Contractor, Consultant or Consultancy, what’s right for you?
When you are looking to fill a gap in project delivery how do you approach the problem?
Whatever it is, the way you tell your story online can make all the difference.
Is your first thought to hire a permanent member of staff, or to jump on the phone to your agents to find someone to fill the gap?
Do you consider contracting a digital transformation consultancy or using a full-service agency instead?
What are the differences between all of these?
What are the pros and cons and when should you use one over the other?
Let us dive into it by starting with some definitions:
Employee
An employee is someone your company hires part-time or full-time who is on the payroll becoming one of your fixed costs, reducing your margins, who receives benefits and is a core part of your team.
Building your core team is vital to the long-term success of your company, part of this being training and growing their skill set, as well as forming a group of people who support and motivate each other.
Contractors
A contractor or consultant is someone your company hires to fill a gap, but who is not on the payroll, they do not receive benefits and typically should not (for legal reasons) be considered a core part of your team (Our podcast here about IR35 is worth listening to if you’re not familiar with that topic).
For example, they may be an interim contractor, filling a role until a permanent member of staff is found, or a consultant who brings a special set of skills to bear. (fixed term relevant to mention here
For legal, liability and accounting reasons most contractor’s and companies insist on limited companies being used to protect both parties in this scenario, however, there are exceptions to every rule.
Agencies
An agency is a company that supplies people to a company to solve a problem.
The legal arrangements between the person, agency and company can get complicated, so understanding these if using an agency is important. (Both from the employee and contractor’s viewpoint).
A full-service agency provides all the required staff to solve a particular problem.
These groups of people may already be a team, or it may be an ad-hoc team formed from contractors to fill the gap.
Managed Service Providers
A managed service provider (MSP) takes ownership of a service you wish to deliver and typically manages, coordinates, and delivers the service on your behalf.
A consultancy typically employs specialists or teams of specialists who work together and deliver solutions to their clients. They are typically subject matter experts in a product or discipline which they specialise in to ensure they can routinely produce quality deliverables.
They may be a specialist boutique business change consultancy that prides themselves on flexibility, timeliness and value for money or they may be one of the big digital transformation consultancies that have fixed processes, procedures and frameworks with the cost and overheads that go with that. 😊
Those are the broad categories, but each needs to be understood in more detail to truly see the pros and cons of each and identify the best route for you to take.
But first, before we go into the differences, it is important to understand how your company works and the culture and processes which you need to work within.
It is pointless trying to employ the services of an agency if your company has a blanket policy not to use agencies. As it is pointless to try and employ a permanent member of staff if your company has a headcount freeze.
Here are some factors you need to consider:
Company culture.
How does your company deal with external people?
Does it work well with them?
Does it have processes in place to manage external parties (procurement, HR, legal)?
Do staff resent external parties and create obstacles for their success?
Budget process / cost.
Has the budget for this project already been agreed upon?
Which estimated costs have been used to create it (an offshore worker in the 3rd world or a full-time consultant used to financial sector rates)?
Whose budget or cost centre does this fall under, and is there flexibility in adopting a slightly different approach?
Internal Politics.
For this project, how does the steering committee feel about bringing in external specialists versus trained up employees?
Would the rest of the project team and company welcome external consultants or agencies or would they fear them?
Required flexibility.
Do you need a full-time person for this role, or would a part-time person suffice?
Will the work be done in phases that require more time and dedication, or will it be more ad-hoc work that can be fitted around another project?
Availability.
Can you spend time training people, or having a long interview process or do you need to hire a proven specialist consultancy who has a team at hand to help quickly and hit the ground running?
Once you understand the lay of the land, so to speak, it is then vital you understand why you are looking to fill the gap.
You need to consider these questions:
Are you hiring to fill a core skillset missing in your company that should be part of it?
Is this a short-term requirement or a long-term gap that will be needed for years?
Is this specialist or gap a core skill you want to bring in-house or is an external specialist just needed for the duration of the project?
Do you or someone on your team have sufficient knowledge to evaluate how good candidates are, or would it be better to use a 3rd party with built-in penalty clauses and risk reduction which can be managed on deliverables?
How much time does the team, or you need to dedicate to this project?
Do you need an external team who can take full ownership of the project?
Is this project or service not a core service for your company, and could be out-sourced entirely allowing you to concentrate on what you do best as a company?
Do you want to reduce risk by hiring a team or consultancy, who can work as a team and swap in and out knowledge as required, or is one or two people sufficient for your project?
These questions don’t stand in isolation from one another. What happens when you want to use a consultancy to start, but the project is expected to morph/extend into a multi-year project for example.
By thinking through these questions, you can start to get a better picture as to why you are hiring and what is the best solution to the problem.
This brings us back to the differences in the different types of people who can fill gaps in projects.
Part-time contractors may be cheaper than employees, who are cheaper than contractors, who are cheaper than specialist consultancies.
Specialist consultancies have the skills to fill the niche’s you have and may have entire teams who can deliver projects for you without you needing to hire a team and bring them up to speed yourself.
Consultancies typically reduce risk but increase cost due to the nature of the staff they employ.
A managed service provider may be able to support an entire service for you, without the hassle of training and employing people yourself, but it still needs to be integrated with the rest of your processes and people.
An agency may be able to find people, but can you evaluate them, and will they fit into your team? Are you willing to take that risk?
All these factors need to be considered and evaluated so you know which solution is right for your project and company.
One way to evaluate the choices is using the standard time, quality, and cost criteria.
Each project has different aspects to it, however, so rather than evaluating this generically (and incorrectly), it is best if this exercise is done yourself, using the information you know about your industry, its people and what you’re trying to deliver.
Simplify Change is a specialist change management consultancy. We pride ourselves on focusing on the people element of project delivery, which helps us guarantee project delivery, on time in a cost-effective manner.
Does your project delivery team match your expectations? Maybe it’s time to re-evaluate.
If you would like to know more about us and how we work, click here or if you’re interested in some case studies and how we work click here.
We’re happy to help, contact us, and let us make your project a success!
Related Articles:
