The economy has hit everyone hard. Many companies have had to pare back departments, employees, budgets… on nearly every level. And many companies have done something no one thought they would ever do — jettison their IT departments in favor of outsourcing. On paper, it seems to make perfect sense. You have a company willing to handle your IT needs on an on-call basis. You’re not paying staff to sit around and wait for problems, nor having to pay benefits or deal with the issues that come with having computer engineers on hand.
But along with that approach there is a handful of issues you may not be prepared for. Let’s examine some of them.
– Real cost
There are costs involved with IT outsourcing that many do not consider. For example, when you schedule an appointment with your outsourced IT Company, you’re going to be charged for the drive time there and back. And what about when that outsourced engineer has no idea how to fix your issue and has to learn on the job? Are you willing to pay for that? It’s one thing if your own employees learn as they go. But it’s a different story when a contracted employee does it.
– Time factor
When you have an emergency, it will have to wait until your outsourced IT department can get someone there. Drive time strikes again. You’re also subject to the calendar of your outsourced company, and many factors can cause your emergency to be pushed back. At this point, you are at the mercy of your outsourced IT department.
– Familiarity with network and systems
When your IT is in-house, your IT workers know your system and your network really well. They probably built it. So it’s likely that in-house IT workers can keep your systems running more smoothly and solve emergencies much faster. Of course, as time passes an outsourced IT department will learn your systems and networks.
– Employee relationships
When employees are in-house, they know one another and know how to interact well with one another. If you are outsourcing your IT, you may or may not get the same engineer showing up every time. That means your employees must get used to different contractors and how they work. With an in-house IT staff, relationships can form and solidify. Of course, that’s not to say relationships with outside staff can’t be built.
There are certain instances where information or situations can become a liability when a third-party is brought in. Security measures may need to be implemented to protect company data, employees, systems… everything can become a liability. You never know when data is accidentally going to walk off on an external hard-drive or be left in a car and stolen.
Outsourcing your IT functions may appear to make good sense, but beware of certain side effects that could negate the benefits.
IT outsourcing is the best manner to artificially reduce IT cost and make you lose control on an essential part of your business.
Maybe one day the situation will revert and some big companies will re-introduce reliable IT departments with strong competencies in order to improve the quality of the internal IT services. The main hint is that it’s not yet possible to evaluate the real cost in time and money of lost business when the efficiency of systems, networking and security are not adequate.
That is traditional old fashion outsourcing. I have something totally different so the only thing you have standing around is thin dumb clients connected via a dedicated fiber connection to a hosting facility with dedicated ressources for your company. We are seeing around a 40% drop in total costs for our customers. My biggest issue is that the IT department think its bad, because they will loose all influence and usually their job. I hire the best of them so the knowledge of the company setup continues and the issues for the customer goes away and he can enjoy and forget everything concerning his IT. It just works…
I think outsourcing is not for every organization and very often, beyond cheaper rates, the value is highly questionable. Actually, TPI – the consultants who advise most of the F500 on outsourcing – are doing a webinar about this next week… may be interesting: http://www.castsoftware.com/news-events/event/vendor-management?&grp=LinBlg
Outsourcing your IT support makes no sense, really. When you have your support team in house, you are in control. When people claim that outsourced IT support is cheaper, they leave a lot out of the picture.
I posted this on the LinkedIn CIO group, but seeing the discussion here I will re-post my comments.
Disclaimer: I am CEO of an outsource IT provider, so I have seen a lot of these concerns before. With that said …
“You’re going to be charged for the drive time there and back” …. that depends upon the outsource provider you deal with. There are different operation models available – the pay per hour / use model vs. the all inclusive plan. At Affect4 (my company) we don’t use the pay per use model because it leads to poor service and dissatisfaction with clients. While this kind of service looks good on the surface to a business owner because they see it as paying only when they need help, this is a reactive model that virtually guarantees that the business will face technology issues and downtime along with a technician that is really only interested in performing the bare minimum fix so that the business will have to call him again with another trip charge etc. I don’t believe in this model – we take a proactive approach to technology, doing everything possible up front and remotely to minimize the disruption, downtime, and need for on-site support. This is all done on an all-inclusive, flat rate, predictable model so there are no surprise billings, etc.
“When you have an emergency, it will have to wait until your outsourced IT department can get someone there” …. There is validity in this statement although this falls back on point #1. If your outsourced IT provider is taking care of your infrastructure properly, the number of times an “emergency” will happen are minimized and they will be the one who notifies you of an issue and proactively shows up to take care of that issue.
“So it’s likely that in-house IT workers can keep your systems running more smoothly and solve emergencies much faster.” … This really depends upon the quality of your outsourced IT provider. Did they start out the engagement with an in-depth technology and business audit and evaluation? Do they have processes and procedures in place for change management? Do they regularly work with you to discuss the direction of your business and keep your technology in line with that direction or are they simply there to fix things when they break?
“When employees are in-house, they know one another and know how to interact well with one another.” … So as to not keep repeating myself, this depends upon the quality of your outsource provider. A good one will be working with your business and proactively communicating with your team. The only difference is they won’t be sitting in the next cube.
“There are certain instances where information or situations can become a liability when a third-party is brought in.” … Again this falls back to choosing the right provider. There should be agreements in place, background checks performed on technicians, etc. The outsource provider and anybody they have working with your company should be no different than any other direct hire employee of your company.
With the abundance of technology and the availability of training these days, it is very easy for somebody to get a couple of certifications and call themselves an IT provider. In a lot of ways, any “geek” can answer a call, jump in their car and run out to fix an issue. The real “providers” work in your business as a trusted advisor and provide a lot more than a tech support guru.
If you have any questions or would like to talk further about specific business cases, you can always me or one of my team at http://www.affect4.com/contact-us.
Well said Jeff – this is the same model we use and our clients love it. We get the satisfaction of turning clients into partners and building a core client base that is a referral generating machine.
I know the disadvantage you mention above for IT Outsourcing but it`s depend on what is your partner and how they work…I work as IT Service nearly 3 years and I believe what I work on to bring many good benefit for both employee and hirer…
if you doubt the knowledge of IT Outsourcing then you can test them before co-operating with them, due to the difference cost between nations then why don`t you hire excellent guys with your low cost ? example you hire the resource in Asian will cheap…
The hard working person who care about their responsible can make the time factor normally as they are in your local…e.g: except business hour, i can check/reply and fix anything even 1 am my time…
and finally, people should with with monitoring at first time then count on them as their staff then everything will be fine as my thought
Like everything else in life it’s balance ! It’s important to keep a core group of customer facing / business analyst that know your business processes on staff. This group is responsible for managing internal / external customer relations along with helping the CIO set direction. The highly skilled and expensive staff you outsource a d bring them in when necessary. Good business !
Given all the comments both pro and con, has anyone developed a measurable way of determining whether or not to outsource?
Yes I have a VDI TCO calculator that I use at clients.
I have been outsourcing my IT for almost ten years now. I have only had improvements in Uptimes and SLAs, and reduction in costs. Let me elaborate on some drivers of the improvement:
1. Economies of scale:
Lets say I have 5 servers. If I need to monitor them 24x7x365. I will need 5 Server Admins to achieve this. Actually, the capability of an admin is to monitor 50 servers or so, probably even more with good tools. So I am underutilizing my team by 90%. If I were to outsource, then the 5 guys are shared by me and 9 other companies with 5 servers each. So my effective cost becomes 1/10th of what it was. Even assuming that the Service is costlier than an inhouse employee, it is still 5-7 times cheaper.
2. The power of large numbers:
A Service provider probably has 500 windows admins, 200 Exchange Admins, 300 Network Admins, 200 firewall admins. So if there is some attrition, it is a small blip that can easily be managed. If I lose i guy, I lose 20% capacity.
3. Knowledge Networks:
The knowledge in a network grows exponentially with the number of nodes in the network. So a network of 200 is not just 40 times better than a network of 5 people. Ok, gross oversimplification, but you get the point.
4. Process Orientation:
Service providers willy-nilly have to make things process oriented. That greatly improves the reliability of your operations.
I’ve written pretty extensively on this subject in the context of SAP. THere ARE a few situations where outsourcing MIGHT make sense, but they tend to be limited.
To that end, as you note, there can be HUGE hidden costs that are not anticipated or planned for as well… I go through my personal experiences on several SAP projects where outsourcing part or all of the development has been a complete *disaster* and where it has worked. Some lessons learned from the trenches.
SAP Offshore Development Project Experience
Hidden SAP Offshore Development Costs
Where Does SAP Offshore Development Make Sense?
Part of this series exposes some of the sales scams that are used to entice customers into the “offshore” model as well.
These are exccellent points – but I do beleive there is a blended approach which works best. In most cases you take a company who is less than 75M and you’ll likely see an IT manager who was originally hired for another job. He’s been tasked with double duty now and is doing a halfway decent job….but doesnt have the strategic vision nor the training to run IT. You’ll also typically have a programmer/developer/analyst/tech/operator/security officer/business continuity/erp specialist on staff. That guy you can rarely get rid of, but if you are going to be public you better be prepared to hire a second and third one because you cannot acheive segregation of duties when only one guy does the work. Finally you will have one or 2 pc techs. They will likely also be responsible for the network and switches and servers and telco as well as day to day nuts and bolts for PC emergencies. This guy will also never go away.
The reality though, is that you can put the original guy back on the job he is supposed to be doing, update all your servers to current version, downsizae them as your needs have only slightly increased, but the current technology and Virtualization products allow you to do so much more with a single box, and you can improve the efficiency of the system while improving the reliability and survivability. Add that in for anywhere between 5-20k/month depending on the various providers, service offerings and systems and you will actually come out far ahead of the game.
You also need to factor in the audit expense, cost of hardware, ability to upgrade and/or mainintain your systems, accounting practices (BIG FACTOR HERE!!!!) and you need to consider whether or not you can watch for a little red light 24/7 without costing a fortune.
Some systems may be worth outsourcing while others arent.
You also brought up not having someone there to guide the department – but dont forget – the guy you had doing it isnt qualified to do it to begin with, and you can still receive those services from your partner. Dont forget – there is a big difference bewtween outsourcing and hosting. Managed services are another option. Thats where you have the equipment – you’re just having someone else provide the staff to run it. In my company – we tend to charge a higher price for managing on-premise systems than when we procure/manage/monitor our own equipment. This is a critical consideration because managed services could be your help desk, first customer contact, heavy duty services, or somethign like network only where you only need someone once in a while.
Without defining what you’re looking for in particular, you cannot make a blanket statement without weighing the business needs, objective, expected growth rate and geographical makeup.
In our hosting services – we can take on the entire IT Infrastructure with the exception of help desk/pc tech and your erp programmer for somewhere between $3k-$8k USD monthly for companies between $20-$60M USD in revenue. Of course everything fluctuates and you have to understand what you can get. In our service offering we provide the whole deal except your software licenses and we put a principal on site monthly to meet with departments, users and executive management to ensure we are in alignment with the business goals.
Custom development comes at an extra fee as does day to day pc support. We do shy away from that one simply because it doesnt cost me any less that it costs the customer when it comes to hiring a jr-mid level tech, and i need to make money on it. That means the customer has to pay the profit extra which is typically higher than the burdon rate. Sometimes they still like not having to manage the personnel and deal with the turnover or Hr headaches. Exense accounting is far easier to book and audit.
So before I’d make blanket statements, I’d make certain you point out that it would be directed at a simple market sector and client move.
Think of it as the difference between going to the car wash at the gas station where it was included with a fillup versus having the profession detailer from the ferrarri dealership come take care of your car.. Which do you trust more?
Enough said – sorry its a bit wordy – but i figured it needs to get the point across….
Chief Technology Officer
Premier Global Technologies
There are some disadvantages on IT outsourcing that may or may not be avoided. But for me, when you hire the right staff, know the right technique and have the right tools, you can eliminate most of those disadvantages.
One of the biggest obstacle on outsourcing is lack of education in the process. It depends on what kind of work you do, in this case if you’re managing a team of IT experts, then managing them virtually is a lot different from doing it locally. You have to change your management philosophy for you to adapt to virtual companies.