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Kyle Kelin on .Net

Consulting Services and Staff Augmentation Cannot Exist in the Same Company

This is going to be a little off topic so if you are looking for something technical then skip this post. Now that we got that out of the way let me define some terms that I am going to use in this article. A consulting services firm in the application development space is a company who places developers on projects for a specific period of time. The work is done either on site or off-site. The majority of time there is a statement of work for the project and a set of deliverables. A staff augmentation on the other hand has developers but is a completely different entity. A staff augmentation company makes its revenue by placing developers in openings where the skills of the developer match the needs of the client. They mostly work off what is known as contract-to-hire contacts. A contract-to-hire is when a staff augmentation company bills the client for the developer's time for six months at a fixed hourly rate. At the end of the six months the client has the opportunity to convert the developer to a full-time employee for a fee. I don't favor one type of company over the other and in my career have worked with both. The problem is when a company tries to support both revenue models they become ineffective at both strategies. Companies are always looking to diversify revenue streams but those streams need to be complementary. I do not believe consulting and recruiting services are complementary.

The first reason they aren't because good talent is in limited supply. Only a very few times in the last twenty years have developers been in long supply. Eventually the recruiting side competes with the consulting side for new hires. This effects how a company can deliver their project deliverables because they have a talent shortage caused by farming out some of their best talent. A good consulting firm knows that they will have developers on the bench at throughout the year and factor this into their rate. This helps them sell without worrying about staffing the project (well not worrying as much). A consulting firm can't run smoothly without a little slack.

The second reason is that it sends mixed signals to the client and the consultant. A consulting firm needs to be able to place developers on-site without them being approached by the client to convert. Yes this happens all the time but it happens more to companies that send developers on-site as contract-to-hire. So if you have your consultant (a non contract-to-hire) at a company that knows you do contract-to-hires they will assume all your employees are hirable. Of course there are a lot of other things a firm has to do to keep their consultants but that are another article. The consultant will also be more likely to convert because he will see others converting.

The final reason is for a consulting firm a contract-to hire is a lose-lose situation. If the developer placed works out the firm just lost a valuable resource that they likely won't get back. I won't go into the details of the number but the placement fee is far less than the amount of revenue a good consultant can generate in a year. The other half of the lose-lose situation is what if the developer doesn't work out and the client doesn't want to convert them. Maybe they weren't as good as you thought. Now you have damaged your reputation with that client. Sure they will probably call you to fill the next job opening they have but they won't call you to RFP they half a million dollar custom .NET application project they are going to do. I have seen this happen first hand. Never forget every person you put on-site represents your company no matter if you have tagged them as junior or a contract-to-hire.

If you find your company in this situation and struggling here is at a high-level what you need to do (assuming you have the power or can find someone with the power to listen). You first need to pick a side and an identity. A company's business strategy and revenue model needs to planned and definitive. If the company is small the focus should be narrow (dominate one market before moving to another). Next that strategy needs to be communicated clearly to everyone in the company. If you have to write it on the wall to make sure everyone knows it. After everyone knows the strategy align the money to award those you contribute to it. Review all bonuses and commissions and make changes to any that are out of line. Be sure and make adjustments if the new business focus would result in someone receiving a lower bonus or commission. Finally continually review the business strategy and goals to make sure that the day to day activities of the business are an execution of that strategy.


DISCLAIMER: The only business I have ever owned only lasted 3 years and only had 2 employees counting me. I don't know *** about business. Seriously I'm a consultant with business knowledge but no business experience. This post isn't meant to give business advice. Do I really need to say that?



jay reynolds said:

You made a good point about not having consultanting and <a href="">staff augmentation</a> services in the same company. it creates a little bit of a conflict on interest between the way both of these services work.

March 21, 2013 7:55 AM

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About KyleKelin

Kyle Kelin has been implementing software in the Microsoft space for the past 6 years mainly as a consultant. His interests are SharePoint, .NET, JQuery, and Silverlight.
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