Outsourcing Models

There are several types of technology outsourcing models that are employed by CIOs. In a typical IT organization, you could see a combination of these models in operation. The different types of outsourcing models in practice are:

1. Governance Based Model
2. Pricing Based Model

Governance Based Model

IT governance model is based on an optimal division of responsibilities and goes far beyond traditional management models and those that focus on cost provisioning and labor arbitrage. IT governance model allows clients to maintain optimal alignment of strategic IT functions to meet their business needs and increase competitiveness, as well as to apply best practices in order to reduce costs and delivery time for operations and special projects alike. This model is based on the strategy adopted to govern the project or the project organization or the project team. This model has three different types to it –Professional Services or Staff Augmentation, Co-Managed and Managed Services or Fully Outsourced.

Staff Augmentation

• In this model, consultants from the outsourcing vendor act as an extension of the client’s project team and they will be supervised by a client manager responsible for that project delivery.
• This model is typically used when certain skills are not available in-house to execute a project.
• This model is also widely used when the client team requires additional head-count to tide over a short period of increased work.

Managed Services Model

• Managed Services is widely acknowledged as the best model to adopt for technology outsourcing if you have a long term outlook.
• Managed Services model is an attractive proposition both to vendors as well as the outsourcing organization.
• Vendor will be responsible for selection of resources as well as take responsibility of managing stakeholder expectations.
• Vendor also has complete decision making responsibilities in providing the agreed set of deliverable.

Pricing Based Model

As the name itself suggests this model is based on Price, where the defining guideline are the payments to vendors or the pricing of the work order. There are different types of Pricing Models in existence today. These are Time and Material, Managed Capacity and Fixed Price projects

Time and Material

• Time and Material or T & M is a pricing based information technology outsourcing model. This model is utilized not only in the information technology industry, but in other industries too.
• As the name implies, the payments to the vendors or contractors are based on the number of hours of work completed per day.
• There is an agreed rate per hour between the vendor and the client organization.
• The number of hours clocked are tracked through a time sheet system, either maintained by the client or by the vendor.

Managed Capacity

• In Managed Capacity, the customer buys a certain quantity of person-hours or person-days from the vendor at a pre-negotiated rate.
• In certain situations, these are also bought as a certain number of seats in a designated development center of the vendor.
• This model has a maximum limit on the amount that can be charged to the customer.

About Author:

Shailesh Nambair  is consultant and part of Systems Plus Pvt. Ltd. think tank. He actively contributes to information technology and VMO. He can be contacted at: shailesh.n@spluspl.com