Outsourcing an Organization's IT Services

Some companies entrust part or all of their IT (information technology) services to external providers. Several reasons may motivate such outsourcing of IT services. In this post, I will present the most common reasons behind this trend. I will approach the topic by first examining support activities, then projects. Finally, we will look at the case of outsourcing.

Support: Three reasons to outsource it

Support consists of all the activities required to keep current systems operational. Thus, there are activities related to infrastructure (workstations, printers, servers, network connectivity, Internet access, etc.), as well as the application side (office tools, business software (ERP), specialized applications, etc.).

The general practice is that for these critical activities, permanent employees are favored to ensure a certain maintenance of knowledge through traditionally lower personnel turnover.

Of course, contractual personnel may be called upon for replacement issues (sick leave or maternity leave).

It often happens that certain suppliers are called upon to provide support for a technology that requires very specific expertise, which is difficult to maintain internally. For example, a company might have a supplier provide support for its Cobol applications. The risk related to the maintenance of knowledge is therefore transferred to the supplier.

Finally, contractors will also be used to carry out specific mandates aimed at identifying operational gaps: a diagnostic of a problematic situation, the selection of an ERP or a CRM, a system or security audit, etc. A project situation in troubled waters requiring rectification could also be outsourced.

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Brome Conseil occasionally intervenes for replacements and also offers diagnostic activities.

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Entrusting the execution of its IT projects to external entities

In terms of IT projects, although they are sometimes budgeted on an annual basis, the degree of predictability is much lower than for regular operations (support of existing systems). The acquisition of assets, a plant or another organization, the sale of assets, the expansion of an existing facility are all unpredictable events that have a direct impact on IT projects and cannot necessarily be planned rigorously.

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A flexible delivery capacity

Throughout my career, I have seen organizations whose annual project budget could triple and then fall to a low where projects are almost stopped due to a precarious financial situation caused by a bearish market.

In this context, it becomes easier for the organization to entrust the execution of its projects to contractual resources as this configuration allows it to easily increase or reduce its delivery capacity, depending on the variability of its projects.

Access to missing expertise

On the other hand, it often happens that specialized expertise is required and specialized consultants are then hired for this purpose. This can be the case for the preparation of an IT master plan, or the implementation of an ERP.

Brome Conseil's services are often called upon for IT project management in companies. Check out our series of posts on IT project management for dummies (including the one on application projects) or, all the posts on our blog concerning IT project management.

Outsourcing or when a company completely outsources its IT services

Some organizations go as far as entrusting all of its IT services to an external provider. This is obviously done in the context of a long-term contract. In some cases, these contracts may provide for a transfer of resources (employees) from the client to the provider.

In this type of mandate, the supplier's responsibilities may include:

• Setting up an IT service center;
• Managing the IT infrastructure;
• Performing application support and minor changes to systems;
• Conducting IT projects in conjunction with the organization's stakeholders;
• Managing the relationship with any IT supplier of the company.

While there are several reasons to outsource IT activities, three stand out from the others.

Better cost control

Outsourcing agreements provide clear rules regarding the hourly rates charged to the client according to expertise, years of experience, and contract year. Through such an agreement, a client can therefore better control its IT costs thanks to rates set in advance for which the supplier assumes the risk based on market uncertainties.

On the other hand, in a context of a technological environment that is becoming more complex with the years and restricted financial conditions, using an external provider allows for more effective management of the costs of these technologies, thanks to a larger pool of resources, particularly in low-cost countries.

Service levels to respect

Penalty mechanisms are often put in place to ensure a certain level of service in operations as well as projects (SLA). For example, if the supplier fails to correct a problem deemed critical within the agreed time (for example, two hours), a significant financial penalty will be imposed.

Cumulated on an annual basis, these penalties can be financially advantageous for the client. Of course, in a normal context of an internally managed IT department, these benefits do not exist.

Simplified HR management

By outsourcing its IT department, the management of human resources is simplified. Indeed, the client is no longer responsible for career management, training, benefits, etc. of its entire IT department. The service provider must assume these responsibilities.

Conclusion

Finally, it is often said that good outsourcing of IT services allows organizations to focus on their "core business" or basic mission, what they truly excel at.

In the current context where technologies are multiplying and becoming more complex, it appears wise to reflect and question the investments we are willing to make to acquire expertise and maintain it internally. Let's choose our battles!

Further reading

I invite you to consult the following articles which are excellent complements:

• 6 good reasons to outsource your IT services to managed services, an article by Microage
• Outsource your IT services while keeping control, published on Les Affaires
• 4 reasons to go through outsourcing, an article by GTI

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This article was written by the founder of Brome Conseil, Simon Chamberland. Working in the field of information technology since 1995, he has about twenty years of experience in information technology and management. Note that this article was first published on the Brome Conseil firm's blog.