Outsourcing can bring substantial advantages to an organisation; from cost to fresh talent, introducing external influence has a number of benefits. However, with these positives come some negatives, as when implementing an outsourcing initiative, there are several obstacles businesses need to overcome. For example, outsourcing requires collaboration, compromise, and occasionally, unexpected investments. Here, we run through the key benefits and challenges of IT outsourcing, and possible solutions going forward. With this foundation, executives and team leaders can ensure their roadmap for outsourced IT succeeds.
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Outsourcing – not to be confused with offshoring – is a practice where services or functions are delegated to a third party. Offshoring, in contrast, is a business strategy where companies relocate operations to distant countries to cut costs. Although offshoring is an aspect of some strategies, many others will use domestic or nearshore services to guarantee jobs and quality. For instance, many companies are using domestic call centres as a hallmark of their customer service standards.
In a computing context, an outsourcing initiative can cover any number of operations, from IT services in their entirety, to clearly defined specialist services. Generally, the responsibility for any IT-focused outsourcing will fall under the remit of the CIO. Outsourced services could include network services, data storage and development, software development, customer and technical support, or consultancy. Depending on the goals of the initiative, these functions could require individual specialists or entire teams.
Zoom-in on outsourced IT functions
Generally speaking, outsourced IT services fall into two groups: applications and infrastructure. Application outsourcing deals with anything regarding software, including development, system maintenance, testing, implementation or management. In contrast, infrastructure outsourcing deals with hardware, including network services, security, data architecture, and general infrastructure management.
However, the advent of cloud technology is increasingly blurring these boundaries. Today, cloud services account for as much as a third of the outsourcing market, with niche software developers and vendors joining the fray against traditional industrial providers. As such, outsourced IT can also include relationships with multi-service providers who supply software, hardware, and platform-as-service technologies.
The benefits of outsourcing
Most executives and CIOs are familiar with the advantages of outsourcing. The business case for the practice varies by sector, but generally speaking, the advantages fall into the following broad categories:
- Lower costs due to efficient, freelance hiring practices or economies of scale.
- Reduced investment on internal IT infrastructure and maintenance.
- Increased efficiency and variable capacity due to the availability of adhoc services.
- Access to specialist expertise and innovation without the need for new hires or extensive training.
- Increased flexibility to meet changing business needs.
- Greater focus on core competencies internally.
In the face of a volatile business landscape, many companies are rushing to streamline their internal operations. However, an outsourcing strategy comes with challenges, and thus, needs to be carefully planned.
The challenges of outsourced IT
Despite the manifold advantages of outsourcing, many outsourcing relationships fail. This is because the transaction needs to be mutually beneficial for both the client and the vendor. The client needs to have realistic expectations when it comes to costs and the vendor has to consistently deliver the highest standard of service, no matter their location. Often, tensions begin when businesses rush into outsourced solutions without a good business case. External vendors are seen as merely an exercise in cost-cutting, instead of a drive towards sustainable solutions and access to expertise.
Moreover, outsourcing isn’t necessarily a catch-all solution to cut costs. The cost of a single contract is rarely a transparent representation of the total investment. Depending on the specifics, companies also stand to incur the following costs:
- Consultancy on outsourcing options.
- Time spent identifying the right partner.
- The expenses associated with transitioning work.
- HR expenses, including staffing and managing the ongoing relationship.
However, even when there is a robust business case, companies need to consider how to retain knowledge and control. Primarily – and this is particularly the case when it comes to data management and customer services – companies need to ensure quality is maintained. With too much autonomy, an external provider could allow standards to slip. Equally, external IT expertise is a hotbed for innovation. Thus, companies need to ensure this knowledge is incorporated into organisation, not merely parachuted in or held in external ‘black box’ technologies.
Choosing the right IT partners
In the past, large organisations have signed far-reaching, high-value deals with single vendors. These mega IT service providers have since been superseded by a multi-vendor approach. Instead of relying on a single provider, CIOs are turning to best-in-class specialist providers to meet specific requirements. In many ways, this is as a result of digital transformation and a shift towards agile practices; instead of navigating corporate behemoths, CIOs are favouring specialists who can provide on-the-fly support.
Through such specialists, companies can reap the benefits of outsourcing through mutually-beneficial, small-scale contracts. Through closer collaboration, businesses and outsourced experts can have generative, long-lasting relationships. However, businesses still need to source these individuals – so the value of consultancy can’t be downplayed. In order to navigate a new, more agile outsourcing landscape, businesses should seek consultants to ensure they have access to the best possible talent. From here, they can ensure their outsourcing strategy delivers maximum value.