Why and How IT Outsourcing Can Pay Off
Last update: 15 August 2023 at 03:47 pm
IT systems are becoming increasingly complex. And with the growing demand for online applications in online marketing such as application development, many companies are no longer able to manage their software themselves.
As a result, more companies are opting to outsource their IT services to specialized IT agencies.
On this page, we explain the advantages – and also the disadvantages – of information technology outsourcing and the models available to you for outsourcing your IT processes.
What Does IT Outsourcing Mean?
IT outsourcing is the complete or partial outsourcing of a company’s IT operations to an IT specialist or agency. This process of outsourcing allows companies to fully focus on their core competencies and outsource other non-core functions, such as managing internal IT requirements.
The idea is that if companies outsource non-core functions, they can focus more on their core competencies and personal development process.
In fact, outsourcing ensures access to the expertise and resources of another organization, which reduces the company’s own costs and improves its efficiency.
The company providing the services is referred to as the IT service provider, whereas the company contracting the outsourced services is usually titled as the customer company or client.
What Exactly Is Outsourcing?
The process of IT outsourcing can involve a whole range of different services and comprise different service offerings.
What exactly is included in the IT services of the external service provider is often defined in advance in so-called service level agreements.
- The most frequently outsourced managed services tasks include
- Hardware maintenance
- The development of software and other IT functions (application outsourcing)
- Managing servers and data centers (technology outsourcing)
- Setting up an IT strategy
- IT infrastructure management (infrastructure outsourcing)
- The support of employees
- and much more
The Different Outsourcing Models
There are various approaches to IT outsourcing, which can generally be divided into three different models:
- Onshore outsourcing
- Nearshore outsourcing
- Offshore outsourcing
In addition, you can consider whether you would like to handle your IT services via single-vendor outsourcing, or whether you would prefer to work directly with several IT companies instead of just one IT expert.
For the latter, multivendor outsourcing is recommended, in which you outsource your IT services not only to one service provider but to many developers and IT agencies at once.
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Onshore outsourcing is one of the most popular forms of IT outsourcing because in this variant the IT service provider is located in the same country as the customer.
Unlike offshoring, onshoring accordingly lowers the cost of communicating with the IT outsourcing provider while making it easier for customers to monitor their service providers’ current operations more closely.
Onshore IT outsourcing also saves on travel costs, in case you need to visit or fly to the IT outsourcing provider while eliminating issues of working with different time zones that can arise from working in different geographic locations.
As a result, the model is often more cost-effective with lower operating costs than the other two models due to its proximity to the client’s offices or stores.
Near shore outsourcing
Near shore outsourcing is an option for outsourcing services that takes place between a company and an IT provider in the same region. It is typically used to reduce costs, but can also be used to improve service quality.
Near shore outsourcing is frequently used as a complement to on shore outsourcing. For example, if a company has some skill gaps within its in house team, it may choose to outsource IT.
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In this case, the outsourcing activities are contracted to an IT company that may be headquartered out of state but also operates an office on-site, allowing the client to work directly with near-shore team members.
Not only does this provide access to lower-cost labor, but it also allows for real-time communication with the near-shore staff. This way they are aware of changes or issues as they arise – and before those changes become problems for the client back home.
Finally, offshore outsourcing is a form of IT outsourcing in which business processes are transferred to a company that operates in a different geographical location, typically abroad. This can be done either through various technologies or actual employees.
The process involves transferring ownership, risk, and liability to an independent organization working on behalf of your company in another country, while you remain responsible for payment and contract compliance.
Offshore outsourcing has become increasingly popular in recent years, especially among IT organizations looking for ways to reduce costs while maintaining quality and service levels.
It’s also common for companies looking for an alternative to hiring an internal IT department (and possibly paying for benefits such as healthcare) that can instead provide specialized services as needed via offshore employees from countries where labor costs are lower than in developed markets such as North America or Europe. Personnel Transfer is the keyword here.
The Benefits of It Outsourcing
If you have a limited budget or staff, or if your dedicated team is too busy with other projects to take on an IT project, outsourcing can be a good solution. These are the benefits of outsourcing IT tasks.
Save time (and money)
Outsourcing allows companies to access highly skilled professionals, such as developers or programmers, without having to pay high wages or benefits as a direct employer. This cost savings can often be as much as 50% or more compared to in-house staffing costs.
Access to talent
A company with limited resources may not have the right skills it requires for its next big project. An outsourced team brings together talented individuals from different industries who can work seamlessly as a team – and deliver a better result than if the same individuals worked independently at different companies.
A good IT outsourcing expert offers flexibility in terms of cost, timeline, and quality requirements. This, in turn, allows companies that need more control over their budgets and project outcomes to have more freedom in selecting vendors.
In addition, when you work with an external provider, you remain flexible because you can add or cancel different processes, online applications, and hardware and software as you see fit. The service levels are entirely your responsibility, and you can determine which resources you use from your provider.
The Disadvantages of It Outsourcing
IT outsourcing contracts can be a good strategy for companies that don’t have the resources to invest in their own IT department or a dedicated development center. However, there are also some outsourcing risks to take into consideration.
Possible loss of control
With an asset transfer to an external service provider, you don’t have full control over your data and IT operations. Your outsourcing partner may need to access some or even all of your files and records used for your business processes.
This can lead to complications if there’s a problem with the system or if you need to make changes to it – not to mention the potential security risk (e.g. data protection) if you don’t have an appropriate managed services agreement in place before you start working together.
Lack of internal expertise
If you outsource your entire infrastructure to an external provider, then you run the risk of your own in house staff having no understanding of the steps involved in the outsourcing company’s service.
Thus, your team is completely dependent on the outsourcing provider’s work. This can become an issue at the latest if you ever need support outside business hours or if you cannot be helped directly with a question.
Lack of transparency
When service providers take on the responsibility of managing your data center operations or providing other services, they have access to sensitive data about your business operations – but you don’t necessarily know what security measures the outside company has implemented.
Of course, you can ask the outsourcing provider about these issues appropriately before you start working with them and have them present you with a strategy for handling sensitive data, but internal operations will still likely remain inaccessible to you as the client.
Conclusion: Outsourcing Can Pay Off
In summary, IT outsourcing is a great way to save money, gain flexibility and move projects forward. It also allows companies to focus on their core competencies while providing high-quality IT services.
However, when doing so, you should take certain safeguards to protect yourself when working with an external provider and not become completely dependent.