Outsourcing IT

The costs of using a third party can soon add up, but you can really trim the fat if it’s done properly

The costs of using a third party can soon add up, but you can really trim the fat if it’s done properly

The costs of using a third party can soon add up, but you can really trim the fat if it’s done properly

Outsourcing IT infrastructure is proving to be a popular tool for businesses seeking to reduce costs. Since 2006, the US’s global share of total contract volume decreased from 51 per cent to 32 per cent, while EMEA’s increased from 38 per cent to a total of 55 per cent, according to research by outsourcing advisory firm TPI.

Hardware to data centres
Tactics range from leasing hardware from manufacturers such as Dell or HP, buying processing time in a third-party data centre through the cloud (utility computing), hiring an IT services firm like EDS to manage, scan and archive incoming mail, or sending call centre or development work to an overseas outsourcer located somewhere like India or the Philippines. Of these, the latter tactic can offer the most significant cost reductions, but also holds the most significant challenges.

In all cases, the compromise is a loss of control, and foregoing the – some would say priceless – experience that could lead to more efficient, innovative and competitive solutions in the future.

The concept of ‘offshoring’ work might be politically unpopular but the considerable cost savings are worth considering. ‘It seems that every day the world becomes more fast-paced and competitive,’ says Rob Rachwald, director of product development at security firm Fortify Software.

‘To stay in the game frequently demands that you turn to outside developers and services in order to meet tight schedules and even tighter budgets and stay ahead of the competition.’

The internet means even small companies can have access to talented developers abroad, at a fraction of the cost.

Tight security
Outsourcing invariably involves trusting a third party with sensitive information, be it customer or financial data. This, says Rachwald, ‘is bad news because it’s your responsibility to maintain security and vigilance over people and practices that often are out of your control in day-to-day business’.

The security of outsourcing arrangements and data control, particularly with overseas contracts, is a perennial headache for businesses large and small. For instance, it is not unheard of for call centre workers in developing countries to be approached by criminal interests keen to acquire access to commercially valuable information. Despite the risks of ‘partial insider’ threats, according to research firm Gartner, more than 60 per cent of companies fail to do security risk mitigation when outsourcing development work.

Terms of contract are essential. ‘Specify the minimum amount of sensitive data that will be released to the vendor in order for the vendor to supply the required services,’ Rachwald suggests, adding that ‘the best time to enforce security at a service provider is before you sign the contract’.

Cost versus quality
‘A lot of companies who did offshore deals got the labour differential they wanted,’ says Chris Moyer, EMEA CTO for IT services company EDS. ‘But many of them didn’t quite get the quality they wanted.’

Outsourcers will rarely demonstrate the kind of emotional investment in your business you can expect from permanent staff – don’t expect innovation or unpaid overtime.

While there’s no doubt fantastic economies of scale can be achieved through outsourcing, it does need to be closely managed if you’re going to get it right.

Nick Britton

Nick Britton

Nick was the Managing Editor for growthbusiness.co.uk when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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