Outsourcing IT lowers risk

Lowering business risk drives many business decisions and this article explores how outsourcing your IT lowers risk.   Small companies tend to outsource more of their IT than larger companies since “in-sourcing” a multi-skilled team is costly and relying on a “one-man band” will not optimise the long term business. Both of these reasons are at the heart of avoiding risk.

In our experience, even mid-size companies with a group of in-house IT people do not have the same level of skill as a group of external consultants. An IT company that is supporting or setting up multiple environments for scores of companies has specialist with more experience in managing and preventing problems than someone who is only familiar with your environment. A good team of external consultants lowers your risk.

I think from a business point of view, we can broadly define ‘risk’-

 Risk is a potential event or circumstance which impacts business operations or profits.  

Obviously, risk is a normal part of business. However, if you can spend a limited amount of money to reduce future pain and/or reduce chances of stopping your operations or losing money, you would.

How much of Australian IT is outsourced?

Australian IT spend is projected at $61.9 Billion for 2012, with outsourcing more than one third of this:

  • Outsourcing services – $22.4 billion
  • Internal Services – $15.4 Billion,
  • Software – $6.5 Billion,
  • Telecommunications – $12 Billion
  • Hardware – $5.4 Billion

When your business is small, it is normal to balance your risks by using a family member or friend to give you ad-hoc support for your IT. As your business grows, the initial processes and technology start to be under strain. If technology is old or your processes are not streamlined, you could be setting yourself up for a major risk event.

Some example risk events:

  • Paper based processes that work well, however now you are bigger and paper based processes consume time.
  • A compliance audit where you are required to pay fines/penalties.
  • You are under threat for breach of contract which could cost you in future business.
  • Staff are paid to wait while printers or e-mail get fixed. Worse, you are losing e-mails.
  • Your server(s) go(es) down and you cannot do any work. The daily back-ups have not been working for months.
  • A staff member leaves and files cannot be found to complete a project.
  • HR, contract management or accounting software is either non-existent, not backed up or only 1 person in the company knows how to implement it.

The downside of one-person IT

Technology changes fast and using one-person support may be cheap, but they don’t have the specialist knowledge that prevents problems, solves problems and/or creates new solutions for your growing business. Look at outsourcing as risk mitigation for your day-to-day operations (such as IT help desk, server maintenance and applications support) or growth and business improvement areas (such as software development and automation).

When to outsource?

We knew a successful national manufacturer with in-house IT staff costing around $50,000 per person/ year. They had other ad-hoc support for their software and database needs. They were good at “putting out fires” and could set up systems that worked. They got fed-up with repeat IT problems and realised their software system was part Frankenstein.  They reduced their risks by outsourcing and implementing changes which increased productivity and a system that was easier to use/support. The top reasons to consider outsourcing are:

  • if risk is mitigated
  • you need specialist expertise
  • dependant on business size and risk
  • when only temporary resources are needed
  • when staff require up-skilling
  • if it makes financial sense

On operational side, a good external specialist can put together a “managed services” package that includes IT help desk, infrastructure support and maintenance. On the growth side, a small outside team of 2-3 people can perform business analysis and complete software development much more quickly than you could do in-house, especially when using standard development platforms such as .NET, Java or common applications like CRM and SharePoint. The exception: when your systems are unique and/or provide a competitive advantage, in-sourcing is the best solution.

For inquiries about outsourcing your IT, call us today.

Further reading: How outsourcing IT can save you money

References

2011 November, Gartner Symposium/ITxpo in Gold Coast , Australia.   More than 1,500 CIO’s and IT leaders attended