Understanding IT Outsourcing Engagement Models

IT outsourcing should not be a simple delegation of duties to a third party, but rather, it should be a strategic partnership. It requires the right preparation and the implementation of the best IT outsourcing practices to get the outsourcing project right.

If the implementation is done in the right way, happy collaboration is part of the strategic partnership, and the expectations of delivery and results are clear from the beginning.

Organizations can innovate and develop new products to certain levels they couldn’t reach with internal teams by just bringing in outside minds. With new minds, new ideas can just come from anywhere.

Therefore, proper planning is very important before any outsourcing process can begin. Companies should choose the suitable outsourcing engagement model which accommodates both parties and offers strong governance for all aspects of the partnership.

For that to be possible, it’s very important to understand the various IT outsourcing engagement models, and which are the best for your organization.

An engagement model outlines the collaboration between the outsourcing vendor and the client. It provides a base for further relationship development as well as determining the level of responsibility and control. This article will highlight the popular IT outsourcing engagement models.

These models are categorized into tactical and strategic engagement models.

Tactical engagement models

Staff augmentation

This is the simplest model. In this model, companies can extend in-house staff with outsourced workers. Most clients prefer this model because it is very cost efficient. In this model, the client keeps the management and the technical leadership of the project too while the outsourced vendor manages the routine development.

The level of innovation from the outsourced vendors in this model is very low in most cases. Actually, the less the responsibility for the outsourced staff the less the desire to innovate.

The span of responsibility is normally narrow with this model. The product vision, as well as the decision scope of the augmented team, is also limited. Basically, the model doesn’t support “thinking out of the box.”

Project based

This engagement model is very effective for projects where there is less possibility for requirements to change the development process. This model leverages the outsourced vendor who has the required domain and technical expertise in order to reduce costs and time to market.

However, it is better to consider strategic models in case the requirements are changing, or the planned engagement scope is more than one project.

Tactical consultancy

This is another term for value-added services. What drives the client to adopt this model is the need to access expertise which is not available in-house. Outsourced vendors provide this model as a fixed price-time bound activity. T&M basis can as well as be considered for uncertain R&D type of projects.

Strategic engagement models

These models are based on long-term and more innovative relationships between the outsourcing vendor organization and the client.

Offshore/Nearshore development center (ODC/NDC)

This engagement model is very flexible and greatly increases the client’s development capacity. The outsourcing vendor manages the ODC/NDC staff, and the client defines the product requirements.

A variety of activities and projects can be accommodated by this model. Some of these activities are legacy modernization, product testing services, modernization and other long-term projects.

Product development services 2.0

This this is the most innovative engagement model. It is suitable for clients who look for a larger span of vendor responsibility and disruptive innovations. This model maximizes outputs from an outsourcing relationship.

The product development services 2.0 model is derived from Forrester’s comparison of traditional product development services (PDS). It was executed through ODC or project-based models.

Here, the vendor has numerous responsibilities simply by designing and co-developing the product with the client. After the product is released, the vendor can go ahead to optimize and sustain the product.

Strategic consultancy

This engagement model is normally value driven. Typically, the strategic consultancy model aims to improve product quality and the process efficiency of the entire organization. Strategic consultancy model included all aspects of the technology, process, and people who can highly impact the client’s strategic and transformation decision making.

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