Staff augmentation is an outsourcing strategy where a company is assisted by external professionals or teams, usually on a temporary basis.
For example, you plan to launch a new feature or product and realize that your engineering team lacks specific expertise in, let’s say, artificial intelligence. Rather than going through the lengthy process of recruiting and hiring developers with AI experience, you can attract third-party professionals at short notice for the exact time period you need them.
The term is often confused with outsourcing or managed services. When comparing staff augmentation vs. managed services, the main difference is that staff augmentation involves more control over the management and development process. While managed services imply outsourcing the entire function or a project, staff augmentation is about expanding your in-house team and maintaining direct control over it.
As the tech market experiences volatility, the demand for flexible and cost-efficient solutions rises. One of the ways for companies to optimize costs and processes is through staff augmentation. But is it still cost-effective even in the light of mass layoffs and a decrease in median salaries?
In this article, we break down the costs associated with in-house hiring and compare them with staff augmentation costs to help you decide which is more suitable for your business.
To demonstrate the cost differences between staff augmentation and in-house hiring, we’ll use the example of a fictional healthtech company called Pineapple. The company is based in Germany but wants to scale its engineering team and establish an operations center in Eastern Europe for cost efficiency.
As the tech market experiences volatility, the demand for flexible and cost-efficient solutions rises. One of the ways for companies to optimize costs and processes is through staff augmentation. But is it still cost-effective even in the light of mass layoffs and a decrease in median salaries?
In this article, we break down the costs associated with in-house hiring and compare them with staff augmentation costs to help you decide which is more suitable for your business.
Staff augmentation is an outsourcing strategy where a company is assisted by external professionals or teams, usually on a temporary basis.
For example, you plan to launch a new feature or product and realize that your engineering team lacks specific expertise in, let’s say, artificial intelligence. Rather than going through the lengthy process of recruiting and hiring developers with AI experience, you can attract third-party professionals at short notice for the exact time period you need them.
The term is often confused with outsourcing or managed services. When comparing staff augmentation vs. managed services, the main difference is that staff augmentation involves more control over the management and development process. While managed services imply outsourcing the entire function or a project, staff augmentation is about expanding your in-house team and maintaining direct control over it.
To demonstrate the cost differences between staff augmentation and in-house hiring, we’ll use the example of a fictional healthtech company called Pineapple. The company is based in Germany but wants to scale its engineering team and establish an operations center in Eastern Europe for cost efficiency.
To expand its product offerings in the healthtech industry, Pineapple needs to build a development team that consists of:
As shown in the table, hiring in Germany would cost Pineapple approximately €1,423,800 annually. This includes salaries, employer contributions, recruitment, equipment, office space, and other overheads. Now, let’s take a look at the expenses for staff augmentation in Poland.
To sum up, staff augmentation in Poland offers a considerable cost advantage for Pineapple. The company can potentially save €541,500 annually, a 38% reduction in total expenses compared to hiring an in-house team in Germany.
Other locations, such as Eastern Europe, Latin America, or Southeast Asia, may provide even more significant cost savings—potentially over 50%—due to lower taxes and reduced labor costs. However, for Pineapple, geographical proximity is a crucial factor, as it allows for easier collaboration, quicker travel, and a shared time zone, which are vital for efficient project management. Additionally, Poland, being an EU country, offers the added benefit of legal alignment with European Union regulations, making it easier to navigate data protection standards and cross-border operations within the region.
Tech companies may save more than 50% in costs with staff augmentation compared to in-house hiring, especially if they outsource to countries with lower labor costs. However, this is far from the only reason many companies choose staff augmentation as their hiring strategy.
First, sourcing top tech talent is the primary expertise of IT staff augmentation companies, making it easier for them to find and hire candidates with specialized skills and industry-specific experiences. They have industry connections, thousands of pre-vetted candidates, and streamlined recruitment processes, making recruitment much faster and cheaper.
Second, by partnering with a reliable staff augmentation company, tech businesses reduce the legal and administrative burden of in-house hiring. Some outstaffing companies can fully cover onboarding, HR, payroll, and legal functions, allowing their clients to focus on innovation.
Finally, staff augmentation is an ideal solution for companies looking to offshore development. Hiring employees in a new country often requires establishing a legal entity. This entails understanding local labor laws, managing compliance issues, and dealing with potential language and cultural barriers. Well-established outstaffing companies already have everything required for immediate hiring in most countries where a tech company would consider having a new operations center.
Despite the financial advantages of staff augmentation, many IT companies still opt for in-house hiring. One of the reasons for this is that the in-house model allows them to maintain direct control over the team without the need to collaborate with third-party providers.
In addition, some industries may have regulatory requirements that favor or even mandate in-house hiring. Companies in highly regulated sectors often opt for in-house teams to ensure compliance with local and international laws.
Finally, staff augmentation is mainly perceived as a solution that addresses the short-term demand for specific expertise and projects with fluctuating workloads. Companies with stable long-term projects generally choose to have stable and cohesive teams.
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As the tech market experiences volatility, the demand for flexible and cost-efficient solutions rises. One of the ways for companies to optimize costs and processes is through staff augmentation. But is it still cost-effective even in the light of mass layoffs and a decrease in median salaries?
In this article, we break down the costs associated with in-house hiring and compare them with staff augmentation costs to help you decide which is more suitable for your business.
