IT Outsourcing adding flexibility without sacrificing service

written on December 08, 2011 by Laura Pettit Rusick

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Have you thought about outsourcing some or all of your IT department? Already are? Maybe these sound familiar:

• Your organization is hesitant to hire.
• You have struggled with finding the balance between in-house IT staff and outsourced help.
• You would you rather not have to deal with having IT employees.
• You wish you had a second opinion when it comes to IT.

There are four main categories of IT outsourcing:

1) Supplemental outsourcing, or staff augmentation. When large or unique projects come up, the organization brings in contractors to assist. The contractors may act as a temporary staffing increase. They may have specific skill sets that are not regularly needed, so bringing someone on temporarily makes sense rather than having an employee who doesn’t have enough to do. No one can afford that these days.

• Downsides? That great person you used a year ago is probably on a new project and not available for weeks or months. For some systems (e.g. phone system, website updates, financial application support), you may need more priority than this option allows.
• You will pay a premium for expertise you use occasionally. The contractor’s rate takes into consideration he is not billing 52 weeks a year.
• The upside is all about flexible resources.

2) Outsourcing of IT functions. The most frequent type is managed services, where a vendor takes responsibility for some combination of servers and networks. They may host the servers in their data center. We also see outsourced application development or outsourced support. Take a company running Microsoft Dynamics or another large software package. If their environment doesn’t change much, using someone as needed for upgrades or questions may be all that is required.

• Downsides? The managed services provider is probably not bringing potential innovations to your attention unless it increases their revenue. It’s unlikely they ignore possibilities; they just won’t have any resource time focused to identify them.
• How do you monitor the outsourcer if you lack that technical expertise? If you have a strong CIO or IT Director, they should be regularly getting reports and working with the vendor on solutions. If not available in-house, consider an outsourced CIO or periodic audits.
• Upsides? If you have difficulty attracting staff, or affording enough staff to have backups for functions, some variation of IT function outsourcing can be beneficial.

3) Outsourcing IT as an entire department. Managed services providers most frequently advertise “we are your IT department”. They appeal to those who would rather not have IT employees. Outsourced personnel may be on site on specific days, or may be “on call”.

• Downsides? The managed services provider is unlikely to suggest in-sourcing a function, even when it is a better fit. The contract may even discourage increased efficiency. They also rarely have experienced IT management resources that can function at the executive level. Many of these providers have expertise focused on infrastructure, so applications support is minimal – and outside their standard contract scope.
• Upside? If your organization is growing slowly and changes are limited, a good provider will serve your needs well.

4) Retained CIO. Also known as outsourced CIO, part-time CIO or virtual CIO, the retained CIO sets aside the number of days you need the CIO in a month. They can manage internal staff and outsourced resources from scenario 1 or 2. They function as part of the executive team.

• Downsides? While you are not paying benefits or a full-time salary, don’t move to a retained CIO to save money. Expect the CIO’s experience to bring innovation, strong management and communication skills – they should be a partner. Make sure the CIO does not take referral fees or commissions from vendors they bring to you. This conflict of interest is surprisingly common.
• If your organization isn’t growing or changing, you probably don’t need this person. Consider using them occasionally to conduct an audit.
• Upsides? The retained CIO has no vested interest in particular IT solutions so you have access to an unbiased, experienced resource. Leverage him to help accomplish your business goals and manage IT.

We’ve seen outsourcing go well and seen it cause major pain. Remember that picking an outsourcer should be treated as a selection process, with your requirements and expectations clearly identified and communicated. The right outsourcer of the right type can add significant value, increasing your organization’s flexibility and productivity.