In an era where technological advancement and innovation set the pace for business success, companies are constantly seeking strategies to stay ahead in the competitive landscape. One such strategy that has gained considerable traction is IT outsourcing.
Although the concept might not be new, understanding what is IT outsourcing and its myriad benefits is crucial for organizations aiming to optimize their operations and drive growth.
This article delves into the essence of IT outsourcing, shedding light on its importance and advantages. It also discusses the potential downside of outsourcing an IT company and explains the most prominent IT outsourcing models used in the modern business landscape.
Importance of IT Outsourcing in the Modern Business Landscape
IT outsourcing has become an indispensable strategy for companies seeking to maintain a competitive edge in today’s competitive business world. So, what is IT outsourcing? This process involves contracting external IT service providers to manage all or part of your organization’s IT operations.
The rationale behind IT outsourcing is multifaceted; however, primarily, it is driven by cost savings and a larger pool of expertise. Additionally, IT outsourcing allows companies to tap into the global pool of IT expertise, harness innovative technologies, and overcome other limitations of keeping an in-house IT team.
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Advantages of IT Outsourcing
Cost savings through IT outsourcing
Cost savings might not be the first thing that comes to mind when considering IT outsourcing. Most companies think of outsourcing as hiring an additional service. Better said, they see IT outsourcing as an investment that demands investment. Though they are not entirely wrong, outsourcing is a more cost-effective option than having an in-house team.
Partnering with BPO providers that offer IT services eliminates much of the cost of creating and managing an IT department in-house. IT outsourcing removes the payments associated with infrastructure, hiring, training, and taxes, among others.
Additionally, through IT outsourcing, businesses are able to transform their fixed costs into variable costs. Put simply, depending on their needs, companies may upscale or downscale what they pay for. Of course, this will depend on the type of agreement they reach with the outsourcing company.
Access to specialized skills and expertise
We consider having access to a wide pool of IT specialists as one of the most significant benefits of outsourcing IT. As those familiar with the hiring process may vouch, finding employees with a specific set of skills and expertise can be both difficult and time-consuming.
While an outsourced service provider may primarily satisfy a company’s needs for talent and expertise, they also offer access to the latest technologies. Outsourcing companies usually have advanced software that allows more seamless operation and possibly greater success.
Flexibility and scalability
For many companies, the reality is that their core work is totally unrelated to IT. In turn, there is a strong chance for businesses that have nothing to do with information and technology to be missing out on the latest trends. By outsourcing a company specializing in IT, you will likely gain a more innovative approach and a scale-up in IT.
So what will this look like? For instance, a dedicated team of IT professionals might respond more promptly and quickly resolve problems. This can ensure smaller interruptions within the workflow and help your company stay on schedule. Overall, outsourcing an IT team may ensure that operating errors and bugs are handled accordingly without disrupting the company’s progress and productivity.
We believe that this works in any company’s favor, as the employees may focus more on business-related responsibilities. It’s also worth remembering that outsourcing companies excel in flexibility.
Disadvantages of IT Outsourcing
While IT outsourcing comes with plenty of benefits, looking into its potential downsides is just as important. Before you select an IT service provider, we recommend considering the following factors:
Lack of control
While outsourcing IT services may bring plenty of benefits, companies often fear the loss of control over critical business functions. The potential lack of command or power over the outsourcing company’s quality of service or adherence to deadlines can be a major concern. Some companies perceive outsourcing IT services or any other service as a loss of autonomy.
Many companies believe that maintaining a good relationship with an outsourcing vendor can be challenging and may cause delays or disruption in their work. This is why we encourage companies to work only with IT providers that they feel comfortable sharing their projects with.
Outsourcing a provider is a strategic decision, and the search for a good fit should be treated as such. Running a smaller test project can help you evaluate whether or not a certain company makes a good fit. This will help you evaluate their work and also allow you to protect your main project from potential risks.
Security problems
While outsourcing an IT team might mean enhanced security and greater expertise onboard, some risk issues are involved. Whether you are leaving all or just part of your data to another company, that data might be susceptible to potential risks.
This is why we believe it’s important to remind businesses to outsource companies with higher safety standards. This will ensure your information doesn’t suffer in cases of cyber attacks or downtime.
Types of IT Outsourcing
Before we move on to explaining the different types of IT outsourcing in greater detail, we should mention that the IT outsourcing models are separated into two main categories – location-based and relationship-based.
In location-based outsourcing models, we distinguish between offshoring, nearshoring, onshoring, and multisourcing. Relationship-based IT models are separated into three main categories: project-based, staff augmentation, and managed team model.
You can learn more about each of these by consulting the sections below:
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Location-based
Offshoring
Offshoring involves outsourcing an IT company that operates overseas or within a distant country. Some of the reasons why companies prefer offshoring are due to a bigger talent pool, better economic conditions, or more attractive costs.
While offshoring offers many benefits, it’s worth noting that the usual time difference in operations is around 5-6 hours. While this might not cause a problem for those looking for around-the-clock IT support, coordinating projects might be difficult for companies looking for a standard working time. Other aspects, such as cultural differences, might also be a reason for miscommunication.
Nearshoring
Nearshoring is similar to offshoring, with the only difference being the service provider being located nearer. The obvious added advantage of nearshoring is that both companies operate in similar or within the same time zone. This eliminates the likelihood of bigger cultural differences and eases communication. However, unlike offshoring, the talent pool might not be as deep, and the economics might not be as low.
Onshoring
Onshoring refers to outsourcing IT operations from a provider who resides within the same country. Companies that opt for onshoring are usually looking to take advantage of the expertise that isn’t available locally or certain tax initiatives. The obvious advantages of onshoring include sharing the same language, time zone, and usually the same working hours. Still, the biggest downside of this model is that it’s not very likely to include an economic advantage.
Multisourcing
Multisourcing is the most complicated location-based model on our list. It includes sourcing different IT companies for different purposes or projects. However, multisourcing involves managing these companies simultaneously. This model is usually utilized in the effort to attain a combination of the best quality service and cost. However, managing multiple companies can be complicated, especially if you are working with more distant businesses.
Relationship-based
Project-based
In project-based IT outsourcing a company hires an IT service to work just on a single project. Once that project is finished, their collaboration ends. This model is mostly used by companies that need a project to be done quickly but lack the resources. In such scenarios, the outsourced company is usually in charge of everything from planning to execution.
Staff augmentation
In contrast to the project-based model, in staff augmentation, the company manages the project. Outsourcing companies that utilize this approach supply companies with the expertise, better said, with the employees they need to accomplish a certain goal.
Staff augmentation offers flexibility as it gives companies access to as many personnel as needed to complete the project. The allure of this model lies in the lack of long-term commitment. Similarly to project-based work, in staff augmentation the outsourced personnel is released once the project is finished.
Managed team
In the managed team model, rather than outsourcing certain employees only, a company outsources an entire team of IT professionals. This model is most commonly used for single or multiple-project work. It’s worth mentioning that the team doesn’t work alongside in-house workers. Instead, the IT team is managed and supervised by a project manager appointed by the outsourcing provider or the company itself.
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Conclusion
Exploring what is IT outsourcing reveals that this practice has a multifaceted nature and plays a significant role in the contemporary business ecosystem. Essentially, IT outsourcing is a strategic decision that enables organizations to navigate the complexities of technology management while focusing on their core business objectives.
By embracing IT outsourcing, we believe companies can achieve cost savings and gain access to specialized skills and cutting-edge technologies.
However, there are some aspects of IT outsourcing that businesses should consider before reaching a decision. Businesses should always partner with a reliable vendor that offers maximum data safety. Despite these hurdles, the strategic benefits of IT outsourcing are undeniable, offering a pathway for businesses to innovate, grow, and remain competitive.