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27th June 2023

Exploring the Pros and Cons of IT Outsourcing for your business

Steve Hill

Whether you’re a start-up just getting off the ground or an established SME, the management of IT equipment remains a critical focal point. Juggling various components like servers, clouds, software, and applications can quickly become overwhelming and lack consistency. To navigate this complex technical landscape, CEOs and IT managers often face two options: building an in-house technical team or opting for IT outsourcing.

In the current uncertain economic climate, with inflationary pressures and recession fears, many companies are increasingly drawn to the latter option due to its flexibility and cost-effectiveness. However, is IT outsourcing the right strategy? This dossier delves into the advantages and disadvantages of IT outsourcing, providing insights for informed decision-making.

What is IT outsourcing?

IT outsourcing is a service that involves entrusting the management and maintenance of your company’s information systems to a specialised service provider. It encompasses a range of services, depending on the provider, which may include:

  • Server management
  • Network and database maintenance
  • Software and backup solutions
  • Technical support for end users

The primary benefit of outsourcing is allowing companies to focus on their core business while ensuring high availability and security for their information systems—all at a lower budget compared to internal management.

Overview of IT outsourcing services

Blog image of IT outsourcing diagramIT outsourcing contracts vary and are tailored to specific needs. However, some common services provided by outsourcing companies include:

  • Development: Assistance in creating, hosting, and maintaining websites, applications, and software for internal or external use.
  • Database management: Support in managing and storing databases, as well as setting up and maintaining servers.
  • Hardware provisioning: Assistance in acquiring and monitoring computer equipment required by employees, such as computers, phones, tablets, peripherals, and networking devices.
  • Network infrastructure: Installation and maintenance of a stable and high-quality network to facilitate seamless communication between devices.

IT infrastructure maintenance: Regular updates and maintenance of IT infrastructure components, including software, applications, and servers. Additionally, a strong focus on ensuring cybersecurity for the company.

Choosing the Right IT Outsourcing Approach: Offshore, Nearshore, Onshore, or Multi-source?

When considering an IT outsourcing collaboration, it’s crucial to decide on the type of company you want to partner with. Several options include offshore, nearshore, onshore, or even a combination of sources. Let’s explore the advantages and disadvantages of each:

  1. Offshore: The main attraction of offshore outsourcing is typically the significant cost reduction due to lower salary levels in countries like India or Madagascar. It can also provide access to specialised skills. However, communication challenges, cultural differences, and potential quality issues may arise, making it a less straightforward choice.
  2. Nearshore: Nearshore outsourcing involves collaborating with service providers in neighbouring or nearby countries, aiming to bridge cultural gaps while maintaining cost-effectiveness. However, managing time differences and implementing robust security protocols become important considerations.
  3. Onshore: Onshore outsourcing implies partnering with a company located in the same country as your business, fostering cultural harmony and ease of communication. Advantages include geographical proximity for physical interventions and compliance with local standards. However, costs may be higher compared to offshore options, and fast reaction times are not always guaranteed due to high demand and market conditions.
  4. Multi-source: This approach involves combining elements from various outsourcing options to optimise skill sets, cost efficiency, quality, and flexibility. While promising on paper, it requires meticulous organisation to avoid potential pitfalls such as communication issues and increased security risks.

Advantages of IT Outsourcing for SMEs and start-up

Despite the potential drawbacks, IT outsourcing offers compelling benefits, particularly for start-ups and SMEs:

  • Access to the latest equipment
  • Continuous software updates
  • Robust cybersecurity measures
  • Improved working conditions for employees through reliable computer equipment
  • Cost flexibility: Ideal for companies with fluctuating cash flow, allowing easy cost reduction as needed, unlike internalisation.
  • Access to specialised skills that may be challenging to afford or find internally.
  • A proactive team that stays up to date without requiring significant training expenses
  • Swift installation compared to the time-consuming process of recruitment.
  • Enhanced responsiveness compared to limited internal resources, especially during sick leave or holidays.
  • Focused efforts on core business activities, customers, offers, and profitability.Blog image with DaaS example with Macs and office in the background

Potential Disadvantages

While IT outsourcing can be advantageous, it’s essential to consider potential drawbacks:

  • Dependency on the service provider can pose business continuity risks if the contract is breached.
  • Missed opportunities to improve the IT system or identify unmet needs by outsourcing certain tasks.
  • Lack of transparency regarding processes and systems managed by the service provider, hindering informed decision-making.
  • Service providers may not fully understand specific business needs, resulting in suboptimal management of systems and processes.
  • Increased security risks if proper protocols are not in place during remote interventions or shared hosting.
  • Financial risks due to inadequate understanding of tasks or contract services, potentially leading to hidden costs.

Best Practices for IT Outsourcing Contracts

To mitigate risks and ensure a smooth IT outsourcing experience, consider the following best practices:

  • Create a detailed specification of your needs to establish clear expectations.
  • Thoroughly review and understand the provider’s fees, inclusions, scope, and timeframes.
  • Provide comprehensive information about your company to the IT outsourcing provider, enabling them to align their services with your business requirements.
  • Designate a dedicated contact person within your company or with the outsourcing provider.
  • Establish a dedicated communication channel to maintain records of exchanges and promptly address any incidents.
  • Verify the service provider’s insurance coverage and ensure the contract safeguards your interests in case of errors or compensation claims.
  • Maintain oversight of actions to swiftly address any problems and avoid excessive delegation. Having an IT expert on your board can significantly enhance efficiency.

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