Outsourcing

10 problems with outsourcing IT

Outsourcing your IT functions may appear to make good sense, but beware of certain side effects that could negate the benefits.

The economy has hit everyone hard. Many companies have had to pare back departments, employees, budgets... on nearly every level. And many companies have done something no one thought they would ever do -- jettison their IT departments in favor of outsourcing. On paper, it seems to make perfect sense. You have a company willing to handle your IT needs on an on-call basis. You're not paying staff to sit around and wait for problems, nor are you having to pay benefits or deal with the issues that come with having computer engineers on hand. (I say that mostly in jest.)

But along with that approach comes a handful of issues you may not be prepared for. Let's examine 10 of them.

1: Real cost

There are costs involved with outsourcing IT that many do not consider. For example, when you schedule an appointment with your outsourced IT company, you're going to be charged for the drive time there and back. And what about when that outsourced engineer has no idea how to fix your issue and has to learn on the job? Are you willing to pay for that? It's one thing if your own employees learn as they go. But it's a different story when a contracted employee does it. There are other real costs as well, such as when you get recommendations from the outsourced company that aren't actually needed. Upsales are common and sometimes unnecessary.

2: Time factor

When you have an emergency, it will have to wait until your outsourced IT department can get someone there. Drive time strikes again. You're also subject to the calendar of your outsourced company, and many factors can cause your emergency to be pushed back. At this point, you are at the mercy of your outsourced IT department. Had IT still been in-house, the emergency would be dealt with right away.

3: Familiarity with network and systems

When your IT is in-house, your IT workers (more than likely) know your system and your network really well. They should: They probably built it. So it's likely that in-house IT workers can keep your systems running more smoothly and solve emergencies much faster. Yes, it is true that even an outsourced IT department can learn your systems and networks. But there will be ramp-up time, as well as the possibility that a lack of documentation can cause serious issues.

4: Employee relationships

Although some may not see this as an issue, I have come across it many times. When employees are in-house, they know one another and know how to interact well with one another. If you are outsourcing your IT, you may or may not get the same engineer showing up every time. That means your employees must get used to different contractors and how they work. With an in-house IT staff, relationships can form and solidify. Of course, that's not to say relationships with outside staff can't be built. But bringing in IT from the outside causes a fluctuation. It may not always be a problem, but I have seen it create issues to the point that an engineer was banned from being deployed to a client.

5: Liability

There are certain instances where information or situations can become a liability when a third-party is brought in. Security measures may need to be implemented to protect company data, employees, systems... everything can become a liability. You never know when data is accidentally going to walk off on an external hard-drive or be left in a car and stolen. You add another piece to the puzzle, and more things can go wrong. Add to that the fact that no one is going to treat your company data with the care and importance that someone in-house will.

6: Loss of work

When an employee's machine goes down, that employee will lose the ability to work until the outsourced IT department can make it in to resolve the issue. That loss of productivity can be costly. The response time and calendar issues you will face with outsourced IT will continually cause a loss of work. With in-house IT, response time is only a matter of walking down the hall. And one other major factor plays into this: priority.

7: Priority

This is a big one. Your company will most likely be on a long list of companies your outsourced IT company works with. Who gets priority? Honestly? The company that spends the most will get top priority. If that's not you, that means you'll get bumped down when that big spender tells the outsourced IT company how high to jump. If you want to remain on top of the priority list, you will either have to spend a lot of cash or keep your IT in-house.

8: Morale

The second you can members of your IT department, everyone else is going to be on the watch for their own pink slips. That kind of deflating of morale takes a long time to recover from. And when employees know they don't have in-house IT, they know when problems arise, they may be slow to resolve.

9: Continuity

This takes into consideration many of the previous points. When your IT is outsourced, you'll constantly need to redirect engineers, retrain people with regard to conduct and security, and deal with a fluctuating IT schedule you have no control over. And when a variety of engineers step in, issues will be resolved differently and setups can be completed without regard to in-house standards.

10: Control

You can't control an external company. So now you have one more cog in a machine that is already incredibly complex. Why add more layers and pieces, which will only mean you lose more and more control over how your company behaves, performs, and grows? If you are one of those owners, shareholders, or managers who prefers to keep control over the daily workings of your company, it doesn't make sense to outsource such a critical aspect of a smooth-running system.

The decision

The outsourcing issue will be argued back and forth until IT is no longer relevant. I have seen its effects from nearly every side and rarely does it work as well as those initiating the process would hope. Of course, it's not a completely flawed system. But a lot of issues get overlooked when the idea of saving some salary comes to mind. Choose wisely where your IT dollars are spent. The returns could make or break your company.

More on outsourcing

About

Jack Wallen is an award-winning writer for TechRepublic and Linux.com. He’s an avid promoter of open source and the voice of The Android Expert. For more news about Jack Wallen, visit his website getjackd.net.

21 comments
ben
ben

The problem we see here as an IT managed services shop is that its hard to find quality people for your worst moment. What I mean by that is small/med business all want cloud,hosting,virtualization technology. However, the IT guy in house if he *loves* that kind of work he doesnt want to be there because he spends most of his day fixing passwords, printers, and basic stuff. So the 'good' vmware tech goes to a place where he can work on that all day, or work in the datacenter all day. Now you can get a basic tech to do around the office stuff, and day to day, and even some project mgmt for the outside vendor, but a small/med company being able to hire and afford a high end engineer to handle these technologies on an infrequent basis is not going to be an efficent use of resources. We work with some companies too small to have their own staff, or have their own staff but need to outsource the bigger projects (firewalls, vpn, voip, vmware, san, vlan, datacenter, cloud) . So yes you can do it with an in-house IT staff but your overlooking the cost of downtime and how long it would take a novice to troubleshout through a SAN problem instead of an expert.

ArgonautB
ArgonautB

Outsourcing alone was nearly the death of my organisation.  we had a small in-house department for 6 years, the company grew to 50 plus staff and the 2 man IT team were struggling. So, we outsourced. Never again.  It is exactly as the article above says, you don't know what you're gonna get from day to day, and I'm not talking about us using just one IT company, we changed three times after giving each one a couple of years to to be as efficient as the internal guys were, things were getting just too flaky and deadlines were missed.  We are now 100 plus staff, we have gone back to an internal IT department of 5 people and we have a structured support arrangement with an outside company where the IT team liaise with rather than the general staff, the staff get on with earning the money.  The model is perfect for all of us.  Organisations with employee numbers of 50 and above with no internal IT at all, in my experience, not just my opinion, can just not be as efficient as an organisation with a handful of gurus in the basement connecting with both the staff and the external IT company.  Speak to the outsource people and tell  them you only want 10 or 15 support hours a year, strike a deal for these hours and your experienced IT staff will use them sparingly.  I will never again let my internal IT boys go.  They believe in what we are doing because we believe in them.  I consider my IT arrangement to be highly instrumental in the rapid success and growth of my company.  External IT companies have got many internal IT staff living in fear when what they should be doing is working together to shift the model because internal IT can mean long term employment, a good employee/employer relationship and growth for both.  Outsource IT employees would do well to find work in an internal IT department and prove they're not just a very handy local resource, but they're part of the team.  Yup, 'part of the team'  Believe it or not a lot of employers still believe in teams.

ArgonautB
ArgonautB

Outsourcing alone was nearly the death of my organisation.  we had a small in-house department for 6 years, the company grew to 50 plus staff and the 2 man IT team were struggling. So, we outsourced. Never again.  It is exactly as the article above says, you don't know what you're gonna get from day to day, and I'm not talking about us using just one IT company, we changed three times after giving each one a couple of years to to be as efficient as the internal guys were.  We are now 100 plus staff, we have gone back to an internal IT department of 5 people and we have a structured support arrangement with an outside company where the IT team liaise with rather than the staff, th estaff get on with earning the money.  The model is perfect for all of us.  Organisations with employee numbers of 50 and above with no internal IT at all, in my experience, not just my opinion, can just not be as efficient as an organisation with a handful of gurus in the basement connecting with both the staff and the external IT company.  Speak to the outsource people and tell  them you only want 10 hours a year, strike a deal for these hours and your experienced IT staff will use them sparingly.  I will never again let my internal IT boys go.  They believe in what we are doing because we believe in them.  I consider my IT arrangement to be highly instrumental in the rapid success anbd growth of my company.  External IT companies have got many internal IT staff living in fear when what the y should be doing is working together to shift the model because internal IT can mean long term employment, a good employee/employer relationship and growth for both.  Outsource IT employees would do well to find work in an internal IT department and prove they're not just a very handy local resource, but they're part of the team.  Yup, 'part of the team'  Believe it or not a lot of employers still believe in teams.

Broint
Broint

After being in the Healthcare, Biotech, Legal, Insurance, and Telecom industries for over 25 years and even having my own I.T. consulting businesses, the learning curve I believe is the most critical factor to consider. Nobody knows a system better than the in-house I.T. staff, I think there are three reasons why someone would even consider outsourcing their I.T. which is tied to every aspect of the business and departments and can be measured on risks, “How long can a system or department be down?” The first of the three areas is the lack of communication between the I.T. and upper management, when management are right on at what they do best, but most times are faced with a learning curve of their own in understanding I.T. and lack of regarding the challenges and concepts that I.T. face each day. The cycle of time management in dedicating their own resources while maintaining their own responsibilities is tricky, but some time is mandatory to maintain good communication. Many professions are able to project timelines, the majority of issues that could arise that day, but the pitfall is they believe that all departments can run under the same structure, which is detrimental. A surgeon has a meticulous patient schedule of procedures, and most of the time they can complete the surgery within a given time frame, while I.T. on the other if properly managed has also a schedule of events regarding projects, but can be derailed when another department, company applications, or system incompatibilities push a project back because a higher priority has been introduced. An analogy is the patient is in surgery and during that surgery the surgeon is required to stop the procedure and because of so many variables, understaffed, lack of project management, etc., the surgeon is asked to stop and quickly head to the next room and work on the new patient while worrying about the first patient's needs. When every piece of equipment is manufactured by different companies, and each customer running different applications that could inadvertently cause issues with other applications, and management perceives this as being brought on by incompetent I.T. staff, it is a recipe for a perfect storm. The number one factor regarding management is they spoke to a very persuasive sales person that promised a perfect product, then after purchasing it, the I.T. department was brought into the project but some of the existing systems were not compatible with the new product. The second is the I.T. staff in general whether it being personalities, lack of leadership, or the lack of knowledge and experience which is a critical security risk for one of the most important departments in the day and age we live..... technology and how dependent each of us are on it, and the consequence and stress that is felt when it is not available is the second aspect. And the third, which is most likely the number one factor, and that, being a company that is struggling is looking to cut the bottom line to extend the life expectancy of the company. However one consideration is when the bottom line is cut, so are the countless hours it took for the in-house I.T. at company "A" to learn the new and specific piece of equipment that is unique at company "A" because of the environment it serves in. Company "A" despite having a server, switch, and router that management perceives is identical that Company "B" is structured upon, but in reality those components are nothing alike because different applications are used, different business models, etc. Yet on the flip side, if a company can leverage a reduced I.T. staff while implementing competent consultants who have a great deal of skill sets that complement the in-house I.T., I feel that is a perfect model. This would keep in-house I.T. from holding a company hostage because management has the documentation that a trusted consultant would need if something were to change, but it also would protect the company because it would retain the specific skills needed on those non standard applications or hardware, and most importantly the local I.T. is an immediate real time response solution. If the local I.T. cannot fix the issue, they have built a non-threatening relationship with an outside consultant who could walk them through it, or the consultant could connect via remote options, or until the consultant arrives where I have personally witnessed is the best solution when both in-house and consultant work to resolve the issue. I feel this is the model of the future, limited specialized in-house I.T. staff while utilizing outsourced specialized consultants. This model is both economical and structurally sound regarding the I.T. infrastructure, both in-house and outsourcing can dynamically evolve as needed. I never have time to post, but for some reason I feel this is a critical factor of a company that needs attention. Granted this is just the tip of the iceberg of all the variables that need consideration, but hopefully it is an introduction.

Tony Hopkinson
Tony Hopkinson

Can outsourcing work, possibly. Will your business do better, possibly. Will either of those two things happen if instead of evaluating the real costs with some diligence, the decision is made based on simply reducing the payroll, almost certainly not....

nathanmiller99
nathanmiller99

As per my opinion IT outsourcing is beneficial for the business. Its allow cost effective and time consuming process. For more knowledge for outsourcing check this line: http://www.cisin.com

emenacsig
emenacsig

This is amazing to me because many people outsource their product or take services to reduce their expense with better services. This types of problems can happen when some one contact with nonprofessional people . Emenac is a BPO company that provides call center service and call center outsourcing services from small business to corporate businesses. visit us for IT outsourcing services at http://www.emenac.com/outsourcing/call_centre_service/

CIOforSMB
CIOforSMB

While there are some valid points, most of the arguments here actually lead to the conclusion that outsourcing does make sense for lots of companies. I have have posted a rather lengthy rebuttal at CIOforSMB.com.

blarman
blarman

This is a brilliant article that ALL managers considering outsourcing should read. Every single one of these points is a reality that comes with a difficult-to-define real cost that - if taken into account - can sink any outsourcing proposal. Many managers think outsourcing actually saves money. Having worked as both internal staff and a consultant, I can honestly tell you that you will never have as good a relationship with an outsourced vendor as you would with internal staff because you don't share the same goals and there will always be a conflict in your mind about what you would tell an outsider vs an insider. I'm not saying that outsourcing is never the right call, only that anyone seriously considering it should really take these ten points into consideration when doing their cost/benefit analysis.

Tony Hopkinson
Tony Hopkinson

There's a reason for that. The benefits of outsourcing accrue to people who don't have to deal with the consequences. In general some one gets a promotion or bonus based on the short term gain of reducing the payroll. Add in the fact that those who make the decision have the least information of what teh decision will mean beyond the balance sheet and see objections to their reward as plebs trying to save their sonn to be unecessary jobs.... Real IT costs from short term business savings have been overlooked since Ug sold his apple tree in return for an apple..

kylehutson
kylehutson

I am an outsourced IT guy. Mostly I work with businesses that have

Slayer_
Slayer_

They outsource to us... And though they are stretched a bit thin with resources (especially man power) generally our clients are happy, and we don't up sell or anything like that. It can't be all that bad....

cybershooters
cybershooters

"There are other real costs as well, such as when you get recommendations from the outsourced company that aren???t actually needed. Upsales are common and sometimes unnecessary." Absolutely, they are an xyz approved vendor, so they'll try and sell you on everything xyz sells. I use a company sometimes that is an HP vendor and endlessly they're trying to sell me stuff I don't need. I understand IT, dread to think what their other customers end up doing.

spawnywhippet
spawnywhippet

For over 12 years I have worked with many companies who outsourced IT functions and have never once seen a net gain. There are initial salary savings, but productivity, quality, timelines, morale, management overhead and deliverables are all seriously decreased. In some projects, costs and durations have spiralled up to 4 or 5 times the in-house estimated cost due to poor productivity and quality.

Suresh Mukhi
Suresh Mukhi

For a company with say 20 or less people, having an outsourced IT makes more business sense. I would say the threshold would be when you have 50 or more people, then an in house IT is more practical.

gdixon
gdixon

I worked for three year at a company who outsourced the IT support functions. It worked well because the outsource company actually based their employees in the offices with us - ie: our outsourced IT support was in-house (except for helpdesk which was redirected to a call centre). This helped to overcome the issues about time factor, relationships, familiarity, priority, loss of work and local knowledge as outlined in the article. And being outsourced, it also meant that the outsource company had to manage the employee changover, staffing and training issues. Did we have the best of both worlds? Maybe. But it was very expensive. We could have had triple the size of totally inhouse staff for the same cost.

waltersokyrko
waltersokyrko

Internal IT seems more expensive because it does more. Companies that I worked for used the IT unit to optimize business processes not only to automate business processes. HR wants to automate on-boarding, great let us see your on-boarding process and IT will automate it. Oops, you have not documented your on-boarding process. OK, IT will spend months documenting it with you. Oops, your on-boarding process is crap. OK, IT will spend months optimizing it with you. It took IT a lot of time and money to automate the on-boarding process. The company can save money by outsourcing IT. The next business process the company wants to automate, the company finds that this is not covered by the outsourcing contract and special projects like this are very expensive, especially discovering and optimizing the business process.

wlportwashington
wlportwashington

Number 11 would be loyalty. The Outsource contractor is loyal only to the invoice not to the people of the firm. The in house staff generally, but not always are loyal to the company that puts food on their plate and are less likely to bite the hand that feeds them. Plus the in house staff know how to contain costs while all the outside contractor cares about is how high to make the invoice. The bosses fail to se that.

gevander
gevander

I used to work on Level 1 service desks until my positions all got outsourced to India. The reason? Lower cost. But management never considered the "true cost". Sure, they could hire 4 people there to do what I did, but they didn't actually DO what I did. First call resolution dropped from an average of 65% down to 40%. And of that 40%, it was considered "first call resolution" if it never left the service desk, not if it the Level 1 agent resolved the call. So it was actually closer to 25% first call resolution. And of the 60% of calls that were not resolved "first call", the average down time for the (more expensive) end-user is 2.5 days - versus 6 hours when the call is not outsourced. Multiply that 60% times the number of calls then multiply by the lost work hours. THEN tell me that I was too expensive. (Sorry for the rant - still bitter about it since I lost THREE positions for the same reason.) Management needs to start considering true cost of outsourcing whenever they consider outsourcing ANY position, not just the immediate, front-end cost. My wife is an accountant and even SHE as felt the pain of outsourcing (and also, like me, offshoring).

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