Category:
Contract Cost Optimization

Preserving Software Budget with SaaS Solutions that Enable Staff Augmentation

November 7, 2022
Fighting for your software budget can sometimes feel like driving down a dead-end street. Decision-makers aren’t always the most tech-savvy group, and they may not see value in the same things procurement or IT leaders do. In addition to the age-old argument of, “We’ve always done things this way, why change now?” it’s also not common for these decision-makers to be swayed or excited by the shiny new SaaS product being buzzed about in your organization’s industry. If you can’t demonstrate the tangible value your proposed new software will bring into the business, then forget about it.

But Sourcing, Procurement, and Vendor Management (SPVM) professionals know firsthand the value that the right tool can bring to an organization. Whether it’s immediate ROI or increased efficiency, finding or upgrading to the best solutions available — namely, Contract Lifecycle Management (CLM) solutions — can be pivotal to organizational success.

The thing is, SPVM professionals need to know how to make the case for these solutions. Expanding the budget for yet another software tool isn’t going to happen without strong evidence that the company will somehow profit from the purchase. Those campaigning for new SaaS tools need arguments and data points that decision-makers will have no choice but to agree with.

And that brings us to one of the most compelling arguments right now: staff augmentation.

This blog post delves into the world of staff augmentation – its meaning, benefits, pitfalls, and use cases — to help SPVM experts arm themselves with data the next time they’re up to bat for an increased software budget.

Staff Augmentation Definition and Use Cases

Let’s start at the beginning by breaking down the definition of “staff augmentation.” It’s a term that sounds a bit more high tech than it is. According to an article from Toptal Research, staff augmentation is defined as “the use of outside personnel on a temporary basis to augment the capacity of your organization.”

Organizations have a variety of needs for staff augmentation, including:

  • Outsourcing professionals with a particular skill set
  • Strategic team-building with flexible labor to increase agility or speed-to-market
  • Employing short-term/contract workers in the interim of hiring permanent teams
  • Increasing capacity to meet productivity demands (often project-based)

“Staff augmentation is a powerful model that organizations can leverage to increase agility and respond to the changing needs of the enterprise,” says Toptal. “It’s being used increasingly across industry borders. Staff augmentation solutions are being used increasingly for roles ranging from R&D to Operations, HR, Finance, and more. When considered in light of moves from industry giants like Google—which acquired a freelance/contract network of data scientists called Kaggle in 2017—the importance of augmented staff for enterprises, now and in the future, cannot be overstated.”

And given the true cost of bad hiring decisions, it makes total sense why organizations would utilize staff augmentation instead of interviewing, hiring, and onboarding internal employees. Northwestern University reports that the U.S. Department of Labor has found the average cost of a bad hire to be at least 30% of the individual’s first-year expected earnings. So if an employee with an annual income of $60,000 ends up not working out, the cost to the organization can be $18,000, if not greater. And that’s just one employee — think of the astronomical costs that accumulate over teams and time. That’s money (and wasted time) that no business wants to be spending. So organizations have started looking at lower-risk ways to bring people on board, especially for short-term projects.

And staff augmentation, in the traditional sense, is no small industry. In fact, Staffing Industry Analysts found back in 2019 that the staffing industry generated $490 billion of revenue worldwide. Since the pandemic and the rise of global/remote workforces, this number has only gone up.

Of course, staff augmentation isn’t a one-size-fits-all solution. Toptal warns that in particular, this is not a great solution for extended projects (for example, one that will take over two years to complete) or certain projects that “require a high level of contextual, institutional knowledge.” Whenever you bring someone fresh into your organization, keep in mind that there will be some ramp-up time involved despite their education or industry experience.

Capitalizing on the “Service” Function of SaaS Tools

Another way to look at staff augmentation is through a SaaS lens. When a software not only provides a useful tool, but the AI “manpower” or even that of human workers to support the user’s organizational needs, users of that SaaS tool can often end up saving money by supplementing their own staff with the help of the software services they’re already paying for.

There are multiple ways that leveraging a SaaS solution for staff augmentation can help create significant breathing room in your software budget. Two of the most common ways are:

  1. Minimizing the number of employees you’d need to otherwise outsource via contract or consultancy work (i.e. seasonal, project-based, or short-term help)
  2. Reducing existing internal headcount (i.e. inefficient, redundant, or part-time positions)

There is often a focus on IT staff when it comes to staff augmentation, but many roles, such as finance, data entry, business strategy, and program/project management roles can all be augmented with the right SaaS solution. The list of job functions that can be effectively augmented is a mile long. For instance, a CLM v.2.0 like Terzo offers our Contract Intelligence services to create commercial contract calendars; provide executive reporting re: suppliers that identifies suppliers’ contracts, spend, and risk; catalog and organize everything in your active supplier contracts; and much more.


Cost Savings Opportunities with Staff Augmentation

As we touched on earlier, the cost of a bad hire can be quite significant. Not to mention the lost productivity, recruitment costs, dampened morale, and potentially damaging employer reputation that an organization can incur after too much turnover.

However, the financial risks tend to be the most impactful (immediately, anyway), and businesses have, as noted above, looked to staff augmentation to correct the course of things. That being said, outsourcing temporary team members through third-party staffing companies or independent contractors can still come with a hefty price tag as compared to leveraging their existing SaaS tools. Depending on how many people you need, the cost of their pre-hire and onboarding, and how long you need them, opting instead to go with the built-in team your SaaS solution provides may be significantly less costly.

For example, the median salary of a Contracts Manager in the United States is $128,350 as of September 2022. Depending on the size of an organization and the volume of third-party contracts they hold, they may have multiple Contracts Managers in-house. There’s also the cost of onboarding, benefits, and vacation to take into account. The value of a CLM which combines a software and a service would, in this case, likely be the most cost-effective option.  

The price range of a CLM subscription is large, from below $50,000 to over $1M (depending on many factors), but average license fees are around $300,000 a year.* But that investment not only includes the software you’re getting — it also includes the offered services of that SaaS company’s team at your disposal. You get the benefit of working with professionals who are already familiar with your organization and, in terms of contract management strategy, are experts who can optimize your contracts and supplier relations. These are people who not only know their job well; they know your business goals and objectives well, too. And if you’re looking to perform a quick launch or work with a remote team that still feels easily accessible to communicate with on a day-to-day basis, staff augmentation beats traditional outsourcing every time.

Final Thoughts

Now that you’re more aware of the ins and outs of staff augmentation, hopefully you’ll be better equipped to advocate for a larger software budget so that your team and organization can reach your goals more easily than before.

It’s up to organizations to stay competitive and relevant with the technology that sets them apart from the competition and optimizes their operations — and the saved time and money associated with staff augmentation is well-documented and acknowledged by business leaders worldwide. It’s for this reason that SaaS solutions able to offer a human services component are such a value add to any organization. The ROI that the correct SaaS solution offers can sometimes be hard to articulate, but the added element of staff augmentation makes for a compelling argument that works in SPVM professionals’ favor.