What makes IT outsourcing a compelling case, and why are so many small Australian businesses making the move to outsourcing?
Outsourcing is the delivery of part of the way your company works by an outside party - usually a company you have a 3rd party contractual relationship with. In one way, outsourcing is no different from the risks and rewards you have in any relationship with any supplier: be it your bank, electricity supplier or phone company - all of which are an integral part of the way you do business.
The difference between a supplier, such as a bank which supplies you a line of credit, and an outsourcer, is that the outsourcing company delivers part of your business processes, not just fixed inputs. A payroll company delivers your ability to pay your staff, not just a set amount of money every month. An IT company outsourcing relationship delivers you reliable back office solutions (email, databases, line of business software), and protection of your business data. A great IT outsourcing relationship will also give you the vision of where technology can help your business move.
There are a lot of myths and misconceptions about outsourcing, and the IT outsourcing industry has changed significantly since its introduction in the early 1980s. IT outsourcing began as a way of incredibly large businesses and government institutions to try to move either cost or risk out of the core of the business. Sometimes this was successful, in many ways it was not: because these large institutions were not able to describe what the IT processes that they wanted to outsource in much detail, and because IT outsourcing won't necessarily unlock either cost savings or improve management of risk.
Myth 1: IT outsourcing will save you money. Simply moving the costs associated with IT outside of your business may not be reflected in a direct cost saving, even if you move the costs off shore to where labour is very cheap. The main reason for this is that a significant percentage of the costs of IT to your business are hidden in lost labour and productivity, and do not directly impact the bottom line. If you outsource your IT without fixing the costs of the outsourced relationship, you will find that you will significantly underestimate the total costs of the outsourcing contract. Either the hidden costs will be made explicit as the IT outsourcer starts providing additional services to maintain your IT systems, or you will be forced to control the number of times your staff call the service desk.
It is important as well that the fixed cost is based on something simple that you can measure and control, as opposed to a complex set of variables which may inflate out of your control. That is why Computer Care Australia provides a simple cost model based on the number of computers you have and the overall level of service you require, as opposed to a more complex and hard to control model.
Myth 2: Outsourcing will reduce your overall IT risk. Many large institutions outsourced their IT programs - in particular, large and complex projects - because they recognised that they didn't have the expertise to deliver these complex systems. What they failed to recognise, is that the IT outsourcer didn't have the expertise either - the result being significant cost overruns, project failures, and IT outsourcing contracts ending up in protracted litigation in court. The list of IT outsourcing failures includes the biggest and brightest IT systems integrators and vendors. The reason for the failure is simple: the IT outsourcing relationship attempted to transfer the risk of delivering these large projects, as if risk was just another commodity that could be bought or sold.
In reality, risk cannot be transferred. Your business will still be significantly hurt if your IT services fail, even if you can theoretically claw back the costs through the contract resolution process. Risk should instead be incentivised and seen by both the business and the IT outsourcer as an opportunity to make money by aligning their notion of risk with yours.
Fixed costs ride to the rescue again. By providing a guaranteed revenue stream to the IT outsourcer, you are able to help them with their biggest risk - the fixed monthly costs of retaining and rewarding a set of highly skilled IT staff - and in return, you are assured a guaranteed level of service as outlined in the managed service contract.
The IT outsourcer takes on the risk of your systems failure - where their cost to deliver you reliable service can escalate significantly beyond the amount of revenue you give them - and in return, you reward them for coming up with smart ways of delivering you a high level of service for less than the revenue you provide them.
When the IT company gets paid by the hour, they have no incentive to fix your problems faster and smarter, because doing so gives them less revenue, not more. But with a fixed cost model of IT outsourcing, there is every incentive for the IT company to deliver you fast and smart service, because it saves them time, and that directly translates into increased earnings.
So if the traditional concept of cost savings and risk management don't necessarily apply to outsourcing relationships, what are the benefits of outsourcing?
Fact 1: IT outsourcing improves your staff retention and training. For small businesses especially, the most significant issue with delivery of in house IT services is retaining skilled IT staff - if you are even able to afford one. An IT outsourcing relationship frees up your internal IT staff from the drudgery of day to day activities so that they can concentrate on improving the services to your business, rather than just maintaining existing assets. And if you can't afford your own IT staff - the IT outsourcer is able to maintain continuity of staff for you. Computer Care Australia assigns two engineers, a primary contact and a peer, who will deal specifically with you and your business. You'll always be able to deal directly with them, to give you someone who understands your business best.
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Fact 2: IT outsourcing will improve your line of business productivity. The same hidden costs that can cause a variable cost IT outsourcing relationship to become expensive if you outsource it will be eliminated in a fixed cost model. Since your staff are no longer having to worry about the reliability of their IT systems, they are able to concentrate on what you do best - the core business that you understand better than anyone else.
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Fact 3: IT outsourcing will control your costs and help you plan for future growth, so that you don't get unexpected expenses. Managed services gives you a fixed cost for ongoing maintenance and support of your network. Managed hardware turns a capital expense into an operating expense with easy to understand costs, so you can plan the growth of your business. Managed backup using Infovault will allow you to get up and running quickly in the event of unexpected data loss or disasters.