7 June 2016

Why small business outsource IT services?

In the latest post "One man as an IT department" we have discovered the most commonly met
problems of all three parties – the internal IT specialist, the business and the IT users. Now we will progress to figure out what the main reasons for outsourcing IT services are.
The scale of the market participants dictates their behaviour. Every business, no matter how small it is, needs almost the same IT services as large corporations do. The difference is that large players have got a scale and ability to establish and maintain internal IT organisations, while smaller ones have no option, but to use shared resources. Firstly they do not need those resources at all times and furthermore they cannot afford to pay for the resources full time.

So what should the small businesses do?
How can you get the same services with the same or even better quality and all of that at a better price?!
How would it work, bearing in mind, it is cost prohibitive to hire an IT specialist on a permanent basis?

The small business can barely utilise his time… But is that really true?! In a previous post I said the sole IT specialist is overwhelmed with various tasks and he works more than 9 to 5. I am right here and I was back then, too. While an IT specialist is busy all the time, he perform various tasks. Most of these tasks are routine ones and do not require all his knowledge, experience and skills. Controversially he has to be knowledgeable to all technologies employed in the business he is working for. The business is well aware that hiring an overqualified permanent employee is not making sense for a long term.
The small business in Europe represent 92% of all businesses and most of them rely on external IT service providers. Managed IT service providers deliver shared resources and opportunities with a variety of customers. There are numerous reasons for the transition of one, several or all IT services to external service providers. The list below does not claim to be exhaustive, but sheds a light on the motives in making such decisions.

The 6 main reasons of IT services outsourcing

1. Insufficient or lack of IT personnel.
Expectedly you already have some or all problems described in “One man as an IT department”.  In addition to your internal IT specialist you can extend the workforce on a temporary basis by hiring a contractor. If you do that only in case of a raising problem, you have to expect for a solution focused in just the current problem. Obviously there is a lack of strategic approach and consideration of the big picture and inter-related factors. Usually the long-term contract with an external provider of IT services, who’s interested to solve problems effectively and efficiently, due to pursue of its own interest, significantly reduces the risk of recurring incidents. The services move from firefighting to proactive approach with great decrease of negative impact on the business.  Is that mission possible? Yes, it is a matter of accurate allocation of responsibilities between internal IT specialist and long-term strategy.

2. Lack or at least insufficiency of necessary knowledge, skills or experience.
We live in a world of dynamic competition between many emerging and evolving technologies. The differences in two generations of the same technology are commensurable to the technology progress in the sector. Otherwise it will be outperformed by another technology and will die silently on the shelf of the oblivion. The continuous updating of knowledge is the new status quo. Outsourcing of IT services allows you to take advantage of the collective knowledge and experience which is dynamically updated within the external providers’ teams.

 3. The cost to value ration.
The external IT services provider offers a lower price for the same or better quality and reliability of the services. While paying for external IT services actually you have got on top of that tested processes, real life proven models and consistent approach for integrating the most beneficial in the world of technology for your business. The provider sells services in various sectors to various customers. The mixture of sources to collect knowledge and experience, not only in IT is much faster and in a larger spectrum rather than working within one business only. An unexpected bonus could be the exchange of contacts between customers of one provider, usually expressed in new sale opportunities. Remember that the growth of the customer is one of the fundamental interests of its suppliers.

Does your IT services provider help you in that way?

4. Focus on the core business activities.
Hybrid model – the widely used approach is to export mainly trivial and routine IT services, while line-of-business ones are kept under responsibility of the internal IT specialist. IT services that do not support core business functions can easily be delegated to specialised external supplier. All the rest IT services are supported by your IT specialist. Already focused, he will have more time to optimise and automate IT processes and services. Last but not least there will be time for meaningful communication with the business management and IT users in order to improve services and speed up implementation of new projects.

5. Your business sector is seriously influenced by the technologies.
Not long ago we have entered the digital age. However, the technologies evolve exponentially and constantly. Only in the case, where business’s main focus is not on the IT, it is desirable to reduce resources and time spent in the management of IT services and to concentrate the effort on the core business functions. The fast growth of the reliance on technologies by the business is inevitable. The new generations would become the new customers, new partners and new competitors. They grow up surrounded by technologies and have set up high expectations about how they can be employed in any area of the modern life.

The main aim of every business is growth, isn’t it?

 6. Business flexibility and adaptiveness.
Every single business is as adaptable as it is capable to do more successful projects for a less time. Can you think of any business project without IT services involved? Starting from correct interpretation of the business strategy to unlock and make possible simple and sustainable design and followed by the rapid and successful implementation are key success factors of the project.

What business would survive without flexibility in responding to constantly changing business environment?

The cloud computing evolved enough for the last decades and liberates the market of enterprise locked expensive technology to be shared among many users and the lower price. The customer’s infrastructure shrinks every next year at the expense of cloud services in one form or another. Your internal IT specialist migrates maintenance of hardware and software to Managed IT Service providers. The unexpected side effect for the business when outsourcing the infrastructure is that some services are also being outsourced.

Why are the infrastructure and services bound? The managed IT services providers are lending their infrastructure not just for the profit, which is very low and comparable with the distributors’ one. The difference between the two types of suppliers is that the provider has to make capital expenses for equipment and to maintain operational payments for qualified IT experts and running data centre in order to keep the services available during the ROI period. Unfortunately all risks are owned by the managed IT services provider according to how efficiently resources are utilised. The equipment ages quickly which adds up to the fact that in case of insufficient utilisation and related income it is possible to extend the period for ROI. The worst case scenario is when income cannot support even the operational expenditures. The distributors on the other hand sell the equipment and receive the payment in full.

The symbiosis when pursuing the interests of both the customer and the infrastructure lender could coalesce best when providing additional services. This might be management of back-ups, archives, disaster recovery, system administration, etc. The provider can realise additional income from the same customer, with larger margins of profit, since he is more optimal when it comes to using his IT specialists’ time. To keep it short and clear – there is no increase in operational costs. On the other hand the customer is outsourcing the infrastructure, its management and the base services to a highly specialised in this provider, at a lower price, while not compromising quality.

Do you know which of your IT services make sense to outsource, economically-wise?

How to do review of the IT services and business analysis… stay tuned for the next posts or contact us - www.primaconsult.co.uk

I will leave the discussion open and would appreciate comments and proposals from all parties – IT specialists, IT users and their managers. If you are totally agree or you do not have an opinion you are still welcomed to share the post so it can reach more of your colleagues, friends and contacts.
It will be beneficial to collect more opinions.

Thank you in advance!

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