at what point does outsourcing make sense?

I think that this depends on the business. The specific requirements the business has of the IT support staff is probably the main measure. For example, if the business has a lot of generic servers and a well behaved end user community then you can probably outsource. If the business has a lot of highly customized applications or develops their own applications in house then they probably should have IT direct employees that know the history of each environment, why decisions were made, and other specific knowledge of the business computing environment.

As far as size goes I would say that, if anything, larger businesses would fare better to have direct employees in their IT staff. Very small businesses that are tight on IT budgets have the greatest need for outsourcing. In fact, that's exactly what I do. I'm self employed and my clients are very very small businesses. I provide a few hours a month of scheduled support and then add whatever time is required for special projects like setting up computers. This way my customers don't pay for idle IT staff, training, sick time, SSN contributions, etc. They only pay for exactly the number of hours of support that they need.

I can speak from my experience in the field of medical practice.
Outsourcing to cut down front office staff is a dumb idea. You may save a few thousand dollars but to have a faceles voice interact with your critially ill paients or even healthy customers -No way. Outsourcing to cut out the back office staff is not a bright idea either. If you have highly experienced staff who know their job, pay them a few thousand more. You will sleep well at night. Outsourcing billing and bill collections - NOT a bright idea. A ticked off customer can be a major pain in the posterior. In summary outsourcing mission critial operations, particularly in small practices will not work. In fact in my office, for over 10 years I have been sendin g my employees on the best quality cruises to keep them happy, loyal and to boost their morale . I see fabulous returns on such investment. However if you cannot find competent local help for back office functions contact a decent company with expertise in billing and tracking to get the job done. They seem to do a good job.
In the medical field outsourcing may work for major elective surgical procedures like CABG, elective heart surgery, most elective orthopedic surgery, elective eye surgery and for procedures costing more than $20000 in the USA. Be prepared to forego the favorite American pasttime-the right to call your trial lawuer if things do not go your way!
Outsourcing reading of X-rays is a dumb idea. It only leads to law suits if the doctor reading the X-ray cannot interact intelligently with the doctor ordering the X-rays. This is particularly true for doctor's offices and small community hospitals with reliable backup radiologists. Think of a guy with a stroke waiting for thrombolytic therapy...!
In summary, outsourcing medical operations may not produce the desired outcomes.

straight away.
Large ones never in theory, in practice round about when you work out that the next share dividend will go negative.

It's another one of these depersonalising arguments, your staff are much more than their technicals skills and the service that provides the bulk of the original business case to employ them.

Ask yourself these questions about whatever you are going to outsource.

How long could live without the function.

If the staff performing it left en masse, how long and how much would it cost replace them.

How much of what you want to outsource is written down, so any 'fool' could do it.

If you sell off the staff that do it now, how much would it cost to get them back.

How long past year end will you need the service that you are considering outsourcing.

Tongue in cheek question that last one. Why are you considering outsourcing ? What is the motive,

If it's just cost savings then find another employer, they've already gone bust, the accountants just haven't caught up with them yet.

You grow businesses by increasing revenue, not decreasing costs. If you aren't growing, you are dieing.

Before you ask the question "at what point does outsourcing make sense", I think you have to look to see what your organic assets are, and what your IT department?s core competencies are.

Example: If you as a business owner want to bring in a new ERP, Supply Chain, CRM software like SAP on board I bet you don't have organic SAP experts within your IT staff. At that point, you outsource what you need, because you probably could not afford a whole staff of SAP experts that were permanent employees.

Another thing to ask yourself is what you can outsource that will free up your IT staffs time to work on other more important projects...

An area that companies completely overlook is finding a hardware vendor that can also take over the Imaging of your PC's (Get standards in place), to make the PC's plug and play. The extra $25 for the PC to be imaged is probably less than the time it will take away from your IT staff for those projects they are late on. Have your vendor assemble and test your servers, install windows server, and even your application, and the patches you want. Time is money, how much time does your staff waste on menial tasks??

My point is to use outsourcing to streamline your IT departments, and avoid wasted time.

If a job is just time intensive and not very skill based, out-source IT.

Got a large PC rollout? Need Extra Bodies to put PC's and new monitors on a desk, and put the old one on a pallet for disposal? Outsource... Think of outsourcing as TEMPORARY LABOR...

If a temp is what is needed, Outsource...

Need a programmer for 90 days to 6 months? Outsource... Yes he will cost a little more an hour than a full time employee, but if you only need him for 6 months, the cost of benefits, training, and other hidden costs will quickly eat up the savings you thought you were going to get (what are you going to do, hire and fire people ever few months?)... Plus if you need the same programmer a year later for 90 days more, via outsourcing, he'll be happy to work for you again... If you hired him and fired him after 6-months he'll probably tell you to take a hike...

All companies outsource something? Don?t believe me? Who provides your electricity, water, sewer service, telephone service, Air Conditioning & Heating service, etc?? Unless you are an electrical company I bet you don?t have organic electricians?

Any company size can benefit from outsourcing some componant of IT. Small companies can outsource the entire function and big companies can outsource pieces (helpdesk for standard apps). In between, it depends on your IT staff's expertise and interests. At our shop, we work with a couple of outsource companies for various things. One handles our scanning equipment and integration, one handles cabling/paging/security, one handles the barcode printing process, one handles complicated network changes.

The key is finding companies that (typically) sell stuff, but have realized that there is value to be added to that process. Everyone says that they offer services, so you have to be careful about what they can actually deliver. Even the ones that we outsource to, sometimes that recommend and sell something that they have no experience integrating and end up telling their customers to RTFM or will call tech support for you.

It is all about what you want your direct staff focusing on. There is only one area that can't be effectively outsourced: develope detailed knowledge of both the business and technology and an ability to make technical decisions that help the company. If you can hire someone to do all that, they will be at your place enough that they might was well be an employee.

We have about 40-50 staff in the UK office, with various staff in small overseas offices. We are a charity and consequently not especially well off. From having 1-2 IT staff in house we made the switch a while ago to IT contractors who do all of the system admin and troubleshooting. I manage these guys, but I am not an IT person as such, although I do know increasing amounts about IT as time goes on, and certainly know much more than the average staff member.

We pay a fixed fee plus developement charges (high hourly rate). Fortunately I have a good relationship with them and they don't often charge their hourly rate. It takes me 50% of my time to manage them properly, discuss things with them and ensure that everything is done in a timely fashion.

However we have the benefit of the experience and knowledge of a team of 6, working full-time in the sector and with experience of other clients in the area. The experience has been positive, because, and only because:

1. They were well selected at the beginning,
2. I spend half of my time ensuring that we have a good relationship with them and that I do plenty of favours for them,
3. Ensuring that I know a certain amount about computers and making sure that I am able to deal with minor issues/faults/teaching issues among staff.

We do save money through this system (equiv. staff member approx ?40k, but half of me (?12.5k) + IT fees (?15-20k) is still cheaper), but as someone else mentioned, this isn't the most important detail. And if you can't get a person relationship with them then you are heading for a fall. Faceless call centre outsourcing would drive me to despair, I suspect.

Hope this helps someone...

The right question is, "at what point does outsourcing *stop* making sense"!

If you have 10 users, it makes sense to spend $5/month on outsourcing your email system. If you have 100 users, it does not make sense. If you have 15 employees, it makes sense to have a third-party company handle your desktop PC support. If you have 1,500 employees it is cheaper to hire someone to work for you.

This is the world's most misunderstood fact: there is very little economics of scale in IT. There are razor thin margins on hardware, vendors really do not give much of a discount when you buy 10 PCs instead of 1, because they are only making $20 per PC anyways. Ditto of software costs. The only time you see economics of scale is in the headcount, and depending upon your size, you are not going to see that either. As such, the outsourcing company's costs are not much lower than yours... and your internal IT budget is not also supporting salespeople, marketing, CEO bonuses, corporate costs, etc! At the end of the day, once you get to a certain size, it is cheaper to do stuff in house.

Even worse, once you outsource (domestically or overseas), you now have to devote massive resources to monitor and ensure SLA compliance, not to mention that you lost a lot of flexibility, and are stuck with a "partner" who has the goal of barely hitting SLA to avoid penalties, as opposed to striving for 100% excellence.

J.Ja