Managing Information Technology in-house is like being your own shadetree mechanic. If you're going to do it, you better enjoy it. I enjoy working on my own cars, though I don't believe the myth that I'm saving money. Home mechanic work always takes longer than anticipated. I have to use manuals, follow step-by-step instructions, and make frequent visits to the auto parts store. I usually end up buying expensive, specialized tools that I don't use again. For most fast-growing companies, managing IT is no different.
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 experiences growth, the complexity of the IT department grows exponentially.
Growing IT demands result in the creation of various IT functions. These functions include help desk, networking, server, applications support, database administration, and security groups. Each of these functions is necessary to support the growing business' IT needs, however, economies of scale are rarely achieved. Critical positions require backup, resulting in underutilized staff.
Demand 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 crashes. Our research has shown that more than half of the mid-sized, high-growth companies are using less than 10% of their hardware capacity!
Organizations continue to pay for underutilized human and computer resources, so outsourcing IT becomes a hot topic. However, many high-growth organization executives 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.
Historically, IT pundits argued that most IT outsourcing providers cater to larger organizations and don't provide a cost effective solution for the middle market. This was a valid argument ten years ago when outsourcing options were limited to large service providers. These companies were geared for large-scale outsourcing for big organizations. Today, this has changed.
A number of mid-market outsource providers cater to middle market companies. Many mid-market outsourcing provider executives worked for the larger outsourcers and recognized the service offerings could benefit mid-sized companies. The new companies have the same level of discipline and service as the larger outsource providers, but at a lower cost. Furthermore, these outsource providers have established a solid track record and become financially stable.
With outsourcing, high-growth companies no longer pay for redundant resources, 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. For an in-house IT organization, all of the upgrade costs are absorbed by the organization. In an outsourced environment, the upgrade cost can be shared across multiple customers of the outsourcer. This benefit more than offsets the outsourcer’s profit margin.
In an internally managed IT environment, hardware and software is typically purchased with "growing room," which results in excess capacity. In an outsourced agreement, the IT environment is sized to support the company in the short term and will flex as the company grows.
For many years there has been an argument that a company’s data must be stored on hard drives located on the organization’s premises for information to be secure. Somehow, the ability to see the disk drives where data is stored equates to security. 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 providing data protection from unauthorized access and natural disasters. The security tools and hardened facilities cost more than many mid-sized companies can 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.
We hear the argument that good IT customer service can only be obtained if the IT support staff are actually on site. We find this to be more of a comfort and convenience request, not a requirement. The sense of security achieved as a result of being able to walk down the hall and get immediate attention is a luxury, not typically a business necessity. With today’s access to online information 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 mid-sized company does not 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 being used on an as-needed basis.
This is the toughest argument facing outsourcing. Many organizations have specialized applications that need rapid IT support, requiring a specialized help desk. While the argument to keep this IT service in-house has some validity, an outsourcer can hire and provide these specialized resources just as easily as any organization. In fact, outsourcers will often assess and hire a customer’s more skilled IT staff to support the specialized applications, which results in a win-win situation for everyone involved. These specialized resources can be given more career growth and training options with the outsourcer, which results in less turnover of specialized support.
Outsourcing IT is not for every company. Organizations that thrive on IT capabilities as a competitive differentiator are not likely candidates. The larger, well established organizations that have already invested in world class IT capabilities will likely find outsourcing IT to be cost prohibitive. Since outsourcing IT comes in various forms and alternatives, organizations may want to carefully consider what parts of IT to outsource or keep in house.
While Trenegy does not provide IT outsourcing services, we can provide an independent perspective on the alternatives.
