Key Service Models in IT Outsourcing

Ever commissioned a service only to realize later that it wasn’t what you needed?

When a lawnmower forgot to mention that it is you were responsible for providing the equipment, the whole experience is frustrating, but not much of a loss. However, when it comes to outsourcing software development, a suboptimal service model can cost you significant revenue.

But here’s the deal: in the outsourcing space, the term “service” gets used pretty liberally. So let’s establish some clarity first:

A service has:

  • a clear scope (boundaries)stating what’s included and what’s not.
  • terms of engagement, outlining how it will be delivered and what’s expected from you as a buyer.
  • fair and transparent price, matched by respective service levels.

Keeping the definition above in mind, let’s take a closer look at the three main service models for IT outsourcing.

1. Advisory & Consulting

IT advisory and consulting services have the broadest scope, covering the different aspects of creating, developing and aligning technology strategies with the company’s objectives (both current and future).

In short, the goal of advisory is to:

  • Articulate the customer’s problems and needs
  • Propose and assess several viable solutions
  • Suggest an implementation roadmap for the selected one(s)

For example, Accenture recently consulted Magneti Marelli, an automotive supplier, on a major digital transformation project, aimed at upgrading the company’s manufacturing process. As part of the advisory services, Accenture:

  • helped define the optimal information technology and operational technology (IT/OT) application suite that would support the future industrial IoT platform.
  • proposed proof of concept solutions to improve operation’s monitoring efficiency in real-time.

IBM also offers a host of tech advisory services and hands-on consultancy when it comes to implementing their products. In the case of Etihad airlines, for instance, the IBM team hosted a workshop that helped the carrier refine their customer experience objectives and determine the optimal stack of needed technologies. Further, IBM supported the implementation of these.

In general, IT advisory services can cover any type of strategic, operational, implementation, or architectural need your company has.

Advisory services are:

  • Targeted short-term engagements
  • Flexible and customizable up to your needs
  • Have clear deliverables and implementation steps

When Advisory Service Model Makes the Most Sense

The advisory service model is sharp and acute: its result is a set of guidelines and steps you should take to achieve the desired outcome (e.g. migrate to a new ERP system within 6 months).

However, even the best advisory will fall flat if your company does not have the “muscle” for implementing the proposed changes.

To gain the most benefits from IT advisory you should:

  • Have strong support and engagement on a c-suite level
  • Allocate sufficient resources for implementing the proposed suggestions
  • Focus on the under-structural changes first, crucial for further success
  • Proceed to the next stages only after the cornerstone suggestions are adopted company-wide.
  • Make sure that every stakeholder follows through on the required steps
  • Have established change management processes.

2. Project-Based Service Model

A project-based service model is outsourcing in its “classical” sense: you have a certain task that you want to hand on to a third-party who’ll get the job done according to the predefined specification, timeline and budget.

Managed projects have:

  • A fixed scope, price, and pre-defined timeline
  • Reduced delivery risks as the vendor takes most responsibility regarding its success.

The latter commands a higher price (compared to the capacity service model). However, it leaves you with greater peace of mind as you don’t have to be actively involved in project management.

Still, there are certain risks and managed projects do tend to fail. In most cases, this happens for three reasons:

  1. Unrealistic budget/timeline expectations for the project
  2. Suboptimal vendor selection, driven by Good-Fast-Cheap mentality
  3. Lack of product vision, market research, and target audience segmentation.

To minimize the risks of failure you should:

  • Understand what you are buying: ask the vendor to provide a clear description of the service scope and walk you through additional add-ons. Proactively ask questions and request clarification to any gray areas.
  • Lay the groundwork: prepare a list of requirements or a more basic project specification document outlining the key quality attributes of your product, outline your vision, add a list of target personas, etc. If you lack either of these, look for an IT vendor who offers help close the gaps in your product concept via discovery.

When Project-Based Model Makes the Most Sense

Managed projects are fixed-scope engagements. Thus, they are best suited for small-to-mid-scale initiatives that can be formalized in a list of clear requirements. It’s also a good starting point for MVPs (minimal viable products).

The option can work well for:

  • People who are new to outsourcing, but have strong product expertise
  • More seasoned buyers who want to diversify software development risks and focus more on business development, rather than engineering.

3. Capacity Service Model

As the name implies, this IT outsourcing model gives you access to more talent – on-demand, on your terms and within your budget.

The capacity service model is an excellent means to close the gaps in your needs with the right people, especially in the face of the ever-increasing IT skills gap.

This model entails two capacity types:

  • Staff augmentationadditional people with the required skill set, who are recruited by the vendor to work on your project under your command. You pay a monthly fixed rate per employee.
  • Managed teama ready-to-perform delivery unit, assembled based on your needs, that can put down any fires at your end. In this case, the vendor is responsible for ensuring high team performance in line with the pre-agreed Software Development Life Cycle, while workload allocation is either a shared or your responsibility.

The key difference between staff augmentation and managed team is the scope of your responsibilities as a client.

Staff augmentation assumes a more hands-on approach to managing people and ensuring that they are well-integrated within your company. A managed team is a well-oiled unit, requiring less ramp up time. The long-term ROI of a managed team is also higher as the team develops a deep knowledge of your product, falls into a productive routine of working together and aligns with the rest of your organization. From our experience, though, the managed team model rarely works well for projects under 3 months.

When The Capacity Model Makes the Most Sense

Staff augmentation: Since you’ll be directly responsible for managing people and allocating work, having an experienced CTO on board and/or a stakeholder with outsourcing experience will be crucial. Otherwise, you risk ending up with a bunch of experienced developers who remain idle most of the time since you can’t properly collaborate with them.

Managed team: You already have a strong tech DNA and established delivery framework that can accommodate an entire team. If that’s the case, a managed team will enable you to deliver bigger projects systematically at a fast pace (unlike staff augmentation where you merely fill in the gaps in current needs or gain resources for a small project).

The managed team model enables rapid, seamless scaling and increases time-to-market for new products. This model also lets you shift resources towards emerging market demands and subsequent project changes.

To Sum Up

Most negative IT outsourcing experiences stem from unmanaged expectations. That’s why at Edvantis we aim to (over)communicate the scope, limits, and prerequisites of different IT outsourcing models as early as possible. After all, we are more interested in having you onboard for the long term, rather than making a one-off sale.

Starting a project? Contact our team for a preliminary consultation on the optimal service model. 

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