IT Outsourcing: Everything You Need to Know

21 August 2019

For businesses big and small, outsourcing internal IT processes is essential to maintaining healthy continuity and growth – ensuring that personnel are able to carry out their roles without being laboured by non-essential tasks. IT outsourcing is a particularly effective strategy for startups and SMEs, who may lack the internal resource to manage all elements of their business with only a small team.

There are many different areas in which a business may seek to outsource elements of its IT infrastructure, from software development and support provision to the everyday management of IT systems and hardware. One of the most common forms of outsourcing in today’s business landscape is data storage, in which a company entrusts its information to another for a more agile solution to data storage and management.

IT outsourcing is a flexible way for businesses to stabilise and scale their operations without investing in building an internal team, which can often prove more costly. This is just one of the many benefits of outsourcing IT infrastructure, and we’ll cover more in our guide on everything you need to know about IT outsourcing below.

Use the links to explore our guide and find the information you need.

What does IT outsourcing mean?

Finding an outsourcing company

IT outsourcing is the process of subcontracting elements of internal IT functions to a third-party. It’s used to free-up internal resource, facilitating healthy business maintenance, continuity and growth.

As businesses have become more and more reliant on internal IT functions, so too has outsourcing risen to become a sensible growth strategy for businesses in all sectors. Now, companies of all sizes are choosing to outsource elements of their IT infrastructure, with external parties becoming an extension of their business.

IT outsourcing has changed the way brands do business, allowing for greater flexibility when managing day-to-day IT tasks and functions. Often, it’s significantly cheaper for companies (particularly SMEs) to outsource their IT function rather than building their own in-house team, and the growth in outsourcing as a viable economic strategy now means that businesses can outsource almost any part of their IT structure – for greater freedom and control.

While IT outsourcing has become the go-to term for this kind of business strategy, the process does go by other names, including sub-contracting and ‘farming out’. And, recently, ‘virtual’ has become associated with this form of outsourcing, with many businesses seeing their outsource partners as ‘virtual workers’ operating within their wider business.

Different Types of IT outsourcing

As IT outsourcing has developed, a number of models have emerged, allowing companies to align their sub-contracting efforts in different ways. Depending on the type of IT outsourcing a business chooses, they can expect different benefits and pitfalls, and we’ve outlined these key considerations below.

IT professionals

Time and material

Time and material is the oldest and most prevalent form of IT outsourcing. It works on the basis that the third party will deliver a service in which the final goal has been stipulated by the business. For instance, an IT development company will build a piece of software to a company’s specification, charging for the man hours used. This is generally a single-use form of outsourcing, in which the project ends when the third party completes the work and the client signs off on it. However, it can lead to an on-going partnership, in which the two parties continue to work together on new projects or develop a closer working relationship.

Fixed-price outsourcing

Fixed-price outsourcing is similar to time and material, but with one significant difference: the cost of the resources used by the third party in providing IT provision isn’t disclosed to the client, but is instead agreed upfront as a total cost to complete the work. Fixed-price outsourcing is particularly popular for SMEs, whose budget constraints mean they need greater control over how much different outsourcing projects are affecting their bottom line. By knowing the total fee upfront, startups and SMEs can budget more effectively and stay in control of their spending.

Offshore outsourcing

Thanks to the development of cloud technology and increased web-based collaboration, many companies are now turning to offshore IT outsourcing as a means of making excellent savings on the cost of managing and developing their IT infrastructure. Offshore outsourcing allows companies to take advantage of lower costs for sub-contracting IT functions overseas, particularly to countries with a more favourable economic climate. It also allows them to tap into talent, trends or processes which are either lacking or yet to hit the mainstream, and to take advantage of technological advancements which haven’t yet been widely adopted in their home country.

IT team working remotely

Dedicated development

Dedicated development outsourcing is the closest thing to having an internal team, with a contractor supporting day-to-day IT maintenance and development through the use of remote workers who the business can deal with directly. A dedicated development contract can run for any allotted time, be it for a limited project or an indefinite arrangement, and it gives businesses total freedom to work closely with external partners without investing in internal resources and additional HR provision. Depending on the relationship, dedicated development can be relatively flexible, with the client setting pre-defined parameters about what they expect day-to-day and what kind of permissions the third party company must abide by.

Homeshoring/onshoring

Homeshoring is a growing form of IT outsourcing in which members of your internal team elect to work from home or another physical workplace, freeing up space or resources on site. It’s often used as a means of saving money on things like hardware and floor space, with personnel working away from the main place of business while still supporting everyday IT functions. This is particularly common for startups and SMEs, who may lack the physical space required to support the scale and scope of their business.

Pros and Cons of outsourcing IT

As you might expect, IT outsourcing has its advantages and pitfalls, and these will need to be carefully assessed before making a decision on whether it’s the right move for your business. Below, we’ve outlined some of the pros and cons of outsourcing IT functions, so you can make a better-informed decision.

A positive IT team

Pros

  • Reduced costs – In many cases, IT outsourcing is a cost-effective solution, offsetting many different costs within a business. It can help businesses save on things like labour and equipment, as well as day-to-day HR operations and associated overheads.
  • Increased productivity – By outsourcing different IT functions, businesses can free-up time to focus on other tasks, effectively boosting productivity across the workplace. Managing day-to-day IT functions can be one of the biggest drains on a business’ time and productivity, so outsourcing such tasks can be highly beneficial.
  • Flexibility and scale – For startups and SMEs, business uncertainty can make it difficult to commit to making permanent hires, so IT outsourcing is a flexible way to scale up a workforce without committing to a permanent, 9-5 workforce. In the same breath, this type of flexible arrangement can mean that businesses can easily down-scale their operations if things start to go south, without the need for any reputation-ruining redundancies and dismissals.
  • Expertise and insight – One of the biggest advantages of outsourcing IT is the wealth of expertise that businesses can tap into by seeking outside help. Specialist IT contractors with years of experience can be recruited to handle day-to-day IT management, bolstering a business’ functionality and laying a solid foundation for growth.
  • Access to advanced infrastructure and processes – In a similar vein, IT outsourcing gives businesses the freedom to seek help from contractors who specialise in a specific niche, or else access advanced technology and infrastructure that is way beyond their budget or internal requirements.

Cons

  • Loss of quality and control – In some circumstances, IT outsourcing can lead to a drop in quality of specific IT functions, or else less control over the decision-making process. Businesses need to have a grasp of the type of outsourcing they’re investing in and lay out any rules or requirements they have before committing to the process, so as to avoid any complications down the line. Always ensure that the company that you are outsourcing to conforms to the correct standards that you require. Ask to see their current certificates and ensure they are certified by a credible body.
  • Slow turnarounds – Depending on the type of relationship and work being outsourced, businesses may experience a slow turnaround, particularly if the third-party organisation is operating in a different time zone. Consider deadlines and the implications of delayed work carefully before outsourcing to an offshore business.
  • Language barriers – On a similar note, it’s worth mentioning that, when working with an overseas business, you need to consider any language barriers, cultural differences or time zone constraints which may affect your relationship. Such matters, though trivial, can impact on the quality of work and output, so make sure you research any potential partners carefully.
  • Loss of trust or damaged morale in the workplace – When it comes to outsourcing IT, be wary of how you approach internal members of staff about your plans, and make sure they feel secure in their role. If you’re outsourcing for cost-saving reasons, it may send a signal to your staff that the business is struggling, damaging morale and leading to a lack of trust and security.
  • Loss of brand advocacy and grassroots reputation – Be wary of how outsourcing different elements of your business to external parties might affect your brand and how you come across as a business. Some people may see outsourcing as a cost-cutting measure that deviates from the core essence of your business, which could lead to a loss of advocacy or brand awareness.

IT consultant

Examples of services typically outsourced

Naturally, some IT functions are more suitable to outsourcing than others. Here’s a list of some of the IT functions and processes businesses most regularly outsource to third parties:

  • Software development
  • Web development and hosting
  • Technical support, both for internal teams and customers
  • Application support and management
  • Telecommunications
  • Infrastructure and hardware
  • Data storage and management

This is by no means an exhaustive list, but it does give some idea of the types of IT functions commonly outsourced, and demonstrates just how far businesses can go in freeing up internal resources.

Tips for choosing an IT outsourcing provider

If you’ve decided that IT outsourcing is the right fit for your business, here are our top tips on how to choose the perfect outsourcing partner:

  • Technical competence – Research prospective partners carefully, reading reviews and case studies to weigh-up their technical competence and knowledge. Request a demo of their services to get the measure of their technical skills and experience, or write an initial trial period into the contract you have outlined so that you have time for an assessment period.
  • Communication – Again, do your research to find out how well the organisation communicates, and ask them to set out a timescale of when you can expect updates. It’s a good idea to reach out to other brands who have worked with the company in the past, so that you can quiz them on the effectiveness of the outsourcing provider.
  • Project experience – You’ll want to see a track record of successes that the company has been involved in, so look out for case studies and obvious signs of project experience. If a company is reluctant to talk about their history and what other projects they’ve been involved in, you should be asking yourself why.
  • Reliability and business continuity – You need to know that any business you’re partnering with is in a healthy state, and that they’re not heading towards their own internal difficulties which could have a knock-on effect to your own business’ operations. Find out as much as you can about the company and request a physical face-to-face meeting, preferably at their offices, to really get the measure of them.

If leveraged correctly, IT outsourcing is a powerful business strategy, giving you the flexibility to scale your business and free-up internal resources that are crucial to growth and development. At CDL, we aim to be a reliable partner to your brand, working with you to ensure the safe, secure and responsible management and destruction of your IT hardware and data. To find out more, visit our homepage or call our team today on 0333 060 3113.


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