What is Information Technology (IT) outsourcing? By definition, “IT outsourcing is the use of external service providers to effectively deliver IT-enabled business process, application service and infrastructure solutions for business outcomes.” By outsourcing your IT program, an experienced provider can help you develop the right sourcing strategies and vision, service providers, contracts, and even govern deals for sustainable win-win relationships with external providers.
Outsourcing can ultimately help you reduce costs (overhead and human resources), accelerate your products to market, and take advantage of external expertise, assets and/or intellectual property. IT Services could include areas such as security, maintenance, or customer support. So how do you know it’s for you? Let’s take a look at some of the variables:
What are the types IT Outsourcing?
The type of IT outsourcing is best defined by the location that the outsourced work physically takes place. This can include:
- Offshoring: Overseas business or service. Typically, to take advantage of lower costs and/or a more favourable economic climate
- Nearshoring: Border or other nearby country
- Homeshoring/onshoring: Enables employees to work from home rather than a rented office, factory, or brick and mortar workplace
These types of outsourcing produces a virtual workforce that is farmed out to a 3rd party (regardless of location). These functions include: Application/Software development and Testing, web hosting, application support/management, help or service desk, database management, telecommunications, and of course, your IT structuring (what is IT structuring?).
The Fluctuating IT Outsourced Job Market
While overall IT outsourcing has flattened out over the last few years, many of the IT functions are expanding and others are declining. According to Computer Economics 2015/2016 IT Outsourcing Statistics Executive Summary [an annual study], IT security work, web/e-commerce systems, and application hosting are all on the upswing while other IT functions are in decline such as help desk, desktop support, and application maintenance functions. Others have sustained – such as application development, database administration, network operations, and disaster recovery. Here are few more of their findings for 2015/2016:
- Large organizations are continuing to be the leaders in outsourcing in 2016. They are spending 7.8% of their IT budget on outsourcing at the median, compared with 6.7% for midsize organizations and 3.7% for small organizations. Traditionally, large organizations have dominated outsourcing spending.
- Application hosting is the most frequently outsourced function in the study, and 65% of organizations that outsource this function are planning to increase the amount of work they outsource.
- Organizations that outsource are favouring help desk and web/e-commerce operations as functions where they are moving the largest percentage of work to outside service providers. On the other hand, application hosting and IT security are functions where IT organizations tend to perform most of the work in-house.
- The IT functions with the greatest potential for successfully reducing costs through outsourcing are disaster recovery and desktop support. The functions with the greatest potential for improving service through outsourcing are web/e-commerce operations and IT security.
- The outsourcing of web/e-commerce, desktop support, disaster recovery, and IT security deliver the best value. The outsourcing of these functions can save money and improve service levels.
Why You Should Be Outsourcing
For many organizations, the goal of an IT outsourcing strategy is to provide the best possible technology to their organization at the lowest possible cost. Here are some of the reasons that companies/entrepreneurs are choosing to outsource their IT program.
- Expertise: The return on investment is huge for an overseas vendor/business who has special equipment and/or technical expertise. Instead of a single point of failure, you benefit from having a team of IT professionals—don’t discount savings from their industry training and IT certifications.
- Reduced costs: A big attraction to outsourcing work overseas is the realized reduced costs for labour, operations, and even equipment. A company can easily outgrow itself leaving little room for competing office space required to expand for needed equipment and support. Outsourcing also eliminates costs related to hiring, management oversight, insurance, taxes, and retirement plans
- Free Up your Resources: Got an office geek that knows their way around computers and servers? Great for the short term, but who is doing the job they were hired to do while they spend time on these additional duties? Outsourcing allows you to keep your employees on task while leaving the IT responsibilities to your outsourced experts.
- Manage Your IT Risk: An outsourced IT expert (Microsoft/Cisco certifications) will know industry best practices as well as keep up with the ever changing technology (expensive and time consuming) in order to keep your IT program steady and most importantly, running efficiently online. Software and Hardware updates are changing at an ever increasing speed making today’s upgrades obsolete by next year.
Whether outsourcing for short term or long term strategic objectives, CEO’s and business owners need to realise that this is a continuous process that requires constant evaluation in an ever evolving market.
The Risks of Outsourcing
Is outsourcing your IT functions suitable for your company? In a recent data systems article , outsourcing IT functions is not for everyone. While you may save money, the relationship may fail if the company you outsource to has little to no domain experience, your management has no project management (working relationship between outsourced team and in-house assets) or no scalability to match the size of your company.
The following are some potential risks to IT outsourcing:
Liability. Allowing access to classified [or proprietary] company data and information can be a potential risk for a company. With the assistance of legal counsel, proper measures should be taken to protect the integrity of the data. Companies, no matter what size, must negotiate enforceable contracts that govern every aspect of the relationship.
Language/cultural barriers. These can affect both employees and customers, especially when clear explanations of the problems and solutions are required. Need to ensure all requirements are spelled out as well as hiring multilingual employees
Different time zones. This can act as a barrier to communication and coordination with the hiring company. Shift work is the most common adjustment.
According to Yvonne Lederer Anotucci in her article “The Pros and Cons of IT Outsourcing,” business owners who consider outsourcing IT functions need to be aware of the following risks:
- Loss of Control. Some experts argue that an outside vendor will never be as effective as a full-time employee under the same management as other employees. Concerns such as the aforementioned proprietary data, confidential data, and disaster recovery all play into consideration. However, a supervisor that is knowledgeable in managing IT staff can reassure executive’s concerns.
- Office Morale. If you’re laying off employees to move work to an outsourced firm, other employees may wonder if their job is at risk. You may also jeopardize the company’s reputation as a stable employer. Job security for regular employees comes with the understanding that outsourced staff are employed for a limited time or for limited job functions. You can also emphasis the benefits to your onshore staff of gaining experience working with virtual team members and a different culture.
- Trapped in a Contract. If you needed to purchase the vendor’s proprietary software, you may feel locked into a contract and can’t take back your network. Many outsourced companies require you to sign a year to year contract which limits flexibility. Proper research and ensuring all requirements are formally presented in a contract should assuage fears from the executives. It’s also important to ensure a qualified IT manager is employed by the IT Outsourcer.
Managing successful working relationships with your IT service providers can be tenuous, but with the right manager factoring out the human variable, the risks of control, morale, and contracts can be mitigated with some of these tips:
- Communicate clearly the goals and objectives of your project or business relationship
- Solve any short term issues and ensure you have a strategic vision and plan for your project or relationship
- Select the right vendor or new hire through research and references
- Insist on a contract or plan that includes all the expectations of the relationship beyond the financial aspect
- Keep open communication with all affected individuals/groups
- Call together support and involvement from all decision makers involved
Practically all risks are avoidable if you know what to look for in a vendor. By starting early and asking the right questions you can achieve the objectives for your business. Then analyse whether outsourcing all or part of an IT team is the answer.
Benefits with Yempo Outsourcing
So what is it that makes outsourcing with Yempo beneficial? As we’ve covered throughout, costs are the most common reason for outsourcing as salaries in the Philippines are a fraction of those in the Western nations. This represents a bottom line saving for your employment, office accommodation and ancilliary costs. Other factors for consideration are extending your hours of support or service beyond the business hours in your home location, and tapping into a broader talent pool.
At Yempo – we keep it simple for you. We recruit staff exclusively to meet your requirements and involve you in the interviewing process. Once hired, the staff behave just like your own human resources except we take care of all the local staffing, pastoral care and compliance matters. Concerns such as payroll, taxes, and performance management are all covered by us.
We mitigate your risk by enabling you to terminate your arrangement with Yempo at any time with 30 days notice, and provide all the office and IT infrastructure your employees need to perform. All you receive from us is one invoice per month in your currency, with exchange rates fixed for year.
We’ve walked you through the basics of IT outsourcing, the type of IT outsourcing, fluctuations over the years, as well as this risks and reasons for outsourcing. With the right planning, your objectives, concerns and risks can all be effectively managed and mitigated, thus giving your company a flexible and strategic resourcing model that can expand and contract according to your individual requirements.