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Most small and medium businesses view the question of IT outsourcing as a simple yes/no decision. But with a little closer inspection, there are many forms of outsourcing being applied today and the right combination can make a huge difference for most companies.

A recent survey by CoreConnex showed that 66% of small companies (10 to 50 employees) and nearly 100% of small-medium companies (50 to 250 employees) are currently outsourcing some or all of their IT support and management. Here again, a closer look reveals that the approaches being taken are all over the map.

CoreConnex asked the surveyed companies to more clearly define how they were leveraging IT outsourcing. The following is a range of approaches those companies are using to support and manage their internal IT systems:

Break-fix Support

Many companies establish a semi-formal relationship with an IT services company that they can call whenever something goes wrong with their systems.  In this arrangement if a server fails, or their email suddenly stops, or a data file gets lost, or their systems get locked up with a virus, or other such problems occur, they will call the IT service provider and a technician is sent to diagnose the problem and make the necessary fixes.

Advantages

• No ongoing financial obligation to the service provider
• Pay when you need help
• Use internal staff for routine IT support

Disadvantages

•  Unpredictable costs; costs often occur in large unplanned peaks
• Little or no focus on problem prevention or early detection (reactive rather than proactive management)
• The true costs to the business are generally much higher than the costs associated with IT support costs; but these costs are often hard to measure such as damaged customer confidence, internal staff skepticism about systems reliability or lost worker productivity..

Specialty Support Services

It is very common to see companies contract with an independent technical specialist to provide IT support in a specific area or their business.  For example, a specialists may support the company’s web site, or product catalogs and databases, or install new computers and network components -this list of focus areas can be quite long.  Some companies also hire IT support companies to provide help desk services, or system monitoring services, security management, or IT asset management services.  Drilling into each of these options and their individual tradeoffs would be a very lengthy process. Here are the high-level tradeoffs:

Advantages

•  Use experts in specific areas to do specific jobs
• Extend the areas of coverage provided by internal technical staff or add expertise not available with current staff
• Usually less expensive than hiring internal staff
• Have resources available when a crises or high urgency situation arises
• Ability to up-size and down-size in response to changing business needs
• Have specialists include their specialized technology tools as part of their service

Disadvantages

• Individual specialists who are not part of a larger service company can be a greater risk because they have no backup
• There are a great number of unqualified IT service providers but can be very difficult to evaluate – on the surface they can all look or sound the same; there is little correlation between marketing skills and technical skills

Managed IT Support Services

Managed IT Support Services is a more comprehensive approach to contracting for IT services.  This generally includes some form of monthly budgeted or formula based contract arrangement.  The goal here is to have the service provider assume larger responsibility for IT infrastructure resources.  This generally puts most of the risk associated with systems outages and performance problems in the hands of the service provider.  They are motivated to monitor and anticipate potential problems and take corrective actions before problems actually occur.  This can be a very effective way for a small company to manage their IT infrastructure.

Advantages

• More predictable IT operating budget
• Responsibility for infrastructure performance can be shifted to the contract provider
• Service provider’s incentives are aligned with the business; they are no longer motivated to simply put in more hours of work

Disadvantages

• Most IT service providers have minimal experience in providing this form of comprehensive service package
• Problems with communication and priority management can have major consequences if relations between the service provider and the company are not well managed
• Contracts are often ambiguous regarding special projects that are not included in the formula-based monthly fees

Outsourced IT Support

There is a lot of industry confusion on what to call this service, but it is the next step up from “managed services” and includes a tighter linkage with business planning processes.  Outsourced IT support is more like a partnership which includes a management role for systems planning, business priority assessment and a proactive process for ensuring that IT support work is in alignment with the priorities of the business.  This generally results in the service provider playing a more active role with the management team within the company.  Generally this role adds one or two work planning meetings per month or per quarter and a business priority review meeting per quarter or annually.  When done right, the incremental cost is very small and the impact can be very significant.

Advantages

• More predictable IT operating and capital budget
• IT is more responsive to the needs of the business
• Greater alignment of incentives between the service provider and the company
• Greater probability that the company will be spending IT dollars in areas that will have the greatest benefit to the company

Disadvantages

• May be incrementally more expensive than managed service arrangements
• Hard to find IT service companies that are capable of providing this level of support – but there are lots of them out there and well worth finding

Our research has shown that there are significant advantages to the company as they move to the higher levels of service.  In fact, there is significant case study evidence that the higher level service arrangements can actually cost less in the long-run than the break-fix or pay-by-the-hour arrangements.

All companies should periodically consider these options as part of their business planning. It can also be very helpful to get summary level proposals from several providers and compare the options. The big caution here is this: don’t let this evaluation turn into simply a cost comparison; rather, view this a strategic business decision that can be an integral part of business profitability, competitiveness and overall business value.

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CoreConnex provides the Corelytics(tm) Financial Dashboard and specializes in professional services automation (PSA) software for VARs, MSPs, channel distribution partners, IT service providers and other professional service companies. We encourage you to share experiences and perspectives as players in this professional community. This blog is moderated. Comments that are unprofessional or derogatory will not be posted.