication with them will proceed on a regular but perhaps less frequent basis. This can be an issue if you desire to have a more active role in project development. In addition, it may be more difficult to detect and address errors and issues in a timely manner. 
• Potentially higher costs: Managed service providers may offer packages of tools and resources that you may not necessarily need. Moreover, you will have to cover the costs of a team and a project manager, which can be higher than adding one or a few additional members to your existing team. 
• Potential conflicts: To save costs, companies often outsource services to offshore managed service providers. However, this may lead to communication difficulties, decision-making delays, and language or cultural issues, all of which can negatively affect project outcomes. In addition, managed service providers retain autonomy on critical day-to-day decisions and can make choices that you may not necessarily agree with.  
• Intellectual property rights: You must have a clear understanding and a written contract stating who owns the rights to the intellectual property after the completion of the project. 

Staff Augmentation vs. Managed Services: Which Should You Choose?

While both outsourcing business models have their advantages and risks, you need to carefully assess different aspects of your business to determine which model is most suitable for you. These are the factors that you should consider:

1. Flexibility

Both staff augmentation and managed services offer a degree of flexibility. If you are working with an in-house team that requires additional support or specialized skills, you will benefit most from staff augmentation. This outsourcing model also allows you to scale the size of your team according to your needs. 

Managed services allow you to perform tasks or develop projects without needing in-house professionals. However, MSPs usually require you to pay a retainer price and may not allow you to scale your team up or down when needed. 

2. Costs

With staff augmentation, you only need to pay for the time that your supplemental staff works for you. This can be suitable for small and medium-sized businesses with tight budgets as well as large enterprises. 

On the other hand, managed services providers require a steady investment. They bill on retainer and often annually. If you do not have an in-house IT team, then this can be a highly cost-effective solution. However, it is usually more expensive than staff augmentation. 

3. Level of Control 

You have a much greater level of control if you choose staff augmentation rather than managed services. Staff augmentation offers an extension to your existing team, and you can actively participate in the project development process. 

A managed service provider maintains regular communication with you. However, you have significantly less control over day-to-day processes and operations. This may lead to decisions that may not align with your business goals. 

4. Security

It is crucial to thoroughly vet professionals in both outsourcing models. Nonetheless, you face fewer potential risks with staff augmentation, which you can easily address with an NDA. 

Meanwhile, managed services require you to share sensitive information with a third party. You also need to address Intellectual property rights upon contracting a managed services provider to ensure that you don’t pay for a project that you don’t own the rights to after its completion.  

5. Project Duration

Staff augmentation is an effective and cost-efficient solution in short-term or low-budget projects and projects that require flexibility. Meanwhile, managed services are better suited for long-term needs and the outsourcing of entire projects as they can help save costs over a longer period of time.

Verdict: Staff Augmentation or Managed Services?

Staff augmentation and managed services can help businesses complete development projects. Staff augmentation is a great solution for businesses that require flexibility and have short-term, specialized needs, whereas managed services are better suited for organizations that need long-term assistance and wish to outsource entire projects. 

And, in either event, our experts here at Sphere can help. Does your IT team need help from reliable professionals that can fill knowledge and expertise gaps? Do you need to augment your current project team with an experienced professional, or have a full team ready to take on a new project? Just let us know what you are looking for!