The Current State of IT Outsourcing
IT outsourcing is becoming a necessary strategic tool for organizations to maintain their competitive advantage, “…organizations that achieve success are and will be those who recognize the benefits of information technology and make use of it to boost their core businesses in an effective strategic alignment” (Garcia, Vicente, & Aragones, 2015, p. 86). IT outsourcing has matured dramatically in the last few years. Many barriers that prevented small businesses from outsourcing their IT operations no longer exist. Therefore, this article reviews the pros and cons of IT outsourcing from the perspective of a small business owner.
The Pros
“… it is rare for a business not to outsource some part of its information technology … ” (Han & Mithas, 2014, p. 16). Maturity in IT outsourcing has led to numerous benefits including reduced operational costs, improved efficiency and reliability, and stricter compliance with regulatory laws.
Cost Reduction
Researchers from MIT, Han and Mithas (2014), observed expenditures in IT outsourcing result, on average, to a 120% reduction in other operating costs (i.e. costs not related to IT). Which is an important discovery, considering most small business owners focus solely on IT cost savings. Considering only IT cost reductions will commonly draw an inaccurate conclusion that IT outsourcing increases, rather decreases, overhead expenditures. However, research performed by MIT, IT outsourcing offsets its cost by significantly reducing other operating expenses such as sales and general administrative, which are often four to five times that of IT costs.
“For many companies, reducing operating costs is a key goal of IT outsourcing…”
– Han & Mithas
Increased Innovation
IT outsourcing has only recently been viewed as a strategic tool for acquiring cutting-edge innovation (Su, Levina, & Ross, 2016). Technology undoubtedly evolves at a remarkable pace and many organizations struggle to innovate as quickly as technology advances. “…As rapid technological changes disrupt industries, established companies need access to fresh ideas, new technologies, and cutting-edge expertise. In IT, these capabilities are often found among small, more agile suppliers,” such as managed service providers (Su, Levina, & Ross, 2016, p. 82).
The Cons
Benefits of IT outsourcing undoubtedly outweigh the consequences. However, there are still a few issues that will hinder an IT outsourcing relationship. Fortunately, mitigating the risk of these issues is rather straightforward. Simply approaching these problems proactively significantly decreases the likelihood of their occurrence.
Contractual Breaches
The single largest risk to small businesses when outsourcing IT is lack of compliance with the contract. It is important for the contract to have a comprehensive SLA, which is further discussed in another article, “5 ways to spot a bad IT company“. Simply reading and fully understanding the obligations of the IT provider will avoid most of the potential issues. Likewise, choosing a company with sound references will further mitigate the possibility of a breach in contract.
Miscommunication
Unsurprisingly, miscommunication is the next largest risk when outsourcing IT operations. 35% of all IT outsourcing relationships will experience miscommunications that will threaten the relationship’s survival (Alexandrova, 2015). Small businesses can easily mitigate this risk with setting and confirming appropriate expectations with the managed service provider.
Want to realize the benefits of IT outsourcing for your small business?
ITA is a managed IT provider who specializes in partnering with small businesses to provide a turn-key IT solution. We’d love to get to know your business and talk about how IT outsourcing can help it grow. Drop us a line and we’ll get started in transforming your business.