Is it time to cut back or outsource?

Financial pressures in terms of operational costs. We all feel them nowadays. Managerial resources are stretched and simply maintaining the core business demands all our time. In some cases, what might be mistakenly seen as peripheral issues can be neglected.

In the case of Information Technology, that can be a tactical mistake. IT is essential, but it’s also complex and potentially expensive. For competitive advantage, you need the very best you can afford, at the lowest cost. Appointing an IT business partner – contracting-out, if you will – can reduce both cost and management overheads so effectively that it’s worth making time to consider it.

Research quoted in The Independent as long ago as 2007 found that firms that outsource aspects of their operations tend to be more profitable than those that do not. This is partly because such businesses are probably more likely to analyse and seek to make as efficient as possible all aspects of their business. But it is also true that by outsourcing activities such as finance, HR and IT, companies are able to gain access to higher levels of expertise than might be available in-house and also save costs.

Historically, large corporations have successfully pursued partial and in some cases full IT outsourcing and in many cases this has led to significant cost savings and operational efficiency improvements which have in turn validated the outsourcing decisions made.

Generally smaller organisations have struggled with the same approach. Size is sometimes seen as a barrier to IT outsourcing and there is a perception that an organisation has to be large to gain the benefits and flexible options available.

This is not necessarily the case – with the downturn and its lingering after-effects still weighing down on business performance, 2011 could be the year when outsourcing really comes of age among the UK’s four million SMEs. But whatever size your organisation, here are some key questions to ask yourself before making that critical ‘make-or-buy’ decision:

1. What are your IT costs now?

Add up the salary, overheads & associated costs of employing a full time support person or staff team and compare that to the monthly fee an IT support partner would charge for the same level of service. If you’re doing your own ‘support’, how much is your time worth? Do you want to spend that hourly rate on fixing PCs?

2. What real expertise is needed?

Would it be cheaper to buy-in on contract, or pay to keep skills in-house? Contracted support staff are often more efficient, as they see a wider range of real-world problems and thus have better problem-solving experience.

In fields such as data security and network management, the training and accreditation process is arcane and hugely expensive. If your business depends on security, or 24×7 reliability, you need that expertise, but it’s expensive! Contracting-out may mean you can get it without paying the full cost.

3. Are you getting competitive advantage from new technologies?

It could be energy saving, or green issues, or knowing if the latest gadget is brilliant or just hype. A true IT support partner should advise when and when not to invest. You need people who aren’t swayed by a sales pitch but who genuinely understand both the technologies and the business issues they might address for you.

4. If things go wrong, what comeback do you have?

An IT support partner should give you both warranty on hardware and software guarantees, and guarantees of responsiveness you can rely on. They should offer a specific disaster recovery plan, and test it regularly, to ensure you can get up-and-running again fast, if you lose business-critical data. Insurers nowadays may refuse cover for business losses if such a plan is not in place.

5. Do you want a set of fixed monthly costs, or a “use less—pay less” arrangement?

A good IT support partner has a range of pricing plans and will work with you to establish a mutually beneficial commercial relationship. In contrast, staff salaries, NI and pensions have to be paid, no matter what. When every penny of fixed cost has to be watched, a regularly-reviewed, pay-as-you-use support service can save you thousands per annum.

6. Have I taken all the outsourcing costs into account?

Sometimes businesses underestimate the cost of researching vendors and vetting choices. The process can take weeks or even months and, depending on what is being outsourced, may require site visits and travel costs.

7. Does my IT need to be maintained?

Regular proactive maintenance is a key way to avoid unexpected problems. Any IT system will go wrong eventually if it is not regularly maintained and you can be sure that it will happen at the most inconvenient moment! Your IT supplier should be very quick to respond in emergencies; however no matter how quick they are, avoidable problems due to lack of maintenance must be something you look for your IT supplier to manage.

For the best outcome, it’s crucial to choose carefully: you need an IT support partner with a proven track record, who is set up to build a flexible, long term business relationship, and ensure your IT resources are an investment rather than just a cost.

Mark Kemp co-founded The Gallery Partnership with Richard Brookes in 1996. His career to date has embraced senior management assignments in the voluntary sector, domestic and international banking, advertising, manufacturing and finance. He has a track record of developing and implementing IT systems under intense time scale, cost and government control constraints with often minimal time for planning or research. Mark's mature and engaging personality conveys an energetic approach to proactive management and consultancy, and he is able to motivate personnel to high standards of performance and co-operation. He is a skilled communicator, used to working with and influencing people at all levels of seniority.