In this changing IT world, companies often face temporary IT skill shortages. The void tends to get fulfilled by resourcing firms. Such contracts are often termed as ‘resource augmentation’ (as Accenture calls it) or a body shopping (in a crude form). There is little difference between the two. I wish to understand the issues faced by the service providers and the consumers of service.
The customers of IT services are companies whose competence lies elsewhere, and IT merely supports their operations. As an example, certain companies have annual budgets to invest in certain ERP solutions (a strategic decision from the CEO/CIO), but do not have the required team to execute the projects. In such a situation companies may choose to outsource the complete activity to a competent firm. On the flip side, once the implementation of the ERP solution is complete, the company would be locked in to the service provider’s whims. To avoid this situation, companies often prefer managing such IT projects internally. Internal management ensures that the control stays within the company. However, this alternative is expensive compared to outsourcing the activity completely to an external vendor. Hence only companies having substantial scale of operations (and budgets) can afford this practice.
To fulfill the demand, resource suppliers come into picture. Such companies have a pool of competencies from which suitable candidates are picked and sent to the client.
This kind of arrangement has some unique features. First, since the management lies with the client, the contract is of a T&M (time and material) nature. Clients are billed on a per hour, per day or per month basis against labor hours (or time sheets). There is little risk of cost overrun, since the only direct cost is the CTC of the employee. Secondly, the scope of the work is often not accurately defined, since the payments are based on time and not deliverables. This arrangement acts as a cash cow for IT service companies. Hence these have been extremely lucrative in a populous country like India.
The business model has attracted a number of IT service companies who consider such contracts as ‘bread and butter’. It requires little management effort on an ongoing basis. The prime focus of management is identifying a suitable resource and ensuring he/she stays put.
While this kind of set up appears lucrative, it is not without consequences. Due to lack of clear scope definition and the long duration of contracts, employees are expected to be with the client for years. In addition, clients often tend to be more demanding, since they feel they ‘own’ the vendors’ time. The resources may even be assigned repetitive work or no work at all. If the client has sufficient budgets, they prefer keeping the resource as long as then can. After all, someone conversant with the systems are more productive than someone who is not.
In knowledge industries such as IT, such situations tend to have debilitating effect on the employee morale, who is looking for food for thought. If the resource provider does not place due importance to the issue, it would result in dissatisfaction and ultimately attrition.
Companies involved in resource augmentation need to understand the growth aspirations of their employees, their interests and clearly define their employees’ career paths. This is easier said than done. Communication from the management becomes more important for such employees working under T&M contracts at client locations.