To Outsource or Not To Outsource. Jordan Emerson

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1 To Outsource or Not To Outsource Jordan Emerson

2 Should IT Stay or Should IT Go Ok, forgive the lame Clash reference. But at some point in the life of most any business you will be faced with outsourcing some of your non-core business functions to a third-party provider. For some, this may be a no-brainer and it's embraced early on. For others, the thought of "losing control" or paying someone else to do what you believe you can do yourself makes retaining these functions seem more appropriate. Before we address the pros and cons of outsourcing, let s first define what it is and what it is not. Outsourcing doesn't have to mean a "loss of control" When you are looking for a service provider to outsource non-core functions to, it is important to find a provider that will work with you; a true business partner. Outsourcing, the practice of using outside firms to handle work normally performed within a company, is a familiar concept to many entrepreneurs. This is related to, but distinct from Offshoring, which is specifically the outsourcing of those functions to third-parties in foreign nations. In this article we will focus primarily on outsourcing in a domestic setting, though the conclusions we draw aren't limited to this context. In today s business world, small companies routinely outsource their payroll processing, accounting, distribution, and many other important functions, often because they have no other choice. Many large companies turn to outsourcing to cut costs. In response, entire industries have evolved to serve companies' outsourcing needs. Outsourcing doesn't have to mean a "loss of control". While you may literally delegate the workload to someone else, as a business owner you never abdicate responsibility for your business. When you are looking for a service provider to

3 outsource non-core functions to, it is important to find a provider that will work with you; a true business partner. Furthermore, for many business owners, the idea of doing your own in-house legal or accounting work is just not practical. After all, these are professions of tremendous specialization. It is often more cost effective to contract that function out to experts than to attempt to attain the knowledge implement it yourself. Not to mention, unless you're an accountant or a lawyer, there's a good chance you didn't go into business to spend your time working on legal or accounting issues. Information Technology (IT) has become another one of these hyper-specialized professions. The landscape is always changing and new technologies and methodologies require anyone involved with IT support to remain continuous, diligent learners. Yet all too often IT isn't given the deference it deserves. You wouldn't try to "wing it" when it came time for an IRS audit or a lawsuit, would you? Of course not. So why would you risk "winging it" with your IT on a daily basis? The truth is that the decisions you make about IT can pay huge dividends down the road, but only if you approach it carefully and strategically. As Steve Vigeant of Data Evolution, LLC states, instead of thinking of IT as just another check to write, think of it as an essential component of your future success. 1 If you think about your business s technical infrastructure the same way you think about

4 your office furniture or your business lunches, you re doing it wrong. You will miss out on valuable opportunities and open yourself up to significant risks. You shouldn t view IT as a business expense. Instead you should view it as an investment and with the right partner, you can implement customized solutions for less money and with a minimum amount of confusion. Here are some of the main benefits you can experience from outsourcing your IT support to qualified professionals whose priorities are aligned with yours; namely for your business to be growing and profitable. Lower operating costs Access to the outside provider's lower cost structure is one of the most compelling short-term benefits of outsourcing. In a recent Outsourcing Institute survey, companies reported that on average they saw a 9% reduction in costs through outsourcing. According to Keith Lowe, an experienced entrepreneur who's founded and invested in several companies, serves as past chairman of the board for Biztech, a nonprofit high-tech business incubator, and is co-founder and officer for the Alabama Information Technology Association, "Perhaps the biggest benefit of outsourcing is its ability to save you money For example, my company outsources its IT services (help desk, computer support and maintenance), and we pay significantly less than we'd pay for a full-time IT person to give us the same level of support." 2

5 When IT is outsourced, burdens on human resources departments are eased. The business has lower recruiting costs, payroll costs and benefits payments to employees. Outsourcing places the burden of taxes and benefits on the contractor doing the IT work. Everything from health insurance to office space rental is reduced when a business does not maintain its own IT department. Companies that do everything themselves have much higher research, development, marketing, and distribution expenses, all of which must be passed on to customers. An outside provider's cost structure and economy of scale can give your firm an important competitive advantage through increased efficiency. More Capital Funds Outsourcing reduces the need to invest capital in non-core business functions, thereby making capital funds more available for core areas. Outsourcing also can improve corporate financial measurements by eliminating the need to show return on equity from capital investments in non-core areas. Outsourcing reduces the need to invest capital in non-core business functions, thereby making capital funds more available for core areas. Outsourcing converts potentially variable costs into fixed costs, releases capital for investment elsewhere in your business, and allows you to avoid large expenditures in the early stages of your business. Outsourcing can also make your firm more attractive to investors, since you're able to pump more capital directly into revenue-producing activities. Access to New Resources Companies may outsource because they do not have access to the required resources within. For example, if an organization would like to expand its

6 operations, especially into a new geographic area, outsourcing is a viable and important alternative to building the needed capability from the ground up. Outsourcing IT work devotes a team to troubleshoot and resolve network problems and glitches. Rather than maintaining a small IT staff, outsourcing units consist of larger staffs that design, implement and troubleshoot corporate solutions every day. As a result, the quality of the work is higher when IT is outsourced, reducing system problems and downtime that can lead to corporate loss. Not to mention that this access comes at a lower cost to you than if you acquired them yourself. Every organization has limits on the resources available to it. Outsourcing permits an organization to redirect its resources from non-core activities to activities that have a greater return in serving the customer. Better serving your customer is paramount to maintaining a competitive edge and ultimately growing your business. Inadequate IT systems are often plagued with confusing and costly problems. If you have an in-house IT staff, they could spend valuable time and resources trying to install updates, fix bugs, and deal with other persistent problems. It's a waste of their time and your money. Augmenting your in-house IT staff with an outsourced IT provider can free up your human capital to help your business get the most out of its technology. Improved Business Focus Outsourcing lets the company target broader business issues while leaving operational details to an outside expert. For many

7 companies, the single most compelling reason for outsourcing is to relieve management of the issues that siphon off huge amounts of management s resources and attention. Once you've outsourced your IT functions to a quality provider you will find that you can focus on your core business. This core business is why you decided to For many companies, the single most compelling reason for outsourcing is to relieve management of the issues that siphon off huge amounts of management s resources and attention. start your own company in the first place and should be where the vast majority of your attention and creative energies go. Every business has limited resources, and every manager has limited time and attention. Outsourcing can help your business to shift its focus from peripheral activities toward work that serves the customer, and it can help managers set their priorities more clearly. Accelerated Reengineering Benefits Outsourcing is often a byproduct of another powerful management tool, business process reengineering. It allows an organization to realize immediately the anticipated benefits of reengineering by having an outside organization, one that is already reengineered to industry standards, take over the process. An Accenture survey of American and European execs says the additional business controls generated by outsourcing are driving the trend to external providers. That increased control shows up almost immediately, Accenture said, with 25% of respondents reporting first-day improvements in business processes.

8 "We found those levels of control increasing throughout the transition [to outsourcing] and stabilization periods," said John Rollins, Accenture's products operating group partner. "Over half had recorded perceptible improvements in the first six months of outsourcing." 3 The most frequently cited improvements included better ability to plan, higher levels of operational reliability, and more rapid implementation of new strategies and initiatives. Reduced risks There are tremendous risks associated with the investments an organization makes. When companies outsource, they become more flexible, more dynamic and better able to adapt to changing opportunities. Every business investment carries a certain amount of risk. Markets, competition, government regulations, financial conditions, and technologies all change very quickly. Outsourcing providers assume and manage this risk for you, and they generally are much better at deciding how to avoid risk in their areas of expertise. Despite all these advantages to leveraging an outside IT provider, there is rarely a one-size-fits-all solution to anything. So when should a small business not outsource its IT? A business might not want to outsource its IT when it has complex, industry specific systems or is in an industry that requires on-site staff 24x7 to manage and monitor systems. The business owner might instead wish to consult with a prospective service provider and develop a relationship in case of emergencies even if she feels her business is unlikely to benefit from regular IT services.

9 A second scenario under which a business might wish to keep its IT in-house is if it is managing large quantities of sensitive data. The security concerns of outsourcing might trump the cost advantages. Again, an initial consultation with an IT provider will help small business owners better understand the risks and benefits of outsourcing. An IT provider can help you avoid hazards and make the most of your IT budget. Even in the cases where you feel your business isn t right for outsourcing to a third-party IT provider, it s still advisable to consult with one in order to ensure you reach that conclusion properly. By now it should be clear that you get as much out of your IT infrastructure as you put into it. An IT provider can help you avoid hazards and make the most of your IT budget. Even in the cases where you feel your business isn t right for outsourcing to a thirdparty IT provider, it s still advisable to consult with one in order to ensure you reach that conclusion properly. Do you and your business a favor and learn from the mistakes of countless other small businesses and treat your IT infrastructure like the investment that it is.

10 About the Author: Jordan Emerson As Director of Awesome for The IT Guys, Jordan brings his experience as a business analyst and implementation specialist to the aid of prospective IT Guys clients. His goal? Help them leverage their Information Technology Awesomeness Potential to maximize productivity and profitability. Focused on the client and dedicated to their IT success, Jordan s also cheerful, friendly, courteous, thrifty and clean. A regular Information Technology Boy Scout. When he s not helping clients, rescuing stranded kittens from trees or helping little old ladies cross the street, you can find Jordan working on his classic rock guitar licks or in the kitchen honing his culinary skills. Talk to Jordan at Who are The IT Guys? We Think Awesome! Not all IT support companies are created equal, and we re proof of that. While most focus on technology as an end in itself, The IT Guys look at IT as an essential tool that can help your business achieve maximum productivity and profitability. Or drag you down like an anchor on a rowboat. So, we don t look at ourselves only as a technology partner. Instead, we re your business partner. One that shares your goals and is in the boat with you all the way. And we put our money where our mouth is; if you re not successful, we re not either. Can we fix a broken computer? Sure. Can we make cranky software behave? Absolutely. After all, that s the minimum you d expect from anyone calling themselves an IT support company. The IT Guys take Information Technology support to the next level. Our Information Technology Awesomeness Plan will insure your IT resources are rock-solid; supporting your present and future business strategies, while enabling you to focus on growing your business. And that s thinking awesome. 1. You're Doing it Wrong: IT Support is Not a Business Expense 2014, Steven Vigeant, 2. The Pros and Cons of Outsourcing 2002, Keith Lowe, 3. Outsourcing s Benefits May Be More Than Monetary 2003, Accenture Survey,

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