Executives at many high-growth organizations are hesitant to outsource IT, given the relative unknowns in the IT world. Those unknowns are found in five myths we commonly hear regarding IT outsourcing.
Managing computer systems in-house can be difficult. Growth organizations place stress on IT departments. During an organization’s startup years, the IT department consists of a person supporting a small server rack in a closet. Network needs can be met using a wireless router. Help desk requests are solved by shouts down the hall. As an organization grows, the complexity of the IT department grows exponentially.
A growing company’s technology needs expand, and the result is the creation of multiple IT functions. These functions include a help desk, networking, servers, applications support, database administration and security. Each of these functions is necessary to support the growing organization’s IT needs; however, economies of scale are rarely achieved. Each “critical” position requires backup, resulting in underutilized personnel and equipment.
Demands for hardware and software increase. Critical applications are monitored with tools that are rarely fully utilized, and servers have redundant backups in case the “primary” server crashes. Our research has shown that more than half of all high-growth midsize companies are using less than 10% of their hardware capacity!
Organizations must pay for underutilized human and computer resources. Therefore, outsourcing IT becomes the topic of conversation. However, the executives at many high-growth organizations are hesitant to outsource given the relative unknowns in the IT world. These unknowns are found in five myths we commonly hear regarding IT outsourcing.
1. ‘Our organization isn’t big enough for the outsourcing providers to care about us’
Historically, IT pundits have argued that most IT outsourcing providers cater only to large organizations and don’t provide cost-effective solutions for the midmarket organizations. However, a number of midmarket providers of outsourced IT services have arrived during the past decade, and they’re catering to middle market companies. Many of the midmarket outsourcing providers’ executives worked at the large outsourcers, and they recognized that the service offerings could benefit midsize companies. The new companies have the same level of discipline and service as the larger providers of IT services, but at a lower cost. Furthermore, these outsourcers have established solid track records and have become financially stable.
2. ‘Outsourcing isn’t a cost-effective solution, because the outsourcer is making a profit’
With outsourcing, high-growth companies no longer pay for redundant resources; they pay only for the resources that are used. Furthermore, the largest hidden cost in an IT organization is the cost of upgrading hardware and software to take advantage of new releases. In an outsourced environment, the upgrade cost can be shared across multiple customers of the service provider. That benefit more than offsets the outsourcer’s profit margin. In an internally managed IT environment, hardware and software are typically purchased with “growing room,” which results in unused excess capacity. In an outsourcing arrangement, the IT environment is sized to support the company in the short term and would flex as the company grows.
3. ‘Our data won’t be as secure as it is today’
For many years, there has been an argument that the only way to keep a company’s information secure is to store data on hard drives that are located on the company’s premises. In today’s world, having on-site data is less relevant than the security that is put into place surrounding the location. Most outsourcers have spent a great deal of money and effort in developing “hardened bunkers” for their clients. Their core expertise is ensuring that data is protected from unauthorized access and natural disasters. The security tools and hardened facilities cost more than many midsize companies could afford on their own. Therefore, moving data to hard drives protected and managed by an outsourcer can provide adequate and cost-effective security and data control.
4. ‘Service levels won’t be as good as they are today’
We often hear the argument that good IT customer service can only be available if the IT support personnel are actually on site. With today’s access to information over the internet and the communication technologies outsourcers provide, adequate support can be provided remotely at a lower cost. Moving to a remote support model is more of a change management issue than anything else. Furthermore, a midsize company doesn’t have to pay for a variety of full-time specialists to be on staff to support the technology environment. These companies can take advantage of the economies of scale provided by the outsourcers and only pay for the services they use on an as-needed basis.
5. ‘An outsourcer can’t support our specialized applications’
This is the toughest argument facing outsourcing. Many organizations have specialized applications that need rapid IT support and therefore require a specialized help desk. While the argument to keep such IT services in-house has some validity, an outsourcer can hire and provide specialized resources just as easily as any organization can. In fact, outsourcers will often assess and hire a customer’s more skilled IT staffers to support the specialized applications, resulting in a win-win situation for everyone involved. For example, the specialized IT professionals may get more career growth and training options with the outsourcer. This results in less turnover of specialized support.
If you love IT…
Outsourcing IT is not for every company. Organizations that rely on IT capabilities as a competitive differentiator are not likely candidates. Large, well-established organizations that have already invested in world-class IT capabilities will likely find outsourcing IT to be cost-prohibitive. Since outsourced IT services come in various forms, organizations may want to carefully consider what parts of IT to outsource or keep in-house.