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IT Outsourcing: The Why, the What, and the How

Author

Alvaro Prieto

https://www.linkedin.com/in/aprieto/
alvaro.prieto@auxis.com

Senior Managing Director of Technology Services, Founder

It’s possible for a company today to outsource just about any IT operation. But businesses have different budgets, priorities and objectives, which means they vary widely in what IT processes they should outsource, to whom, and for what purpose. They must make educated choices about processes to outsource, and outsourcing partners, since a hasty or ill-thought-out decision could result in years-long lock-in to an unsatisfactory agreement, surprisingly high costs, and failure to meet strategic business goals.

Why outsource your IT operations

Many companies outsource IT as a means to cut spending on labor. In fact, organizations with IT departments in the US should expect to save on average 38%-48% in labor costs by outsourcing transactional IT roles to premier nearshore location Costa Rica, going as high as 55% for high cost markets such as San Francisco and New York. The savings may provide relief if they have been spread thin budget-wise. Companies also may opt to use the money to fund new initiatives in IT or other departments. Some businesses map a comprehensive strategy for IT transformation that begins with outsourcing the “plumbing” — manual tasks that add little value to the business — and progresses to shifting IT toward more sophisticated tasks and closer to the business. 

As business-to-consumer transactions become more digital and technology driven, companies are seeking to bring IT talent out of the backroom and closer to the decision makers in the company. Beyond cutting costs, outsourcing enables IT organizations to move away from tedious tasks that don’t directly add value to the business, like applying patching or managing backups. With such processes off their plate, IT teams can upskill to agile DevOps, application CI/CD, etc. These operations are more application centric, and affect customer experience and business outcomes more directly.

The ‘What’

Not all outsourced IT functions will return the same benefits in terms of labor savings, improved service, or business outcomes. What a company chooses to outsource will depend on its stage of development, revenue, market strategy, growth objectives, etc. In fact, a company may opt to outsource a particular function even though it increases costs in order to achieve an improvement in service.

The graph below shows the typical savings and service benefits for commonly outsourced information technology functions. Those offering the best value — combining both high cost savings and high service levels — are in the right-hand corner.

why do companies outsource it

The ways in which different outsourcing facilities perform these tasks may vary, resulting in different costs and value to customers. It is important for companies to investigate how an outsourcer performs IT tasks, and whether it delivers the combination of cost and service appropriate for their organization and its goals.

The ‘How’

Companies must be careful to avoid outsourcing to providers who simply lift and shift IT tasks, do the minimum amount of work they can get away with, and pay little attention to overall customer satisfaction. They should partner with a provider that takes the time to learn about their business, provides ongoing support, and has high customer satisfaction ratings. 

Some major outsourcing pitfalls and how to avoid them: 

1. Low sticker price hiding poor issue resolution and “cost creep”

  • Some outsourcers — particularly APAC-based facilities — may offer low starting prices to attract companies hoping to reduce costs. But since much of their staff may be insufficiently trained and/or not fluent in English, their level-one resolution rates will likely be lower. The worst outsourcers do not work to improve L-1 resolution or prevent issues from occurring in the future, perhaps opportunistically. As service tickets roll in and then escalate to levels two and three, costs rise, and clients wind up paying surprisingly high fees. 

2. Vague service level agreements

  • It’s important for the provider and customer to be on the same page about service expectations. Miscommunication can lead to false confidence in a provider that cannot or will not fix issues customers lack the skills and know-how to fix themselves. Make sure to spell out exactly what is the provider’s responsibility and what is not before signing a contract.

3. Confusing infrastructure as a service with outsourced IT operations

  • Myth: When you move to cloud, you’re paying a company to run your IT operation for you. Reality: Public cloud companies provide infrastructure, not the people to run, secure, and maintain it. 
  • Make sure to find a fully staffed outsourcing provider that performs IT functions from end to end. Cloud and software as a service providers do not supply individual companies with dedicated IT teams to work for them. Confusion about this topic has resulted in some companies moving workloads to cloud only to “repatriate” them back to on-premises data centers. 

Here are some key points on how to outsource IT for maximum business benefits:

1. Look for a high rate of level-one issue resolution

  • High level-one resolution keeps tickets from escalating and ratcheting up the cost of service. It is also simply better for business in general to get issues resolved as quickly as possible; employees don’t get stuck waiting for technical difficulties to be fixed; and the runoff from bugs and malfunctions is less likely to adversely affect customer experience. 

2. Look beyond ticket resolution to overall customer satisfaction

  • Choose an outsourcer with high customer satisfaction ratings. Customer satisfaction is me