Without any doubt, IT infrastructure plays an increasingly critical part in today’s business environment. However, hiring an in-house team for a project or two can be cost-ineffective, or existing internal specialists may lack the expertise necessary for a particular task.
This is where outsourcing comes to save the day. A pretty common business practice, it allows companies to leverage the skills and expertise of external teams while cutting down on operational costs.
What Is IT Outsourcing?
IT outsourcing is a business strategy that involves hiring outside suppliers to perform IT functions instead of handling them in-house. The most common outsourcing services in IT include software development, web development, IT maintenance and support, cloud services, database development, etc.
Types of IT Outsourcing
Information technology outsourcing comes in different types based on the location of additional resources, the collaboration model, and the way you pay for outsourced tasks. Let’s take a closer look at them.
Location-Based Outsourcing Types
According to the location-based approach, there are three types of IT outsourcing services:
1. Onshore Outsourcing
Onshore outsourcing, aka domestic outsourcing, means using IT services from someone outside your company but within the same country.
2. Nearshore Outsourcing
Nearshore IT outsourcing is the practice of hiring specialists from neighboring countries.
3. Offshore Outsourcing
Offshore outsourcing means delegating work to a team in a country different from yours or neighboring ones.
Collaboration Models
Depending on your unique needs, you can choose among three collaboration models when outsourcing your IT services.
1. Staff Augmentation Model
This model suggests supplementing your internal staff with external human resources on a temporary basis. With the staff augmentation model, you have absolute control over the delivery and outcome and are responsible for the project management.
2. Dedicated Team Model
The dedicated team model means hiring an entire team of developers to work on independent projects or provide knowledge process outsourcing without collaborating with your in-house staff. The dedicated resources keep in touch with the hiring organization via a project manager or someone having a similar role.
3. Project-Based Model
In this model, your outsourcing partner will manage the whole project according to your requirements and deliver the final product to you with minimum commitment from your side.
Pricing Models
There are multiple pricing models that you can use when partnering with outsourcing experts. Let’s look into the three most common of them.
1. Fixed Price
This pricing model only works with well-defined work scope and precise requirements. The outsourcing provider estimates management and labor costs and suggests a fixed price.
2. Time and Material
In the time and material model, the parties agree on an hourly or monthly rate, and the IT provider invoices the amount of work performed at the end of the month.
3. Dedicated Team Fee
As its name suggests, the dedicated team fee pricing model is associated with the dedicated team collaboration approach. In this model, the outsourcing vendor invoices the actual costs for services plus a profit margin.
Benefits of IT Outsourcing
IT outsourcing comes with a host of benefits for both small businesses and huge enterprises. Besides helping companies avoid the time-consuming process of hiring and training new staff, IT outsourcing can offer other advantages, including:
Lower Costs
Cost-effectiveness is undoubtedly one of the fundamental driving forces behind IT outsourcing. Staffing outsourcing means lower overhead, allowing businesses to hire more specialists at a lower cost without compromising quality.
In addition, outsourcing ventures usually have all the necessary tools, so you don’t need to invest in new hardware and software, saving your financial resources. Lastly, IT services costs can be surprisingly low in popular outsourcing destinations such as Eastern Europe or Asia.
Access to the Global Talent Pool
Access to a virtually unlimited pool of skilled IT experts is one of the biggest advantages of outsourcing. It helps to effectively close a skill gap, especially if you need rare expertise or local specialists are currently unavailable.
Staffing Flexibility
Some companies might prefer to hire outside contractors for a short period of time, thus effectively handling spikes in workload. The best thing is that you don’t need to splash out on hiring full-time employees when you need a certain set of skills on a short-time basis.
Increased Productivity of Your In-House Team
You can remove excessive workload from your internal team by outsourcing some of your IT functions. This way, your in-house employees can focus on their core responsibilities, which inevitably translates into higher productivity.
Innovative Approach
Technology evolves at an unprecedented pace, and if your business isn’t related to information technology, you risk missing out on the latest industry developments and trends. On the contrary, IT outsourcing companies do their best to stay competitive and constantly adopt technology innovations and implement new, more efficient practices, for example, Agile development, which results in a highly-efficient service.
Opportunity for Business Expansion
IT outsourcing allows companies to expand their business operations to overseas markets and make it easier for your global workforce to get into the local market with lower costs. Moreover, you won’t have to cover employee relocation packages to work in your overseas offices and rent an office in another country.
Challenges Associated with IT Outsourcing
While IT outsourcing comes with many advantages, there are a few challenges you can face.
Less Control
Many companies hesitate to outsource because of a lack of control over the processes. Fair enough, since using third-party services means entrusting work to a different team. However, this issue can be effectively tackled with the help of a trial period.You can hire talent for several weeks and decide whether you want to continue working with them after the trial period.
Communication
Unlike with an in-house team, you should be ready for more extended periods between inquiries and responses, which can affect the quality of services where fast communication is vital.
In addition, outsourced specialists may have unrivaled expertise but lack English skills, which can trigger communication issues.
Lastly, your external team is very likely to work in a different time zone, which can make real-time communication hardly possible. Still, time differences don’t matter that much if your and your outsourced team’s working hours overlap, so even a six or seven hours difference in time is okay.
Cultural Differences
Sometimes, the cultural barrier can become a challenge. When businesses outsource their projects to offshore teams, they might face corporate and regional differences that can affect different aspects of their business, such as communication, understanding, interaction, and even the team’s commitment.
Intellectual Property and Data Security
Outsourcing is often associated with the risk of losing intellectual property and breaching the hiring company’s customer information. To avoid risks, make sure your outsourcing contract effectively protects your intellectual property and critical business data.
When Do You Need IT Outsourcing?
Outsource or not to outsource might be a tough decision to make. You should take into account both benefits and challenges of IT outsourcing as well as thoroughly analyze your project requirements and business needs to make an informed choice. If you’re unsure about tapping into third-party assistance via managed services, here are a few signs indicating that outsourcing might be a good fit for you.
Your In-House Team Is Overwhelmed with Tasks
Of course, you can hire new employees, but this will lead to more costs. In addition, you might need additional specialists only for a short period. Outsourcing IT functions seems a viable solution to remove the burden off your internal team.
You Need To Find Specialists Fast
Outsourcing vendors can help you expand your workforce quickly and with the right people, with you not breaking a sweat interviewing, hiring, onboarding, and training newcomers.
You Look For Rare Expertise
Outsourcing is an excellent way to reach specialists who have rare expertise.
Your Budgets Are Getting Tighter
Hiring in-house specialists is usually more expensive than outsourcing. The cost-effectiveness of outsourced services is determined by zero overhead costs from your side and lower prices for IT services in most outsourcing destinations.
To Wrap It Up
IT outsourcing is associated with considerable benefits, such as lower costs, greater flexibility, easier access to qualified experts, more robust disaster recovery, and higher productivity, the combination of which is sure to provide you with a decided competitive advantage.
Although some challenges can sometimes accompany outsourcing, they are easy to solve through a collaborative relationship based on effective contract management.
