By Olivia Cahoon
IT outsourcing services provide offsite expertise and optimized business processes. As technology becomes increasingly essential to all types of organizations, IT outsourcing providers target small- to mid-sized business (SMBs) that seek IT aid due to skill shortages, cost reductions, and demanding IT developments.
While SMBs receive relevant expertise and quicker time to market by IT outsourcing, it’s important to consider which IT provider to select and how efficient communication will be.
Relocating Services
IT outsourcing providers conduct all IT activities and business functions outside of the client’s company boundaries. By relocating services outside of SMBs, efficiency improves and businesses can focus on their core competencies.
“Initially, IT outsourcing was only regarded as a cost reduction approach. Today, it is much more than that—it is one of the major drivers of business transformation through access to best practices, expertise, and new technologies,” offers Boris Kontsevoi, president/CEO, Intetics Inc.
Today’s IT outsourcing providers offer knowledge, skillful resources, and ready-to-deploy solutions. This gives SMBs an opportunity to focus on core strategies and utilize its internal resources.
IT outsourcing also provides SMBs the opportunity to mitigate conventional business risks through the best IT practices and professionals. “They help to identify and reduce uncertainties, improve stability, share accountability, and provide mitigation strategies,” says Kontsevoi. Additionally, IT outsourcing providers ensure business continuity while helping businesses stay competitive and innovative.
According to Sergei Zhmako, GM, IBA USA, the pace of modern technology development is so rapid that only organizations who specialize in IT can maintain and grow with the latest IT developments. “Companies use IT outsourcing providers because they have proven IT expertise and optimized business processes,” he offers.
SMB Considerations
IT outsourcing gives SMBs access to relevant expertise, quicker time to market, cost reduction, and risk sharing. While outsourcing, SMBs have access to the provider’s resources, which includes training systems and highly optimized IT processes.
Due to the unique concerns of SMBs, IT outsourcing in the mid-market differs from large companies. Business owners now realize it’s increasingly difficult to deliver enterprise-level services while relying on in-house IT departments. To streamline their focus, SMBs turn to IT outsourcing. “Over 70 percent of mid-market executives find it hard for their IT departments to deliver enterprise-level services using solely their own resources,” says Kontsevoi.
Businesses that utilize IT outsourcing focus on their core business while outsourcing providers handle IT tasks—allowing SMBs to grow faster and share risks with outsourcing partners. As a result, SMBs become more dynamic and able to meet changing market conditions. “SMBs can have a competitive advantage over rivals who are less advanced in their outsourcing capabilities,” says Zhmako.
SMBs utilizing IT outsourcing services receive flexibility for selection, reallocation, reduction, and growth of the IT team. Zhmako believes this flexibility ensures that SMBs are only billed for the resources they need, when they need them.
IT outsourcing also enables a quicker time to market. “A SMB should consider whether the IT project can wait while they find the needed resources and acquire the lacking skills or lose a critical opportunity,” comments Zhmako.
According to Kontsevoi, big enterprises tend to outsource to reduce operating costs, standard processes, and make operations at a global level more effective. Although mid-market organizations gain the same benefits, they tend to outsource to get access to talent, new technologies, and best practices. “SMBs are rarely able to cover that by themselves effectively and outsourcing becomes a vital benefit and business strategy,” he shares.
Despite its advantages, factors like finding the right provider, task-setting, and communicating with providers is important. When selecting an IT outsourcing provider, Zhmako suggests SMBs consider the provider’s expertise, client references, reputation, innovation, quality, and price to determine if the provider will meet the business’s needs.
Additionally, a major challenge of IT outsourcing is the need to change the business’s structure and business processes. “Outsourcers should understand that relations with a service provider differ from interaction with their own staff,” says Zhmako. For example, if a business has no outsourcing experience, it will need to create relations. “Common understanding should be achieved between an outsourcing provider and an SMB. They need to learn to understand the same terms identically.”
While IT outsourcing usually offers effective budgeting and reduced labor costs, it can also result in losses. SMBs should compare IT outsourcing costs to services provided and determine if inexpensive offerings could result in losses. “The price should include all project-related expenses,” advises Zhmako.
Outsourcing Tasks
IT outsourcing is most successful when SMBs have a clear set of goals to accomplish but lack technical skills, time, subject matter expertise, and the capacity to accomplish the work.
“IT outsourcing allows SMBs to leverage new technologies, overcome internal technical skill deficits, scale quickly, and increase flexibility to respond to changing needs of the business,” says Steve Mezak, CEO, Accelerance.
According to Mezak, successful IT outsourcing tasks for SMBs include software development for discrete projects, application software support for production systems, database maintenance and monitoring, IT helpdesk, IT infrastructure monitoring and support, and IT network monitoring and support.
Alex Kryukov, COO, SimbirSoft, believes the best use for IT outsourcing is to create a product from scratch by combining the IT outsourcing provider’s best practices and the business’s custom vision. He explains, “having gained experience in developing similar solutions, the outsourcer can offer either the set of trusted solutions or to augment it with an innovative approach.”
However, IT outsourcing providers may experience trouble by joining ongoing projects, especially after the project’s architecture and research development status is already developed. Kryukov says this is generally a result of the project’s initial concept and structuring not being handled by the IT outsourcing provider. Issues like this may lead to additional costs or even a redo of the project.
Seeking a Provider
When seeking an IT outsourcing provider SMBs should focus on their specific needs to benefit from expert assistance and engage with the most efficient provider for the business.
“We don’t believe you can just search on your own, ask a friend, or respond to a marketing outreach from any of the dozens of providers who call and email daily,” says Mezak. In his experience, successful searches for an IT service provider include a comprehensive understanding of what attributes the right IT outsourcing provider offers, a decision around geo-proximity, and a vetting of candidate provider skills, experience, and operational health.
Despite specific needs, Kryukov says there are general rules that businesses can follow. For example, the more relevant experience an IT outsourcing provider has, the deeper the provider can immerse itself in the business. “It is equally important to be competent in various technological stacks to be able to decide the best suitable technological solution for specific projects,” says Kryukov.
Additionally, businesses should know how long the company has been in the IT business. According to Kryukov, newly established companies can include excellent and ambitious professionals who are suited for small and short-term tasks. However, they may also have non-built processes that may cause difficulties on complex and long-term projects.
“Large companies with more than 300 specialists not likely to be interested in small tasks but it is the best choice for complex projects that evolve for years as they can provide a range of technologies and a large team,” says Kryukov.
Evaluating Providers
Prior to hiring an IT outsourcing provider, SMBs should be in direct communication with potential providers. “That acts not only in the beginning of your relationship development but during the entire operation,” says Kryukov.
Kryukov suggests businesses don’t ask for accurate estimates because in most cases, businesses will be provided with attractive figures that are irrelevant. Instead, businesses can ask for roadmaps that include the tasks and timeframe. “On a ready roadmap, it is easier to determine the adequacy of the vendors, how often the result will be demonstrated, and how the work will go,” he offers.
While evaluating IT outsourcing providers, Mezak advises SMBs check references to ensure the provider has contacts that have successfully used its services. This allows SMBs to determine if the provider has the proper skills and experience it needs.
Technical certifications and expertise related in the business’s vertical will also help determine if the IT outsourcing provider has the proper experience and skills. “An example might be a web solution for shop floor workers, which is highly visual and intuitive with minimal clicks required,” says Mezak.
Additionally, IT outsourcing providers should be size-appropriate to the SMB. Mezak believes the best outsourcing relationships are those where the company size of the provider complements the SMB’s needs. “The obvious bad fit is a company that is too small with insufficient bench strength to cover your needs. The not-so-obvious mismatch is a partner so large that your project and company’s needs really aren’t big enough to matter.”
Time zone and culture are also important criteria for a successful hire. Collaboration with an IT outsourcing provider is critical to software development using agile development methods. According to Mezak, this depends on small rapid sprints of completed work. Therefore, businesses should ensure the outsourcing provider collaborates easily and rapidly without asking either group to reach into non-standard hours to converse.
“Make sure that your candidate outsourcing partner fits your company’s important distinctiveness—highly formal or informal, aggressive or conservative. You must make sure that a team hundreds or thousands of miles away can operate in a natural rhythm of communication and productive work with your company,” offers Mezak.
IT Aspects
Businesses can determine which aspects of IT to outsource by considering their core competencies and business goals followed by an examination of where IT systems and services need to be layered on to fully support the current and anticipated needs of the business.
“IT outsourcing is an option to consider wherever there is a concern about existing IT staff’s technical skill depth, subject matter expertise, and productive capacity,” says Mezak. He suggests businesses evaluate where insourcing perpetual costs don’t compare favorably to outsourcing costs.
For determining IT aspects for outsourcing, Eldar Nagorniy, head of business development, QArea, says it is important to consider the specificity of the project and the perspective of outsourcing its development or testing in terms of potential risks of becoming dependent on the vendor. “It significantly complicates the integration of the processes between the client and vendor company and enables the second to cut corners for both technical and business solutions,” says Nagorniy.
Other potential projects for IT outsourcing providers include processes that can be done more qualitatively and efficiently than the SMB can complete. According to Nagorniy, as practice shows, SMBs have betters odds of attracting outsourcing companies for projects that require specific knowledge and expertise. Thus, the entire project can be developed by an IT outsourcing provider if the provider’s competency meets the entire scope of the assigned tasks.
Additionally, the recent drive for digital transformation requires agile software development skills. According to Mezak, this is not usually found in the IT department or traditional IT outsourcing providers of IT services like help desk and network management. “Creating custom software can, and often must, be outsourced as the only practical way for companies to achieve their business goals.”
Contract Terms
Several business models exist for standard contract terms between SMBs and IT outsourcing providers. This includes a dedicated team, time and materials, and fixed price models. Each business model meets clients’ needs for a particular purpose.
A dedicated team model includes a SMB managing an outsourced development team of professionals as if it were the SMB’s in-house IT unit. It is a universal and efficient solution for SMBs with an idea and a defined vision. “If the project is constantly getting updated, improved, and more innovative and there is a need to remain a solid grip on all business and development processes, this model is no less than a perfect choice,” says Nagorniy.
Time and material models consider resource costs, material costs, and provider’s costs. SMBs agree to a contract that hires IT outsourcing providers for specific tasks with payment depending on costs incurred during the project’s development and time. Nagorniy says this model is highly scalable, flexible, and adjustable as a business model because it grants deep control over all aspects of the project. The time and material model is suggested for long-term and complex projects that are more common for larger enterprises but can still be used for SMBs.
A fixed price model entails a fixed budget that usually includes a fixed timeframe, features, and vision. Because of this, no changes, input, or ideas are implemented into the project by the IT outsourcing provider while the product is under development. “This is a drawback in today’s IT outsourcing with its constantly updating environment,” says Nagorniy.
Recently, ready-made complex solutions have become a trend in IT outsourcing for SMBs due to their adaptability to specific needs. An 80/20 model includes one IT outsourcing provider developing 80 percent of the project’s overall functionality while a second IT outsourcing provider does 20 percent. “This division causes no delays in development process since the second partner is always completely aware of every project detail,” explains Nagorniy. During an emergency, teams may switch roles quickly while fully understanding the project’s needs, limitations, and project requirements.
IT Outsourcing
While IT outsourcing gives SMBs access to relevant expertise, faster time to market, and cost reduction, finding the right provider who can communicate efficiently can be a challenge. Before hiring an IT outsourcing provider, businesses should research what the provider has accomplished for other businesses, in what time frame, and if the provider’s capabilities meet the business’s needs.
Jan2018, Software Magazine
