Keeping up with the complexities and costs of information technology is no easy task and especially true for SMBs. To solve this challenge, many now leverage the cloud for their infrastructure needs. But, as valuable as the cloud can be, IT environments must still be deployed, optimized, monitored, managed, and secured. This is why outsourcing IT managed services in addition to infrastructure has become increasingly attractive. In 2015, McKinsey & Company published an IT-as-a-Service Cloud survey that captured the scale of this transformation. Having surveyed 800 CIO and IT executives across a range of industries, the authors concluded “a major transformation was underway as companies of all sizes rapidly shift from building infrastructure towards consuming off-premise cloud and managed services. By next year, a majority of surveyed companies plan on outsourcing IT for at least one major business process.” Experts often cite cost savings as the primary driver. But as the McKinsey study highlighted, the cost is only one factor among many to consider.
Outsourcing IT: High-Level Options
There are several options available when using the public cloud, a Managed Services Provider (MSP), or both. Here’s a high-level summary of the typical scenarios:
- The infrastructure entirely or partially resides in the cloud, but an internal IT team manages everything except the facility and the hardware.
- Public cloud is utilized, but an MSP provides some or all managed services layered on top of the infrastructure.
- The MSP manages all aspects of IT. In this “complete outsourcing” model the customer has limited, if any internal IT resources. In this case, the MSP may host at one of their data centers, or in the cloud and they are fully accountable for the entire solution.
It’s also important to note that there are other variations here. Outsourcing IT can relate to the function as a whole, one or more IT environments, or specific applications where highly-specialized domain expertise is required. In effect, virtually all companies are outsourcing IT these days as most use a variety of SaaS applications that 20 years ago would have been licensed and managed in-house. There are many compelling reasons for outsourcing IT and managed services, but here are the seven we run across most often in our conversations with customers and prospects. In reality, it's usually some or all of these scenarios combined.
#1 - IT is a Distraction
Unless your company’s primary source of income comes from selling IT services, information technology like other non-core business functions can be a financial burden and a major distraction. As your team grows, and executive’s involvement with IT and project management will consume more attention. If a company spends more time worrying about IT than its product offering, it’s time to outsource. In fairness, IT can be at the heart of a product or service - technology companies and software developers are good examples., But, even then, managing the day-to-day operations takes away from core activities such as strategy, product development, and revenue generation.
#2 - Spiraling Costs
The demand for IT rapidly expands in most growing companies. As a result, they need to continually investment in upgrading facilities, hardware, software, and training. Building and maintaining IT infrastructure, along with the expertise that goes with it comes at a high price. Capacity is often deployed with future growth in mind, which means you overpay for it until it’s fully utilized. Upgrades involving facilities, storage, and networks are particularly expensive. This is an inflection point when many companies decide it’s time to outsource.
#3 - Talent Challenges
Attracting, training and retaining good people is one of the most challenging and expensive problems most businesses face. This is especially true for IT, where talent is in high demand. IT requirements become broader, forcing internal teams to expand their capabilities across a wider range of disciplines. Managing networks, for example, is very different than managing servers, storage or security. MSPs can afford to invest in well-trained, certified personnel with specialized knowledge and experience. Therefore, outsourcing IT managed services offers levels of technical competence that are tough to find and retain in-house.
#4 - Operational Costs
Along with capital and staffing costs, significant expenses are also needed for operations and delivery. Pricey monitoring, performance and other specialized tools are good examples. Power, Internet and maintenance costs can be added to the list as well. For most of us not on the Forbes "Top 50" list, our IT buying power is weak to fair. Larger service providers can afford better technologies and more specialized staff. If sizable enough, they can secure better rates for bandwidth, hardware, software and other things they need to buy. They enjoy large economies of scale since they can spread their costs across many clients and those savings get passed along to their customers. They can usually operate more efficiently when it comes to capacity management as well.
#5 - Resource Constraints
Most organizations have appetites for IT support that far outpace what their in-house staff can deliver. In-house IT team members often have to take on responsibilities far beyond the original job description. Everyone likes a challenge, but a programmer who finds they are now accountable for operating systems, middleware, and disaster recovery can be daunting for the employee and risky for the company. If 24x7 support becomes a requirement, that may be a major decision point for outsourcing IT as the added cost of running three shifts is a significant leap.
#6 - Compliance and Certification
Today, even mid-sized companies need proper controls and reporting for their IT processes. The cause has been a dramatic rise in data privacy regulatory requirements. Hardest hit are healthcare, government, financial services, and retail - but other industries are impacted as well. When a business decides or is forced to comply with some form of regulation, there can be massive investments in time, energy, and costs needed. This is another juncture where outsourcing IT can save companies time, money, and aggravation. In some cases, it may just involve specific applications relevant to the legislation.
#7 - Agility in a Dynamic World
These days, business is all about velocity and those who can’t adapt fast enough get left behind by the competition. Outdated IT infrastructure and applications hinder an organization’s ability to react to market changes. Taking more time to set up the supporting IT systems for a new product than designing it will not fly in today’s world. One of the most widely publicized benefits of cloud and outsourcing IT managed services is how it helps businesses stay current with technology and quickly change directions. In this model, companies only pay for the services they use. Plus, they can quickly build and redeploy IT infrastructure as needed. Layering on additional managed services along with the infrastructure offers choice and flexibility.
The Bottom Line
in many cases, outsourcing IT and managed services makes more sense than doing it yourself. But outsourcing also comes with risk if executed poorly and for the wrong reasons. Businesses need to think deeply about their needs and objectives, and carefully research what vendors offer and how they deliver services. Costs are just one of many factors influencing why organizations choose to outsource. Sometimes there may be good reasons to keep things in-house, control being an important one for some organizations. That said, it’s not an all or nothing proposition. The cloud and IT managed services available today offer the potential to reduce costs, along with a broad range of other benefits.