To remain competitive on the global information technology market, a company — no matter whether it is a young startup or an experienced player in the business landscape — should not only be a reliable partner who delivers a quality product but also have a clear understanding of strategic client-supplier relationship management. It is a coherent strategy and consistency in its implementation that drive innovation, usually associated with the increase in efficiency and quality. To have this process well-organized, a company has to select and adhere to a certain type of contractual governance.
Time & Materials vs Fixed Price Contract
To distinguish clearly between the consultancy and the outstaffing, we should first draw a line between two major types of contracts, under which projects are executed.
Compared with a fixed price contract, a more flexible Time & Materials approach continually proves workable and seems to be a better choice for a client — and here is why:
— Customer needs drive product specification. If a client has a vision of his or her future product but is incapable of writing a specification for it, a T&M contract is a must for them.
Contracts and specifications are rarely complete, especially when the scope of works is uncertain. An FP contract will not secure a customer against financial losses if the software provider underestimates the costs. Changing requirements along the way is fine and sometimes even necessary for a project’s success, except that an FP type of contract will be hampering all the efforts. It will be providing less flexibility and might consequently result in a lower-quality product.
— Perfect for short-time projects. The Time & Materials pricing model implies that a contractor calculates the total project cost adding the cost of ‘materials’ and equipment usage to employees’ wages (an hourly rate multiplied by the number of working hours.) Consequently, the fewer hours are spent, the cheaper the project will cost.
Of course, the budget is agreed anyway, since contracts are signed to reduce risks for both clients and suppliers. The truth is that the latter are the ones who bear no risk, while the former depend on the developers’ pace and their (un)willingness to keep costs down.
— Effort spent is effort paid. Neither more nor less. This point naturally follows the preceding one, for such a state of things might impose a financial threat to the client.
The whole point is that, when placing a T&M contract, neither of the parties can anticipate the costs and, even further, it is impossible for the contractor to make oneself safe. The time and materials pricing does not give incentives to control cost or duration. At the end of the day, however, contractors’ attitude, reliability, project planning and monitoring, as well as the understanding of the context contribute to the overall success, not the chosen type of contract itself.
What is Outstaffing?
Outsourcing, as the way to contract the work outside the company, is now a software development model, growing in popularity in the IT industry, and the above pricing models are stemming from it. Outsourcing, thus, brings about the execution of the T&M and FP contracts.
Accordingly, outsourcing is closely related to the information technology consulting. Outstaffing is, in turn, a slightly different form of work organization. It does not involve ‘outside resourcing’ as it is or transferring employees to another firm. Instead, outstaffing means that some of the hired employees are removed from the direct employment. The job is given to a remote managed team just like it would be given to the in-house specialists. As a result, remote and in-house employees can work together on one and the same project. In other words, certain activities — be it software development, design, or maintenance — are delegated by the client to be carried out by other people.
While IT consultancy is based on the assumption that the team is working to reach a common goal without any intention to move then forward, outstaffing is rather an ongoing process.
As a rule, outstaffing is other than a client-supplier relationship. In-house management and the remote technical team form a single unit. A dedicated team consists of full-time employees hired with a view to getting a large amount of work done. Therefore, such an approach has the following advantages:
- Access to a global talent pool. Without being bound to a particular territory, you are free to locate your outstaffed team where supply is meeting your demand.
- Complete control over the remote team. When the communication with the team is direct and smooth and members of this team are sharing the same physical workspace, the client stands a chance of having all the problems addressed as quickly as possible.
- Perfect for longer-time projects. Setting up a new project, a so-called employer should understand that it is bound to be an iterative process and the result is achieved after a cycle of operations is repeated over and over again.
- A high level of commitment. Building a committed team is not easy. However, time is your advantage. Unlike in the case with time and materials approach, an offshore team will stand side by side with you for much longer to prove their reliability and trustworthiness.
So, outstaffing is not about completing short-term tasks, it is about meeting long-term goals and the management has to make sure that the level of proficiency, as well as the level of commitment of tech specialists involved, are high enough to count upon establishing mutually beneficial long-term cooperative relationships.
Thuswise, it is hard to say which approach is objectively better. Your previous experience, product vision, budget, the type of a project, the volume of work to be done, and your own technical proficiency are the factors that may influence your final decision.
© 2018, Vilmate LLC
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