Many small businesses, whether just getting started or established and growing, consider IT outsourcing but do not know where to start. In this article, I will walk you through the benefits and risks to outsourcing various parts of your IT infrastructure, and some common strategies as well as ways to go about implementing those strategies. This is intended to be a jumping off point for discussions around your IT outsourcing strategy.
Please note: I am not affiliated in any way with any company or organization listed in this article.
I Want to Outsource. Now What?
Before going into the pros and cons of outsourcing, it pays to do a little thinking about what exactly you will be handing over to another entity. You should choose a strategy based on your business model, the amount and types of technology your company uses, and your tolerance for giving control to a third party. There are several broad categories of IT support for outsourcing. Roughly in order of ease of successfully outsourcing, from the most difficult to the most simple: Technology strategy, IT project management, technology infrastructure support, application support, and application development.
The smaller the company, the fewer people dedicated to IT and the more you may need to outsource up the chain of command. As you grow, it pays to keep this in mind and decide at what point it makes sense to start bringing different tiers of IT in house. Lets discuss the benefits and challenges of outsourcing each tier of support, and then we’ll go into some analysis of how to go about outsourcing each function.
IT Technology Strategy
In larger companies, this tier of IT support resides in the CIO and CTO positions and perhaps their direct reports on down. This tier consists of high level decision making about the direction of the company in regards to technology. Often, these people will evaluate and decide which technologies to deploy, select hardware, software and other vendors, and ensure the organization can meet customer needs and pay suppliers on time. Strong technology strategy can help your company stay ahead of the technology curve in regards to the competition.
Risks of outsourcing: Good technology strategy is hard to find. Even big companies pay huge sums of money to find experts in the field. Leaving this to an occasional consultant may leave you lagging your competitors.
Benefits of outsourcing: There are a variety of reasons you may be better off outsourcing strategy. Perhaps your IT needs are very limited, or maybe all you need is a static web page which you can update yourself. Possibly you can make do for a while as is. If technology is not a big factor in your business, you can do without a dedicated strategist while you grow. It may also be inevitable to outsource this function if no one in your business is technically competent enough, and you can’t afford someone to fill this role full time.
IT project Management
More a function for mid size and large companies, IT project managers oversee changes to your web presence, lead initiatives to make sure your internal operations are running smoothly, and will occasionally even help the guy down the hall with his email problem. Kind of like jacks-of-all-trades, if you have enough IT need to have a full time IT department, these employees will keep it all running smoothly. They also handle budgets for developers, hardware purchases (e.g. laptops), and support costs. In some cases, the project managers may also be technology strategists, and in extreme cases will even do the deep technical work as well!
Risks of outsourcing: The project managers generally know your business and your technology. Outsourcing can take this knowledge and put it on the outside, which may leave you vulnerable to change. There also may not be a lot of monetary savings over time as the total cost of the contract + expenses + loss of control adds up to about the same as the initial savings of not having full time employees on the books.
Benefits of outsourcing: Outsourcing this is great if your IT needs are limited and you have employees who can manage IT part time, on an as needed basis. It can also allow you to level load your expenses. Doing a big web redesign that takes six months? Hire a project manager on contract to do the whole thing, and then let them move on when the project is done, and your costs fall accordingly.
Technology Infrastructure Support
This tier of IT is where most people begin to think of typical IT jobs. The people running your infrastructure support might be server administrators, database administrators, network engineers, or other highly trained technology guru’s. They are especially needed if you run your own servers from your office or have something that must always be accessible to your employees or customers, like a web ordering system, internal payment system, etc. Finally, they often help architect new systems and applications, providing the expertise for a successful and lasting deployment. They work closely with project managers on a consulting basis, and then implement the technology to make it work. They also provide infrastructure support to multiple systems. If it is critical to fix when an application goes down, these are the people who will fix it.
Risks of outsourcing: You tend to lose control of the technologies used when you outsource this function. If you outsource server support, for instance, the support company may force you to choose an Operating system and setup of their own specialty. If you change vendors later, this may become a problem. Similarly, you lose control of your data. If you have databases with sensitive information like SSN and Credit cards, then you must be very careful about auditing the vendor to ensure adequate protection. Remember, if a vendors’ employee steals that data, it’s your company that gets the bad PR.
Benefits of outsourcing: There can be significant savings from outsourcing this tier of IT. Experts in these fields can often be expensive, and your IT infrastructure may not be large enough to merit 100% of a persons’ attention. Further, for specialized systems, it may take many experts to support it (one for network, one for server, one for database…). Vendors will take advantage of economies of scale and standardization to lower costs significantly. Additionally, it simplifies the management of your systems, allowing you to focus on the customer product (internal or external) while the vendor handles the technical details.
Application Support
Similar to the technology infrastructure support, this tier focuses on supporting technology. Rather then the enabling technologies like server and network, this IT tier directly supports the applications your company uses. Because your customers and employees are often interacting with these systems, this tier of support also has to interact with your customers and employees. This often gives rise to customer complaints when calling an overseas help desk, so choose your support group wisely. These employees often require access to your applications (imagine an email administrator account for instance) and sometimes access to application source code if they will be making changes.
Risks of outsourcing: Data privacy and quality of service are the main concerns. Since vendors must have access to your systems to support it, they can also view potentially sensitive data. Additionally, an outsourced person may feel less loyalty to your company, and may not correct errors as quickly as an employee would. Finally, consider customer service. These folks are usually the face of IT to your customers and employees, so a good mix of personable and technical characteristics is best.
Benefits of outsourcing: A significant cost savings. The less support you need, the more savings you will get since this allows you to level load your needs along with other small businesses. One person might provide support to 10 companies, meaning you can pay 1/10th the cost for the same level of expertise. Additionally, you may see a quality improvement if this allows you to achieve higher quality support. This is especially true if you won’t be relying on this tier for direct customer concerns.
Application Development
The most frequently outsourced IT function and the least risky to your business. This function typically developments technology products to specifications you provide. Today, it is common to hire web designers and application developers for a few months to build a web page, and then end their contracts. Some of these people will also offer application and continued support for an ongoing fee or on an as needed basis.
Risks of outsourcing: As in all outsourcing decisions, if you get a poor quality resource, you may have poor quality delivered back to you. For custom code projects (web pages), you may have a more difficult time finding support, or that support may cost more if you change providers.\
Benefits of outsourcing: The main benefit again is cost reduction. Very few small companies need full time software development teams. Outsourcing this function allows you to get high quality software development when needed, and pay nothing when development is complete. This is especially true for projects that need to be deployed once, and will have only small changes afterwards.
I Know What I Want to Outsource. How Do I Implement It?
After considering which areas of your business you want to outsource, it’s time to decide your outsourcing strategy. Here are a few broad hiring strategies used in the industry:
- Hiring freelancers
- Hiring individuals operating small businesses (such as web designers)
- Hiring consultants
- Contracting an IT outsourcing firm
- Hiring employees as contractors
Lets quickly talk about some of the pros and cons of each contract type.
Hiring Freelances: Freelancers are people who may work multiple jobs at a time for multiple clients. They can be individuals or associated with a company. There are a variety of resources where you can find freelancers. Websites like eLance, guru, and prject4hire allow you to post requirements and desired cost range, and freelancers will bid on the projects, allowing you to decide which freelancer to select. These sites also have robust ratings systems where you can see feedback from other customers, or provide your own. They also provide some protection against undelivered work by acting as an independent third party to the transaction. To be sure, you can find excellent work at a very low cost at these sites, however they also tend to be a race to the bottom on the quality and price spectrum. Many of the most talented people will not participate in these bidding wars, so if you are looking for great web site design, a strong architect, or a nuanced technology proposal, you may want to look at other options.
Individuals as Small Business: Many highly talented people will start their own company to attract clients, using their skills as the main sales tactic. They will charge more then a freelancer, however they will also work more closely with you and your business team to ensure your needs are met by their deliveries. They usually have a strong brand to uphold, and will look for your repeat business. Developing a relationship with these businesses is a great way to get top-notch service.
Consultants: Consultants generally don’t deal with technology support or implementation, but will provide you with tactics, strategies, or evaluations of your IT landscape. They can be very expensive for a short time, and leave you with a plan which requires more expenditure to implement, but can be invaluable in your long term planning. Consider IT consulting along the same lines you might consider tax consulting or marketing consulting. It is one more business function with which you may want temporary outside expert help, and can provide a strategic advantage over your competition.
IT Contracting Firms: These firms specialize in IT resourcing. This is a very broad category, since many companies fall here by default. The most common arrangement small businesses have is when they order server space for website hosting from a company like rackspace or gridlayer. These companies offer self managed hosting for a small fee, where all administration must be done by the client, and in some cases hardware purchasing as well. Simply by renting server space from these companies, you implicitly outsource certain functions like network and server vendor selection. They also offer IT services up to and including complete server management for your business, so you can ignore a lot of the administration work. Although this may not always feel like outsourcing, you should consider it as such and treat it with the same consideration you would when evaluating other outsourcing contracts.
The other common kind of IT outsourcing firm provides individual people instead of services. They may contract with your business to provide 2 full time workers on site at your business for 6 months for instance, and provide server support as above from within your company. There are many prominent outsourcing firms that provide this kind of service, and the services they provide range the entire spectrum of IT tiers excepting perhaps strategy.
Employees as Contractors: This has become more popular in the last few years. It is possible to hire a person as a contractor, but have them report directly to your own chain of command. This saves you money on taxes like the social security tax, and employment benefits you offer other employees like healthcare by pushing it to the contracted employee. Many contracted employees have less loyalty to your company though, so be aware that this can be riskier then other forms of outsourcing since there is no external control of the services provided. Additionally, there are various laws and regulations regarding this type of labor agreement, so be sure to research the requirements thoroughly before embarking on this kind of outsourcing strategy. You should note that this is not by any means exclusively used as an IT outsourcing strategy, but is used in all business functions today.
Now that you have an overview of IT outsourcing, your next step is to continue researching. I recommend looking over websites of several service providers who can provide what you need, and put together a comparative matrix with pros and cons. Outsourcing should not be done quickly or without forethought, but can provide a quality and cost boost to your business.
Do you have experience with IT outsourcing? Send me comments or email with your experiences, and I will compile them here in a future post.
