Dev team staff augmentation is a critical hiring model that helps companies bridge the skills and resources gap in their in-house teams and business requirements. Whilst AI and cloud technologies have significantly helped reduce companies’ reliance on huge internal development teams, the spiking demand for digital and cloud products continues to propel the demand for alternative staffing models.
According to a 2022 report released by Grand View Research, businesses worldwide are projected to spend over $700 billion on outsourcing. Of this amount, $519 billion is expected to go to IT outstaffing, which is a 22% growth since 2019.
In this article, we are going to look at why your company may need to hire an external development team, the factors to consider when doing so, and the rentability of team extension.
Reasons You May Need Software Development Team Extension
Whether big or small, your company may sooner or later face the need to augment the software engineering team due to several factors. As such, the first thing you need to do is to identify the scope of your projects, as well as the in-house skills or resources deficit before moving into expansion.
Here are some of the common reasons why your company should seek to expand your team through the software staff augmentation model.
Delegate Minute Projects to Focus on the Larger Ones
If you are running a small company, a small in-house team may suffice in handling equally small development projects. As the customer base expands, however, these development projects may begin to expand, as well as expand in scope.
If your team is physically barely able to handle the workload, you can try the augment software team hiring model to handle the larger tasks as the in-house team handles the smaller ones. By doing so, you are able to improve the overall efficiency of your in-house team, reduce burnout, and motivate them to produce better results.
Launch Your Project Fast
If your company is looking to develop a new product or upgrade an existing one in a fairly short time, you need to have enough resources and professionals in the team to deliver on time. Unfortunately, not every company has the luxury of having both respectively, and in such a scenario, the rapid team extension model could come as a much-needed solution.
Access to High-Quality IT Specialists at a Lower Cost
Hiring a full-time software development team can be super-expensive. As the employer, you need to cater for the monthly salaries, insurance costs, taxes, and any other costs associated with having permanent workers. Luckily for you, software team augmentation lets you hire new engineers with the same high salary, but pay on-demand. As such, you get only to pay for the hours worked or services received.
Better yet, you can source an extension team from regions with first-class IT and tech professionals who charge significantly less compared to markets like the US.
Factors to Consider When Choosing a Staff Augmentation Software Team
When it comes to development team extension, there are several factors to consider before choosing the company to work with. They include but are not limited to the following;
Technical Expertise
One of the primary reasons why most companies opt to outsource a particular job function is if they don’t have the prerequisite skills or resources in-house. In the same vein, the first consideration when looking for a software team extension is to ensure that the service provider support is well versed in the technology for which they’ll be handling. In other words, the external team personnel should be subject matter experts and capable of delivering a higher level of execution compared to your internal team.
Transparency
This may seem like a no-brainer suggestion but transparency is key when considering the team extension hiring model. For the arrangement to work effectively, the two parties need to have open communication channels, seamless delivery documentation, regular status updates, weekly meetings, support tool access, and support processes free from hidden issues. Put simply, the managed services provider needs to over communicate to ensure alignment.
Flexibility
Yet another critical element to consider before choosing a service provider is their flexibility or lack of it thereof. A good augmentation software development service provider should be able to technically, physically, and contractually adjust to your changing business needs. If something unexpected requiring additional resources happens in the middle of your project, they should have the flexibility to pivot their resources to follow suit.
Likewise, they should be able to flex downwards, although this may be a problem if you are locked in a rigid, long-term contract.
Relationship
Nothing is capable of hurting a good team extension than external employees that are misaligned with your company’s goals and vision. As such, you need to ensure that the team assigned to your account is a good fit from both a personality and technical standpoint. Otherwise, your service provider should try and quickly address the issue by bringing in another team and deploying the right resources. After all, it’s easier to hire the right team extension compared to making internal employee changes.
Accountability
All said and done, accountability is a key ingredient towards making team extension successful. With staff augmentation projects having multiple and complex moving parts, it’s easy to see where and how finger-pointing can start. A managed service provider worth their salt should never shift blame but lead from the front by identifying the problems and potential solutions, as well as following up until everything is ironed out.
Rentability of Resource Augmentation Model
One of the biggest questions that you have to contend with is how much it will cost your company to hire a team extension.
In this section, we are going to discuss the two major pricing models, their merits, as well as their demerits.
The Old Pricing Model
This staff augmentation pricing model doesn’t calculate the cost per hire. Instead, it simply combines the total direct and indirect expenses of hiring and divides it by the total number of employees hired within a specific timeframe.
For example:
Assuming you pay a recruitment consultant $4000 to supply a junior software engineer.
The cost per hire (CpH) would be:
$4,000/1=$4,000.
The only problem with this formula is that it doesn’t help you budget better or give a precise estimate of closing the vacancy. After all, there’s no guarantee that the cost of hiring for the same position will remain the same in the following weeks or months.
Worse still, if you are looking to fill a hard-to-find position like an AI software developer, you may need to expand your bandwidth by using several service providers. Ultimately, this may pile up the total cost of “employee acquisition”. Needless to say, most staffing agencies charge a commission fee of between 15% and 25%.
New Pricing Model
The second pricing model uses several figures to determine the total average cost of an employee acquisition. The very first figure is the “net” value of hiring. As a general rule of thumb, the effective coefficient net value of hiring is x3.
Using $4000 as a placeholder:
$4000*3= $12000
As such, if you pay a recruiter $4,000 per month you’ll end up using $18,000 in total! This is because recruiters need workstations, setting up paid profiles on hiring platforms, specialized recruitment software and tools, on-job training, and much more.
The second figure that goes into this formula is the average monthly cost of sourcing and interviewing potential candidates and the lost profit. For a senior-level IT candidate, The effective coefficient ranges between 0.2x and 2x the basic rate.
To calculate the coefficient, you need to make a linear relationship between the individuals’ employee margin and hidden loss, which is the lost profit incurred by the company when the position is vacant.
It is also important to mention that the minimum cost of filling a position within the first month of working is equal to 2% of the candidate’s total salary plus the cost of internal recruitment. As time progresses without filling the position, this amount continues to increase.
For example:
A recruitment firm can’t fill three tech positions for two months: two middle-level engineers each costing $5,000 per month and one senior engineer costing $7,000 per month. In the same vein, the monthly cost of your internal recruiter is $6,000. The minimal “hidden loss” incurred by your company for not having the three specialists for two months will be:
3*6,000*2+(5,000+5,000+7,000)*0.2*2 = $42,800, which is 20% of the annual salary that the three candidates would earn.
And since the average time of sourcing, vetting, and hiring a candidate is about 1.5-2 months, there’s no better alternative than the staff augmentation model.
How the Right Development Support Software Can Help Your Business and Team
In today’s competitive business environment, software products are the tools that help ambitious businesses grow and scale to become the industry pioneers they set out to be.
Here are 3 crucial ways the right development support software can help improve your business’s bottom line.
Simplify Your Tech Stack to Drive Scalability
Dynamic companies have multiple moving parts and diverse operational requirements. It could be marketing processes, sales management, customer outreach, ticketing, customer relationship management, and so much more.
A good software development team can help develop a tailored solution to manage all these complexities. More importantly, custom software development lets you create a flexible solution that can adapt to your changing business needs.
Save Time and Money
A good software development team helps eliminate the multiple hours needed to test new digital solutions as a result of being outdated or simply because you’ve outgrown them. Instead, they build tailor-built software solutions that grow with your business.
Better Integration and Centralization of Systems
Businesses have different departments handling different business processes, and most probably using different pieces of software. Ultimately, however, these departments and systems need to communicate and interact with each other.
Worse still, commercial software solutions can be hard to integrate with local solutions, complicating processes. With a custom software solution, you can easily define your integration points, connect all systems and team members, and streamline processes.
Final Thoughts
For all ambitious and driven entrepreneurs, there comes a time when software development becomes a major priority. Unfortunately, the plaguing shortage of IT skills the world over often means having to shelve these ambitions or using hard-to-integrate commercial solutions. Luckily, the team augmentation hiring model will come as a handy solution to plug the skills shortage.