A survey of over 2,500 senior business executives conducted last year by the consulting firm Grant Thornton generated some surprising results. Asked to rank the key factors that determine whether a relationship with an outsourcing services provider is successful, most of the respondents placed something other than cost-savings at the top of the list.
For 88% of businesses, communication is the most important consideration. The overall quality of the business’s relationship with the provider was among the top-ranking factors for 87% of respondents. What makes those figures even more remarkable is that a survey by the trade group CompTIA found that 93% of companies reported that their arrangements with a managed IT services provider met or exceeded their original cost-savings expectations.
The conclusion these findings point to is that, even though outsourcing effectively cuts costs, the practice of turning over some aspect of your business operations to a third-party has evolved in recent years from a simple cost-saving alternative into something you might consider doing for more strategic reasons.
Business tech writer Tom Davenport, however, tries to explain in a Wall Street Journal post why IT outsourcing may actually be on its way out, pointing out that “it is often difficult to get innovative, differentiated outcomes when you turn IT over to someone else.” He goes to argue that wholesale IT outsourcing “only made sense when companies viewed technology as a cost of doing business. The rise of digitization, big data analytics and cognitive technologies has made IT strategic again.”
But outsourcing may not be diminishing in popularity as quickly as Davenport thinks—or at all for that matter. The CompTIA survey found that 49% of businesses are “either mostly or partially” outsourcing their IT functions today. And 50% said they would consider outsourcing in the next two years should the need arise, while 15% reported that they were already in the process of evaluating outside firms. The key to reconciling Davenport’s argument with CompTIA’s findings is to recognize that outsourcing isn’t an all-or-nothing decision for most businesses.
In many industries that depend on a close alignment between business practices and the technologies that support them, manufacturing for instance, IT departments are counted on to boost competitiveness through constant innovation. This is in fact the main problem Davenport sees with outsourcing: “true innovation,” he writes, “results from IT professionals being tightly aligned with the company’s strategy, and that is difficult to pull off when IT people work for a different company.”
But even Davenport acknowledges that areas like datacenter operations and end-user support—keeping servers and networks performing optimally and keeping users happy—can be handled by outside partners without undermining ongoing efforts at innovation. The CompTIA survey found that 72% of businesses made no changes to their existing IT staffs after signing on with a managed services provider. The existing staff simply shifts priorities.
Rather than replacing IT departments then, businesses are relying on outsourcing to free their internal staffs from routine maintenance tasks so they can focus on more forward-looking projects. In other words, while you may be able to cut costs on network and infrastructure upkeep, one of the biggest benefits of managed services is that it allows you to turn your attention to revenue-generating initiatives.
What these businesses are doing is what Dave Carmichael of Avanade Insights calls Two-Speed IT. The first speed covers operations, which includes all the tools that are critical for your business’s daily functioning. The second speed is for innovations. Basically, these are all the development projects and experiments you do when you’re trying to discover new technologies to incorporate into your routine practices in the future. Carmichael’s contention is that a growing number of businesses are experiencing tension between these two IT areas—struggling to get ahead of operations so they can focus on innovations. That’s why working with managed services providers is becoming such a popular solution.
The Right Strategy for Your Business
The reason so many businesses cite communication and relationship quality as keys to successful outsourcing partnerships is that they know how important responsiveness and goal alignment is for an effective two-speed approach to IT, whether they actually call it that or not. The task for businesses trying to establish both sides of this dual process is to first figure out which functions could most seamlessly be turned over to an outside firm and then to seek out the firm that will be the most reliable--and the most responsive--in taking over those functions. The team from the outsourcing partner can then essentially be incorporated into your internal team. And together they can keep your business up and running while at the same time directing it into the future.
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