Staff up or outsource? That’s been a conundrum organizations have faced for many years when deciding how to handle their IT departments. According to Forrester analyst Bill Martorelli, it is a decision that is often idiosyncratic and highly specific to each organization. However, with more and more options available, many SMBs are finding that hiring outsiders can be advantageous, especially when the tasks at hand are relatively routine. Here’s some advice from five IT pros.
Marshall Maglothin, the principal of Blue Oak Consulting, LLC, opted to outsource his IT tasks. In his former position as administrative director at the Heart and Vascular Institute at Bon Secours Health System, a large specialty physician practice with 200,000 patients, Maglothin had just two full-time IT people to do all the work and provide 24/7 call coverage. However, instead of hiring additional staff, Maglothin says Bon Secours chose to contract with an external IT company to provide their 24/7 network monitoring, some call coverage, and additional support during special projects.
Maglothin says that, in addition to eliminating the need to hire or make capital investments, the IT firm offered an extensive collection of network support software as a part of their service, “So they managed it and we only paid for the support we needed, not having to buy software licenses.” Also, he notes, Bon Secours was able to schedule only the time/services they needed and they did not have to either hire a full-time employee for a fractional full time equivalent (FTE) position, or recruit a part-time person “who probably would have stayed only for a few weeks or months.”
Maglothin says there were also clear cost savings in outsourcing. “We committed to a package of 700 hours for 12 months (about 0.3 FTE, he notes) and paid the market rate per hour. So Bon Secours didn’t pay for more hours than they needed as they might have if they had hired a regularly scheduled part-time or FTE employee.” They also avoided future employee turnover costs and the costs of employee benefits.
A similar tale is told by Kathy Ross, senior vice president at Reasons to Believe (RTB), a non-profit religious and educational organization, except that her motivation was not so much cost as a need to find talent. “Initially, [we] hired a part-time computer specialist to manage information systems. That manager did well for a time, but eventually our needs outstripped his ability and availability,” she explains. It also seemed like the organization’s aging patchwork of systems really needed a complete overhaul, which would require additional expertise. “That’s when we performed a cost analysis and made the decision to move to an outside IT firm,” says Ross, who interviewed several firms based on recommendations from peers in the non-profit world.
“We needed a way to stay current with technology and manage our costs. It became clear that a team of experts could do better at both than one person could,” she says.
In an area of rapid change such as the IT arena, Ross says the help of a specialist team carries many advantages, especially once the number of workers and work stations reaches or exceeds a point at which the management burdens become uncomfortable. “I cannot say what that threshold is for other organizations because that determination depends upon the weight of the work IT supports. However, in a non-profit environment where thousands of donation records, sales records, communications resources, and media files must be carefully and securely maintained, that threshold is relatively low.”
Similarly, Rob Fiore, CFO at Applied Value Group, a 50-person global management consulting firm in Boston, chose to engage Thrive Networks, a Staples company, to support its Massachusetts and New York City offices as well as teams in Sweden and China. “Most of our employees travel extensively. It’s crucial that we keep them running because time truly is money in our business. We also need them to have access to IT support 24/7 especially because they could be anywhere in the world, in any time zone,” he explains.
Fiore says Thrive provides onsite support whenever needed as well as scheduled services (for example a monthly visit from an engineer). “We get peace of mind... [and] the benefit of a wide range of technology expertise you probably wouldn’t find with one employee,” he says. In addition, he notes, “if our dedicated engineer doesn’t have the answer someone at Thrive will.”
Blue Oak’s Maglothin suggests several reasons you should outsource your IT department:
- Access to critical, specialized expertise where you may not need a full-time employee. Thus, you will not have a single point of failure impacting your entire business, and you can afford part-time ongoing backup for positions supported by a single employee, such as an employed network administrator.
- Reduced overhead both ongoing (office space and furniture, computers and increased benefits) and employment “cost per hire” costs of posting, screening, contacting, interviewing, on-boarding, training, taxes, paid benefits, office overhead, opportunity cost to the business in hiring delays; usually $15-$30k for a new hire.
- Always somebody to do the work. The contractor accepts the staffing responsibility.
- Flexibility. If you operate a seasonal business or a rapidly growing one, you can contract for the right amount of additional support at the right time.
- Security of intellectual property. By splitting tasks to outsourced workers, you can control just how much any single contractor knows about your business practices.
- Cash-flow management is critical to any growing business, and outsourcing provides better flexibility than the fixed costs of employees.
Eric Wise, director of application development at Hartville Group, in Canton, Ohio, the nation’s second-largest pet insurance company, also has chosen to outsource. However, based on his specific needs, his decision has been more nuanced. In addition to its operationally focused IT requirements, Hartville Group also does software development work. “Being a startup company, we were under a lot of pressure to keep costs down. That is where the conversation (about outsourcing) started.” At the executive level, the concern was how to develop custom software and keep costs low. The choices Wise made, while specific to development work, mirror the issues facing anyone deciding between hiring and outsourcing.
For Wise, the leading option was outsourcing less critical development tasks to an offshore provider. However, he notes, whenever you outsource, the external team doesn’t have as much of a stake in your organization as do your employees. “They aren’t sitting with the rest of the company and when you send them a specification they don’t have an idea of how it works—they just have the spec.” As a result, outsourcing means you have to include the cost of more micromanagement. “So, even though offshore people are cheaper, you must add about 30 percent to the project costs and time.”
Likewise, Keith Baldwin, technical director at Arena Text & Graphics, believes in building in-house capacity. In his more than 20 years of experience, he has seen the question of whether to hire or outsource come up over and over, and he remains unconvinced of the advantages of outsourcing. Baldwin says he finds that hiring staff provides a lot more control over “how things get done and when things get done as well as a lot more discussion about the best way to do things.”
According to Baldwin, when you outsource, you have to spend a lot of upfront time defining requirements. “If you mess up, you will pay a lot for changes later,” he says.
This was first published in March 2012