Outsourcing Engagement Models

There are more various engagement models than it is worth listing here; some models are just naming differences invented for “market differentiation” or slight insignificant variations. In general modeling the engagement depends primarily on project delivery model, ownership of the resources, and services provided by the vendor organization on the top of the services provided by individual associates / individual contributors. This post covers the most common models using most common terminology:

Resource Augmentation / Classic Augmentation / Extended Team. Under this model the vendor supplies individual contributors who work as a part of the team on T&M basis. These resources can work onsite or offshore and typically have double reporting structure – they would report into customer organization as well into their own org structure. The vendor organization typically provides services that include HR, MIS and miscellaneous admin support. Resources maybe organized in structure groups / teams. At some point the scale of outsourcing demands more comprehensive resource management, in these cases the vendor provides project / program management and other work structure related services.

Project-based Augmentation / Task-based Augmentation. Under this model vendor supplies individual contributors who work a specific project or a task order. The work is still performed on T&M basis with addition of some elements of Fixed Bid model. In particular the vendor typically forms the team with a structure most appropriate for the project, provides program management and quality support, engages process improvement and other services that harness company resources outside of the immediate team. That additional support is typically “free” meaning that its cost is included in the team rate. The vendor is also produces upfront estimates of the work and adjusts the estimates through limited scope control process. Typically the actual cost of the project should fall in 20% range of the initial estimates with exception of the scope creep.

Project Outsourcing / Full (Activity) Outsourcing. Under this model vendor delivers a specific project or takes on a specific activity. For example it could be a turn-key delivery of the system, full scope of activities for technical support, etc. The project outsourcing typically is done on a Fixed Bid basis, activities outsourcing could be done on FB or T&M basis. Under that model the vendor takes on full responsibility for the delivery and correspondingly has the freedom to form and operate the team based on their own processes and approaches. This model can extend to full technology outsourcing and beyond.

Offshore Development Center (ODC) / Captive ODC / Captive Teams. There are multiple permutations of this model with main commonality being the ownership of the resources. In ultimate scenario the vendor provides very narrow HR, MIS and Admin services to support offshore team which for all intents and purposes works for the customer. In that case the vendor charges “management fee” based on the cost of the services, rent, utilities, etc. This model while possibly the least expensive one puts much higher burden of resource management and utilization on the customer.

Hybrid Model. As the name implies the hybrid model is a combination of models above. One of the most common implementations of the model is used for large scale initiative that start with research / analysis / estimating phase performed under one model and then continue in single or multiple streams of projects using potentially different model. For example a project can start with estimating engagement on T&B basis that produces an estimate and a project plan for the next phase which is delivered on Fixed Bid basis with scope creep handled on T&M basis.

Build – Operate – Transfer (BOT). BOT is a transitional model. It can start as any of the previous models and after a specific period of time the entire team and supporting assets are transferred to the customer. The transfer could be full scope transfer under which vendor ceases to play any role in the engagement or partial, for example transfer to Captive ODC model. The logic behind the BOT model is clear: the offshore partner can initiate operations and reach operating stability much faster than in case it is done by the customer.

Disposable Outsourcing. That is not a common term; as a matter of fact I might be the only one using it. And the model itself falls out from the list above since it’s more like an overall approach toward outsourcing rather than just a way to structure the engagement. It is however very relevant and important. The objective is clear and simple – I want to be able easily and quickly terminate a contract with my vendor and find another in case I am not happy with the vendor performance. Disposable Outsourcing is a way to structure the engagement that it could be possible, and of course it’s not at all as easy as changing cell phone carrier, there is a lot to be done to get there. I will put a separate post(s) on that topic.

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