As an executive or owner of your company, you may have considered the idea of outsourcing some aspect of your business. The benefits of outsourcing seem obvious, touted by experts across numerous industries as the answer to cutting costs for business functions ranging from information technology to accounting, marketing and human resources; it seems possible that you could run an entire company without ever hiring a single employee.
But is there more to outsourcing than the bottom line? What are the other reasons why companies are going this route? What about implications for aspects of your business that are not so easily quantified?
To shed light on this, let’s take a look at the three (3) R's of outsourcing: Reasons, Risks and Rewards, specifically as they relate to information technology (IT). And, as a bonus, we'll provide some tips to help you manage successful relationships with your IT service providers (whether they are full-time staff, or outsourced).
According to the Outsourcing Institute's Outsourcing Index 2000, there are many reasons why companies outsource. Here are some of the top reasons:
Reduce and Control Operating Costs. When you outsource, you eliminate the costs associated with hiring an employee, such as management oversight, training, health insurance, employment taxes, retirement plans etc.
Improve Company Focus. It is neither practical, nor possible to be a jack of all trades. Outsourcing lets you focus on your core competencies while another company focuses on theirs.
Gain Access to Exceptional Capabilities. Your return on investment is so much greater when you outsource information technology to a firm that specializes in the areas you need. Instead of just the knowledge of one person, you benefit from the collective experience of a team of IT professionals. Outsourced IT companies usually require their IT staff to have proper industry training and certifications as well.
Free Internal Resources for Other Purposes. You may have someone in your office that is pretty good with computers or accounting, but most likely these were not the jobs he or she was hired to do. If they are spending time taking care of these things, who is doing what they were hired to do? Outsourcing allows you to retain employees for their highest and best use, rather than wasting their time on things that may take them longer than someone who is trained in these specific areas.
Resources Are Not Available Internally. On the flip side, maybe you don't have anyone in your company who can manage your IT needs, and hiring a new employee is not in the budget. Outsourcing can be a feasible alternative, both for the interim and for the long-term.
Maximize Restructuring Benefits. When you are restructuring your company to improve costs, quality, service, or speed, your non-core business functions may get pushed aside. They still need to be handled, however, and outsourcing is an optimal way to do this. Don't sabotage your restructuring efforts by failing to keep up with non-core needs.
Function Difficult to Manage or Out of Control. This is definitely a scenario when outsourcing to experts can make a big difference. But don't make the mistake of thinking you can forget about the problem now that it's being "handled." You still need to be involved even after control is regained.
Make Capital Funds Available. By outsourcing non-core business functions, you can spend your capital funds on items that are directly related to your product or your customers.
Reduce Risk. Keeping up with technology required to run your business is expensive and time consuming. Because professional outsourced IT providers work with multiple clients and need to keep up on industry best practices, they typically know what is right and what is not. This kind of knowledge and experience dramatically reduces your risk of implementing a costly wrong decision.
Anytime you give someone else responsibility for an aspect of your business, whether a full-time new hire or an outside vendor, there is risk involved. Did I hire the right person/company to do the job? Will they do what they are supposed to do? How will they "fit" with existing employees or departments? These are the questions that nag executives and owners of businesses when handing over the reigns to a new employee or vendor.
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:
Some IT Functions are Not Easily Outsourced. IT affects an entire organization; from the simple tasks employees do every day to the complex automated aspects. Be sure the outside vendor is qualified to take care of your greatest needs.
Control May be Lost. Critics argue that an outside vendor will never be as effective as a full-time employee who is under the same management as other employees. Other concerns include confidentiality of data and disaster recovery. However, a supervisor that is knowledgeable in managing an IT staff member will usually be required.
Employee Morale May be Affected. This is particularly true if you will be laying off employees to replace their job functions with an outsourced firm. Other employees may wonder if their job is at risk, too.
You May Get "Locked In." If the vendor does not document their work on your network and system, or if you've had to purchase their proprietary software, you may feel like you can't go anywhere else or take back your network. Many outsourced companies require you to sign a year to year contract which limits flexibility.
Still not sure whether to outsource or not? According to Anotucci, who provided the list of risks outlined above, there are many rewards you can expect when you outsource your company's IT functions as well:
Access to the Latest and Greatest in Technology. You may have noticed how rapidly software and hardware becomes obsolete in this industry. How is one staff person going to keep up-to-date with everything? Outsourcing gives you the benefit of having more than just one IT professional. And since it's the core competency of the company, they can give you sound advice to put your IT dollars to work for you.
Cost Savings. Outsourcing your IT services provides financial benefits such as leaner overhead, bulk purchasing and leasing options for hardware and software, and software licenses, as well as potential compliance with government regulations.
High Quality of Staff. Since it's their core competency, outsourced IT vendors look to hire staff with specific qualifications and certifications. You may not know what to look for if you're hiring someone to be on staff full-time, so you may hire the wrong person for the job.
Flexibility. Vendors have multiple resources available to them, while internal staff may have limited resources and capabilities.
Job Security and Burnout Reduction for Regular Employees. Using an outsourced IT company removes the burden from your staff who has taken on more than he or she was hired for because "someone needs to do it." You will establish a better relationship with your employees when you let them do what they do best and what they were hired to do.
Now that you have seen the risks and rewards associated with outsourcing the IT function of your business, there is a lot to think about. Whether you choose to outsource or hire internally, one thing is certain, you must know how to manage successful working relationships with your IT service providers. Let's face it, they're not always the easiest people in the world to understand and deal with, right?
Here are some helpful tips:
Clearly form and communicate the goals and objectives of your project or business relationship.
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, especially the financial aspect.
Keep open communication with all affected individuals/groups.
Rally support and involvement from decision makers involved.
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