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IT Outsourcing Explained

Outsourcing is a popular topic in today’s business climate. It’s an exceptional way to save money, be more productive, and access world-class talent. However, it can be difficult to figure out if IT outsourcing is the right move for your company. There are great reasons to keep your IT team in house — but there…

Laura Holton

USA

IT Outsourcing Explained

Outsourcing is a popular topic in today’s business climate. It’s an exceptional way to save money, be more productive, and access world-class talent. However, it can be difficult to figure out if IT outsourcing is the right move for your company. There are great reasons to keep your IT team in house — but there are also many reasons to outsource. By weighing the pros and cons of each option, you can make the best decision for your business.

Insourcing vs outsourcing

You’ve probably already heard the terms insourcing and outsourcing. These both refer to the staffing choices. When you hire in-house staff, you have a team available to handle whatever you need during business hours, even if some employees work remotely. When you outsource, you contract someone outside your organization to provide services on an as-needed basis. This means you won’t incur costs like payroll, office space, and employee benefits, but there are a few critical downsides worth considering.

There are also pros and cons of both insourcing and outsourcing specific to IT.

Pros and Cons: Why Companies Choose In-House IT Teams

In-house IT teams are often standard for large organizations, whereas they’re less common for small and midsized companies.

Pros

There are several pros to maintaining an in-house IT team. For one thing, you’ll have workers who are always available during specific hours. Plus, if you keep your IT team on site, you’ll be able to have face-to-face conversations, which can help you solve problems as they arise, resulting in faster resolution. You can always ask your IT team to prioritize an issue, whereas a freelancer will often work on a first-come, first-serve basis.

Furthermore, offering a stable source of income creates trust and loyalty among employees, which can reduce the risk of turnover. An in-house team is more likely to respect company policies, such as confidentiality requirements and non-compete contracts. Intellectual property is more likely to remain in house when your workers are in house, even if they eventually leave the company.

Finally, you may find it easier to raise capital when you have an in-house IT team, as this can be appealing to investors.

To summarize, the pros of an in-house IT team are:

  • Staff are available during the business hours you set.
  • Face-to-face conversations can result in innovation and collaborative problem-solving.
  • You receive priority for your most urgent projects.
  • A stable, reliable source of regular income often leads to greater loyalty and better-protected confidentiality.
  • Investors often assign greater value to in-house IT teams.

Cons

As compelling as some of these benefits are, there are still significant downsides to managing IT in house. For example, in-house teams cost more money. You’ll need to cover overhead, whether that means keeping an onsite office available or maintaining tech and office needs for remote work. When you hire staff, you gain more control; however, you also have to pay taxes, worker’s compensation, and benefits. Plus, onboarding new employees costs time and money. The expenses of hiring and maintaining an in-house workforce is always higher than outsourcing.

Finally, finding talent can be tough. Bringing someone to your business location means not only selling the job but also the location. A solution is to hire in-house staff to work remotely, but you’ll still need to offer a full-time salary and competitive benefits.

To summarize, the cons of an in-house IT team are:

  • Prohibitive overhead costs.
  • Finding, hiring, and onboarding an in-house staff is time consuming.
  • You may need to offer a competitive benefits packages.
  • The talent pool is smaller.

Pros and Cons: Why Companies Outsource IT

There are some significant pros, and only a few cons, that may make outsourcing IT the best choice for your business.

Pros

One of the most important benefits of outsourcing is the amount of money you’ll save. You won’t need to pay overhead, payroll taxes, worker’s compensation insurance, and other related costs.

In addition, you’ll have access to a worldwide talent pool. You can find the best people for the job and contract them much more quickly than if you were to hire in-house staff.

You’ll also have the flexibility to find someone for a one-off project. In contrast, hiring an employee typically means providing the worker with ongoing work.

Lastly, outsourcing means you’re generally better able to scale your business. Saving time and money and freeing up internal resources can make scaling your business a reality.

To summarize, the pros of outsourcing your IT are:

  • Outsourcing is less costly than hiring.
  • You’ll gain access to a worldwide talent pool.
  • You’ll have the chance to contract specialized talent for specific projects.
  • It gives you a better opportunity to scale your business.

Cons

Even though the cost savings of outsourcing may be attractive, you should bear in mind that it can be more difficult to instill loyalty in workers, manage intellectual property, and enforce non-compete contracts when you lack a permanent team. If your business is in a competitive field, this downside deserves extra consideration.

Plus, the physical distance between a company and its freelancers can impact productivity. Working across multiple time zones, communication channels, and cultures can make oversight and collaboration challenging.

Furthermore, it’s easier to outsource some IT functions than others. Whereas it may make sense to outsource certain activities, you may need to keep others in house.

Lastly, you’ll need to be careful who you contract. Although freelancers are often driven by the need to make a living, they also want to build their portfolios. Most take pleasure in feeling useful and knowing that they provide a vital service. However, there will always be some bad actors who provide a subpar service, causing interruptions to your business.

To summarize, the cons of outsourcing your IT are:

  • Loyalty and protection of intellectual property pose a challenge in highly competitive markets.
  • Managing dispersed teams can be difficult.
  • Some IT functions are easier to outsource than others.
  • Finding exceptional freelancers is far from impossible, but there’s always the risk you’ll come across one of the few bad actors.

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Examples of frequently-outsourced services

There are a few IT functions that businesses tend to outsource.

  • Web hosting. So few companies handle web hosting in house that most don’t even think of it as outsourcing.
  • Web development. It makes sense to outsource web development, since few businesses require it as an ongoing service.
  • Application development. This is another project-based service that is well-suited for freelancers.
  • Website and application maintenance. These tasks doesn’t require a great deal of oversight, making them ideal for a reliable, autonomous freelancer.
  • Technical support. In house, technical support can require a large amount of physical space, yet it doesn’t require much oversight, making it a good choice for outsourcing.
  • Database development and management. This doesn’t require much collaboration. Plus, there’s rarely any sense of urgency.

Famous companies that leverage IT outsourcing

Many companies keep their IT department in house — but countless more outsource. You may be surprised just how common outsourcing is, not only for small businesses but also for large corporations, such as these examples:

  • Alibaba. A company similar to eBay but with its headquarters in China, Alibaba was one of the highest IPOs in the early 2000s. The company outsourced its development to the U.S. and still relies heavily on outsourcing today.
  • AppSumo. A tech-focused marketing giant valued at about $2 million, AppSumo uses outsourcing for online courses, app development, software development and maintenance, and hosting.
  • Basecamp. A web development and communication tool for project management, Basecamp chose to outsource IT because it would allow the company to focus on its core business and generate more revenue. To this day, Basecamp outsources IT functions to 50 people across 32 countries.
  • Google. The tech giant famous for protecting its in-house company culture is also a big supporter of outsourcing. Currently, Google outsources its IT specialists, developers, virtual assistants, and phone and email support. Google Ads is the biggest outsourced department — with more than 1,000 outsourced customer service specialists and reps.
  • Slack. One of the most popular communication tools for teams of all sizes in many sectors, Slack outsourced its web and app development, web design, and testing. The company continues to rely on outsourcing for various IT functions.

The future of IT outsourcing and you

IT outsourcing isn’t going away anytime soon. As more products, services, and solutions become available in digital formats, ever more companies will need IT teams to support their efforts. This means companies will increasingly rely on outsourced talent. Plus, even companies that have no digital offerings will continue to need fundamental IT services, such as website development and maintenance, security, and point of sale management.

When choosing between an in-house team and outsourcing your IT, there are a few key points to consider: think in terms of scope, timelines, budget, special considerations, and overall goals for your company. Project-based work is ideal for outsourcing, but companies looking to scale or lower overhead costs should consider outsourcing. Finally, businesses that want to attract the best talent from around the world can often only do so with IT outsourcing.

If work needs to take place on site or requires face-to-face collaboration, relying on an in-house team is likely best. You may also want to consider hiring employees if your market is highly competitive and you need to acquire workers who will be vested solely in your organization.

Most large companies use a blended strategy, combining outsourced IT services along with an in-house team. Smaller companies, however, tend to outsource all of their IT. You’ll need to decide, based on your current and future goals, what will work best for you.

If you do decide to outsource your IT, make sure you follow some best practices to ensure the process runs as smoothly as possible. Check out our top 12 tips for IT outsourcing for some great advice.

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