has been an essential business practice for millennia. Long ago in Europe, when feudal lords paid serfs to harvest crops, they were outsourcing. Not so long ago in America, when people started paying the milkman to deliver gallons to their front door, they were outsourcing, too. Moreover, as we look back through history, we see the only things that haven’t been outsourced are primarily operational or managerial duties that involve decision-making that influences the core functions and goals of an organization.
IT Services and Outsourcing
Outsourcing has a long history, but one of today’s biggest markets for outsourcing — the modern IT market — hasn’t been around long. At the turn of the new millennium, software as a service (SaaS), which allows IT companies to access clients’ IT networks over the internet to manage network functions or provide access to web-based software, made outsourcing managed services for IT more efficient and comprehensive for a number of large companies.
Today, organizations can outsource practically every IT service that can be handled remotely via the internet, from server virtualization to project management. Outsourcing managed services for IT helps companies focus on core business operations without stressing over something they don’t specialize in: managing business-critical IT resources. However, estimating the benefit of outsourcing begins with determining whether it addresses problems that are impractical or impossible to handle in-house, such as the ones below.
1. Difficult-to-Retain IT Staff
The IT industry has one of the highest rates of employment opportunities, with jobs in all IT disciplines having a relatively high pay grade. With these industry-wide demands for high salaries, small businesses traditionally have trouble retaining IT professionals due to revenue that needs to be more focused on a company’s growth in core services.
However, even companies that pay relatively well based on industry averages can have an IT department with a revolving door, as employees frequently leave after finding better opportunities.
The reality is that IT services and outsourcing frequently combine to create a better cost-to-benefit ratio than attempting to maintain a full-service IT department. Outsourcing eliminates the inherent costs of compensating full-timers (e.g. insurance and matching 401(k) contributions). It also eradicates the cost of training IT personnel to work in-house and stops productivity lags, as new employees move past the learning curve and come up to speed.
2. Conservative IT Budget
If your organization has a high turnover rate in the IT department and a conservative IT budget, the latter may contribute to the former. This is why small startups that have low-level, relatively inflexible IT budgets often have trouble retaining “top talent”.
By outsourcing managed services, you essentially gain access to an IT company’s top professionals. Better yet, you don’t give these IT professionals big compensation packages or employee benefits as you would offer to in-house workers. Instead, you simply pay an affordable, flat monthly service fee.
According to Tholons — a leading firm for global outsourcing and investments — “It is important to note that cost effectiveness is quickly becoming the primary reason for outsourced IT as opposed to lower costs.” Outsourcing can lower costs, too. However, it’s becoming a preferred way to use the IT budget to achieve gains in IT capability affordably. To use sales parlance, outsourcing managed services can give you “the most bang for the buck”.
3. Need the Latest Technology
Using the latest commercial IT hardware and software can cost a small fortune. If your business needs the newest offerings but can’t fit the expense in this year’s IT budget, IT services and outsourcing can combine to offer the technology you need for a price you can afford.
IT companies that provide managed services remain in stiff competition with each other. To stay at the head of the pack, offering the latest, greatest software and hardware capabilities is a must. Through outsourcing, you gain access to these resources without paying for them outright. Plus, you avoid the cost of maintaining them.
The provider absorbs the cost of purchasing and maintaining the software and hardware that facilitate the services you receive. You pay an affordable, flat monthly fee based on service options.
4. Changing Business Structure
As Statista explains, “With the belief that two companies together are more valuable than when existing separately, individual companies often consolidate with a target of achieving greater efficiency and market share through merger and acquisition deals (M&A)”.
However, while a merger or acquisition may be in a company’s best long-term interest, the event can create flux within companies involved in the transaction. Mergers often result in job cuts, and acquisitions commonly involve using the purchased company’s business infrastructure while staffing it with new employees.
In either case, hiring full-timers in the midst of the transition period can waste time and money, and give employees a false sense of job security. In this situation, outsourcing on a monthly pay-as-you-go basis (more on this later) is optimal. You pay for the assistance you need only for as long as you need it, and avoid laying off IT personnel not long after hiring them.
5. Need Temporary IT Assistance
Some organizations need temporary IT assistance in a certain area. For example, say you’re getting ready to kick off a three-month project that requires a project management system that accommodates an exceptionally large number of users.
You could install the software in-house and easily pay five figures. Or, you could take advantage of the synergy between IT services and outsourcing, and have the system streamed to you via the internet. You would pay a flat, monthly fee based on system features and user level (e.g. 500 unique user accounts.)
In this situation, we see how outsourcing managed services can use IT dollars with great “effectiveness”, while yielding “lower costs”. Unless company policy prevents data sharing with third party service providers, outsourcing is the best solution for short-term IT needs.
Choosing a Great Service Provider
If your organization experiences any of the IT issues above, using a managed service provider that specializes in IT services and outsourcing should be strongly considered. If you decide outsourcing managed services for IT is the way to go, the next step is choosing a great service provider. Below are five tips for making the right decision.
1. Evaluate Areas of Specialization
You probably wouldn’t hire a personal injury attorney to assist you with estate planning. The same principle applies to hiring a company that emphasizes in IT services and outsourcing.
Many providers have a long list of services, some of which are rendered more often than others.
Because providers inherently invest the most insight and capital in services that produce the most revenue, you should consider a provider that takes this approach to the services you plan to outsource — a task easier said than done.
Sometimes, a provider’s business website highlights core practices and spares you the need to investigate. However, if you have to do some digging, progressing to step 2 below — requesting multiple references for clients who received the services you need — is a helpful way to assess whether the provider is poised to meet your needs.
2. Request Multiple References
Almost any company that’s been in business for a few years can provide three or four glowing references, which is often the number you receive if you don’t request a specific number. However, your outsourcing decision should be based on more than testimonials from clients who are happier than children with a stack of Christmas gifts to open. You also want to hear from clients who may have had a mediocre or bad experience, and learn the reasons why.
When it comes to judging service quality based on client feedback, speaking to as many clients as reasonably possible is optimal. Instead of speaking with the three or four references a provider readily offers, request to speak with between eight and twelve references, or more.
If you consult a large number of references, you’re likely to hear some great reports, but you could also get feedback that reveals potential deficits in customer service. You obviously want to know about such issues before outsourcing managed services under an extended contract.
3. Consider Payment and Pricing
Companies specializing in IT services tend to offer two payment models: contractual and pay-as-you-go. Signing a contract typically offers the lowest cost per month, while paying as you go offers financial flexibility that lets you buy services only as long as you need them. If you find a provider that specializes in what you need and has a great service reputation,, sign a multi month contract and save money.
Several factors impact what providers charge for outsourcing managed services. The biggest factors are the cost of technology needed to create services and the expense of human resources required to render the services. Getting the best deal can be tricky. You need to stay within budget, but you want a provider that offers elite technology and retains top talent.
Concerning these factors, you often get a good idea of where a provider stands by listening to references and reading the company’s website. However, if don’t want to make a contractual commitment until a provider’s services prove to be as good as advertised, use the pay-as-you-go option. You can perform a 90-day review and decide between signing a contract with the company or looking elsewhere for IT services and outsourcing needs.
4. Examine Contractual Clauses
Be sure to read the “small print” of an IT contract before signing. It’s not uncommon for extended service contracts to feature escalation clauses that increase cost of service at a certain point in time, and feature early exit clauses that allow the service provider and client to end the contract prematurely, as long as sufficient notice is given.
The clauses can seem ominous at first glance, but they usually have an innocuous explanation. Escalation clauses typically raise cost of service around 2%-4% annually to help offset inflation. Early exit clauses are there in case the provider or client must move in a different business direction and cancel services, such as when a company acquisition or merger happens.
Escalation and early exit clauses impact service cost and business continuity, but the most important clause for most clients involves service changes during an active contract. Because IT needs can change quickly, you want the flexibility to change service options while the contract is active. Most IT companies offer this option, as it makes good business sense for both provider and client.
5. Determine Source of Service
You’ll be outsourcing managed services to a third party, but what about your service provider? Does it outsource some of the services you’ll receive to a third party, too? Just as product vendors serve as “middlemen” between manufacturers and customers, some IT services play roughly the same role.
There’s nothing wrong with creating an outsourcing chain that involves several parties, except that it can complicate quality control. The parties providing service in these arrangements rely on each other to use the best technology and service protocols.
The only way to be sure they do is for each party to vet the others before entering a partnership, and vet each other on a scheduled basis thereafter. But the follow-up vetting is often replaced by a “gentlemen’s agreement” that all will go as planned.
To have the greatest control over service quality, do business with an IT company that originates services at its location and deploys them straight to yours via the internet. If quality control becomes an issue, you can easily go straight to the source.
Outsourcing Managed Services
If your organization needs to outsource IT services, the provider you choose can have a major impact on service options and quality of service. At NIC, we provide you with all the information you need to determine whether we’re your best option. If you decide we are, get ready to receive industry-leading service across a broad range of IT disciplines, including cloud services, disaster recovery, and multifaceted cyber security solutions.
To inquire about IT services and outsourcing, call us today at (877) 721-3330, or send us an email through our contact form. We look forward to becoming your source for outsourcing managed services!