Engagement Business Models: General Overview
If a company considers establishing an outside-the-office team, there should be conducted a thorough investigation on the matter, since, current trends offer numerous ways to implement the idea. Software development outsourcing is becoming a common practice as it offers a lot of benefits and advantages to a business.
Cut costs are most often the major goal, however, not the main one: talent pool accessibility, a speed of staffing, ability to mitigate spikes and unstable workload, etc. Yet, outsourcing model being associated with certain risks and requires initial investment like time, money and efforts to establish the effective remote team. Therefore, the current series of articles discusses the existing approaches to the establishing of the remote teams, including their main advantages and disadvantages, benefits and loses. In this article we are going to dwell into the 4 most popular business models for remote teams building: outstaffing, BOT, greenfield, and acquisition; as well as provide recommendations on which model is the most suitable to the peculiar business. Yet, one should carefully consider that in the following article we are discussing the case when you are going to establish a permanent presence in one of the IT outsourcing destinations in order to augment in-house capacities. For those who just looks for outsourcing one-time project, it is better to proceed on fixed-bid model since it does not make sense investing in long-term relationship.
Outstaffing model expects “leasing” engineers from your outsourcing partner for a fixed period (e.g. 1 year) or on an ongoing base. Outsourcing services provider cares about staffing required skills so potential clients only need to involve them and manage the project. Therefore, outstaffing is considered the fastest way to establish a remote team with a minimum risk. Since there is no requirement for the extension when the project or contract ends, therefore all the job, responsibilities and risks and losses are done and solved by your outsourcing partner. The main requirement from the client’s side is the money paid for the services if they are good, if not then he can easily quit and dissolve the contract. It is suitable for those companies who aren’t sure whether they’ll continue their business in the chosen destination in the future. If compare outstaffing model to other outsourcing models:
- the company is not sure about they need to go there
- the company requires just a few engineers so it is not worth to invest into own office
- the company has unstable load and they need skills periodically on demand
- the company cannot (does not ) want to build own presence in the remote location
- the company is not sure about location and want to be able to escape any moment
- the company does not want to care about employees hiring, promotion, growing, retention, as well as for office and legal staff in the remote location
- a company doesn’t need a complete control over the team (in this case a company hires a manager to be in charge of the project and communicates with him/her directly)
After having the positive experience with outstaffing model, many companies are anticipated to either shift to BOT (Build, Operate, Transfer) or Greenfield models (covered below). Many outsourcing companies can offer their developers whilst the outstaffing team is being built, therefore, the project may start immediately after the documents are signed.
Outstaffing requires comparatively low capital expenditure, management efforts, and risks, high speed of team establishment; however, the control over the team is only partial.
BOT (Build, Operate, Transfer) model is applied if a company has considered about the outsourcing destination and is looking for appropriate devcenter. BOT is a good option to alleviate risks, cut down costs and let the vendor enjoy the benefits of the center’s productivity. The development of this model is as follows:
- firstly, a services provider builds a team that corresponds vendor’s requirements in the outsourcing company office
- secondly, the team has been established to the necessary size and level of functioning
- finally, the team is transferred to a vendor client
This approach is viewed as one of the most beneficial, since, the team establishment is not the vendor’s headache – everything is placed in Ukraine (as the country has been the jet setter in this model), therefore, after a certain time everything set for a client – premises, management, and the team. The approximate time span for arranging the team may take a while, however, the first specialists usually get down to work in 3-4 weeks.
BOT model is beneficial if a vendor:
- wants to have permanently functioning and available secure development team of 10+ people
- cut-down costs and short time for establishing a local team
- plans to move P&L management to the newly established team
In case of BOT both capital and operational expenditure is comparatively low as well as management efforts. Depending on the destination, the risk level differs, yet, with Ukraine it is middle and a vendor gains almost full control over the team.
Acquisition model is becoming a popular model, especially large companies want to establish another branch of services or product development. If such process requires immediate actions to be taken, finding the appropriate service provider and suggestion to be acquired and become a part of the larger company is made. From the business point of view, the acquisition is a difficult product, especially if the company or service subject to acquisition is of foreign origin. In this case, local legislation shall be reviewed in order to avoid further legal procedures. Usually, a company can be acquired if it is agreed by its management board, especially, there are several co-founders owning the shares in the company.
Acquisition is also known as asset purchase (when there is one owner) or equity purchase (when there are several shareholders). Asset purchase is more peculiar to the global IT arena, however, with lots of pitfalls, for instance, there might be a partial acquisition if a buyer wants to purchase a department or division of the company, meaning certain intellectual property rights.
Establishing a devcenter from null or Greenfield is the most money and time-consuming model – it presupposes vendor’s complete acquaintance with the destination chosen for a center opening: one should be familiar with the destination’s legislation, taxes, and specialists’ mentality, therefore, the risk level is extremely high. Initially, it makes sense to build a brand new office and team if there is an opportunity to provide permanent job and get instant income. Secondly, opening new office means hiring a staff of 25+ specialists. Thirdly, a vendor is not restricted in time and money; however, want to have 100% control over the team.
DevCenter establishment process may look as follows:
- registering a company or a branch according to the Ukrainian laws; establishing contracts and their terms; marketing campaign to announce a business birth in Ukraine
- staff related issues – setting a recruiting partner and hire appropriate management staff, afterwards establish a team or several teams of engineers and support specialists
- premises search and office setting (rental arrangements, furniture, equipment, etc.)
- work processes establishment (team buildings, events and celebrations)
All four models compared, outstaffing and BOT are the most suitable for those companies, who aren’t planning further cooperation with an outsourcing destination in general. Therefore, applying these means quick and low-risk options, still, with only partial management and control of the team and office Yet, acquisition and greenland are high-cost and long-term ones requiring a lot of efforts taken. Their pros lay in the total control over the team’s performance and absolute income receipt. The last two models also require enough money to invest at the initial stage of them being implemented at once. Whilst BOT and outstaffing don’t.
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