Too much of a good thing is bad. What’s the right amount of extended staffing?
In general, under extended staffing, vendors are only used when needed, for example, when they offer a better deal or when additional capacity is temporarily required. However, there may be some situations where internal service providers are asked to use a higher percentage of contractors. (For instance, they may be asked to meet artificial headcount caps, or they may anticipate a future downsizing and stop filling staff vacancies.)
Many have found that the percentage of contractors can be as high as 50% without significant loss of internal control.
Even when vendors and contractors do much of the work on an ongoing basis, internal staff remains involved and manages the line of business (and the vendors).
These internal entrepreneurs add value in a number of ways. Specifically, they are responsible for the following tasks:
- Deciding whether to “make or buy,” and which type of vendor relationship is most appropriate.
- Shopping for the best deal, negotiating the contract, and managing the contractor’s performance.
- Establishing clear internal contracts with customers and suppliers, and retaining responsibility for fulfilling those contracts (whether vendors are involved or not).
- Resolving any problems in the relationship with the vendor, and facilitating healthy collaboration between the two companies.
- Establishing strategies and technical directions, including standards and policies to ensure quality and consistency.
- Ensuring the reuse of existing knowledge and solutions, rather than incurring unnecessary costs of reinvention.
- Generating entrepreneurial ideas within their internal lines of business.
As the percentage of work fulfilled by vendors increases beyond the point where staff people are available to manage all vendors and all projects, values are lost. Benefits are typically lost in the following order:
1. The first thing sacrificed is the development of competencies on which the firm depends. Instead of building the skills of staff, the firm turns to vendors for new and specialized areas of expertise.
This increases the company’s dependence on vendors, making it vulnerable to the unavailability of critical skills, less able to negotiate good deals and defenseless against future price increases.
A lack of knowledge of the profession also makes staff less capable of managing vendors on projects, which could also lead to increased costs. The firm may also lose strategic opportunities which could have been found by insiders who understand both the company’s strategic directions as well as new technologies and disciplines.
2. The next thing to go is control over technical/professional directions, such as standards and policies. If staff isn't involved in every project, the methods and results are at the discretion of the vendor.
If vendors satisfy clients (in the short term) with solutions that are not in keeping with a long-term vision, then integration will suffer. This will preclude the synergies that come from reuse of past work and consistency across business units. Costs also rise when solutions produced by vendors deviate from a consistent architecture.
Loss of control of technical directions also damages the function’s ability to create strategic advantage through the clever use of new technologies and methods.
3. Next, if there isn't enough internal staff to manage every project, clients will have to contract directly with vendors.
This means that no internal staff will look after the clients’ interests on projects; vendors will be in a position to take advantage of clients when doing so is in the interests of the vendors’ shareholders.
Furthermore, if vendors fail to meet their commitments, clients will have to enforce or renegotiate contracts with little help from those who know the profession. Their lack of specialized knowledge and consolidated buying power weakens their negotiating position.
4. As the percentage of staff is further reduced, staff may find that they only have time to manage the contract, but not the work itself. This leaves most decisions about the function’s strategic direction to the vendor.
While vendors may be good at selling additional work, they don't typically generate entrepreneurial ideas that benefit the firm unless those ideas produce profits for the vendor. They certainly won't suggest projects that require solutions or skills beyond their own product line. With this loss of entrepreneurial thinking, little can be expected from the function in the way of strategic value.
For extended staffing to achieve its full promise, never force internal service providers to replace staff with contractors. The natural “market” effects will automatically and continually seek an optimal ratio of contractors to staff.
Why Extended Staffing Beats Outsourcing Every Time
Choosing Your Staffing Model
Putting Extended Staffing to Work
4 Dimensions To Managing Your Service Provider
4 Advantages to Outsourcing
How Executives Paralyze the Effectiveness of Their IT Teams
Wresting Control of Priorities from Your Internal IT Team
Why Your IT Team Needs a Full-time Internal Consultant
How To Get Your IT Staff to Give You Service Like Your Service Provider
5 Reasons Management Considers Outsourcing (And Why Those Reasons May Be Shortsighted)