By Karl Bickmore, CEO
For small to medium-sized companies, outsourcing elements of business operations is now a common practice as a way to streamline processes, tap into expertise and save money. Accounting/payroll and legal services are the two most commonly outsourced business functions. Outsourcing IT has quickly moved into third position on the most-outsourced list.
Advantages of Outsourcing IT
More and more, business owners and managers are questioning whether it’s time to outsource IT. Most outsourced IT providers make their recommendations based on three claims: It will cost less, it will be more efficient and it will provide better security. Here, we focus on the claim that grabs the most attention: the money.
Cost vs. Quality
It’s important to understand that not all outsourced IT providers are the same. Their strategies are often fundamentally different and fall into different categories on the cost-vs.-quality spectrum. For example, while they cost much less than the competition, value-only providers offer the bare-minimum support and have flaws in their process. At the other end of the spectrum are premium providers that claim to do everything right and cost much more than the value players.
How Much Is a Car?
When potential customers ask how much outsourcing IT costs, it’s like asking How much is a car? What do you need, and what’s your budget? There are the Kia and Hyundai of IT providers; the Ford, Toyota, Honda and Chevy of IT providers; the Mercedes, BMW, Lexus and Acura of IT providers; and finally the Ferrari, Porsche, Maserati, Bugatti and Bentley of IT providers. In other words, there is a direct correlation between quality and cost, and there are extremes at both ends.
The 65-1 Rule
Now for a little analysis … the common ratio of IT employees to computer users is 65 to 1 (that’s 65 computer users to one IT employee). If your company has fewer than 65 computer users, in-house IT probably isn’t for you, because you’ll need less than a full-time employee. An outsourced provider should be able to provide you IT services fractionally with a cost structure that is less than a full-time IT person.
This cost question becomes less clear when you have 65 or more computer users. Now you have a real option to hire internally. Make sure your IT budget is big enough to make that option possible.
Apples to Oranges
When comparing the cost of a full-time IT employee with an outsourced provider, it’s important to consider the level of employee you would hire for an apples-to-apples comparison. In most of the United States, there are three to four tiers of IT professionals, ranging from entry-level players to those who are experienced and offer specialized skillsets.
When the size of your company doesn’t justify a full-time employee, outsourcing could be ideal if you go with a provider that costs less than a full-time employee and has a staff with the depth of experience needed to support your IT needs.
Even if you hired a full-time employee, unless he or she is the most talented, skilled (and highly paid) IT person, you will be left with holes in the skillset and potential hidden risks.
When considering IT costs, there are some that you may not have considered:
First, if you outsource your IT, someone in your organization needs to manage that vendor. So, while you’re avoiding the costs of an IT employee, it will be someone’s responsibility to meet with and oversee the IT vendor. In most organizations with more than 65 employees, that person will spend between 10% and 25% of their time managing that vendor.
The right toolset
The cost of a robust toolset is another key expense that should be considered. A well-implemented toolset will ultimately save you money in IT labor costs.
An efficiently managed IT system needs a toolset that must first be purchased, hosted, developed and managed. It should include ticketing systems, reporting systems, remote management and monitoring tools, and more. The tools themselves are very expensive, and it’s even more costly to configure and set them up to do all the things you want them to do.
I have never met an IT employee in a company with fewer than 10 IT staff who can effectively spend the time to develop and manage these tools. All of these tools are proven best practices that reduce risk and automate common tasks, designed to make your IT more efficient. The problem is, it’s tough to get there without an IT budget that gives you access to 10 or more IT professionals. You need someone dedicated to the toolset for them to be effective.
The cost of under-budgeting
Ineffective IT can be an expensive risk. It is very possible to under-spend on your IT. In the process, you will notice a few things. First, your IT staff won’t be able to keep up. They will only be able to react in firefight mode. They won’t be able to initiate long-standing projects or proactively reduce potential risk and keep problems at bay.
Further, the wrong IT staffing solution could result in a major IT liability. Competent IT professionals won’t stick around in a substandard environment where lapsed skillsets are accepted, and IT staff may not even know what they don’t know. There is a cost associated with risk management or avoidance of ineffective IT.
When analyzing your costs, be honest with yourself and ask whether or not you’ve set a realistic budget.
Adding to all these considerations is the cost of recruitment. The IT industry has effectively 0% unemployment, because there are more jobs than there are qualified candidates to fill them. This problem is only getting worse, which means that IT staffing is only going to become more difficult and more expensive.
When our company is hiring for even an entry-level position, we will go through hundreds of applicants before we find a new hire.
Adding to this misery is an average IT staff retention rate of 60%, because there is so much opportunity out there. You could easily find yourself on the IT-hiring Ferris wheel when your current IT person gives notice. Every time a trained employee leaves, you incur the expense of replacing them and training the replacement.
The Bottom Line
For companies with 65 or fewer computer users, there is no question that IT outsourcing is less expensive. An outsourced provider can provide depth in-team and do it at a lower cost than a full-time employee with all the right skillsets and tools in place for risk management and efficiency.
For companies with 65 to 1,000 employees, outsourcing is likely to be cost effective for many reasons:
- Outsourcing IT brings multiple skillsets to the table, which is beyond the capability of one or two in-house IT staff members.
- The provider will have a functional toolset and a process that you don’t have to pay for or pay to develop in-house.
- That IT provider’s costs will include the industry average cost of top-tier IT professionals, leveraged across multiple clients. Fractional access translates to expertise at a lower cost to you.
- Most outsourced IT providers supply their own ticketing system, monitoring tools and automation tools.
Best of Both Worlds
Still not sure what’s right for you? Then the best approach for your company may be to mix it up: Keep some IT in-house and outsource the rest. The industry calls it “co-managed IT,” and it’s a growing trend among companies with 65 to 1,000 computer users. This can be a real win-win on the cost structure while still taking advantage of all the side benefits an outsource provider offers.
At Snap Tech we call this type of engagement “Snap IT Boost,” because it’s designed to boost your current IT staff to fill in the missing pieces and add depth in expertise.
Outsourcing for Strategy
Companies with more than 1,000 computer users should budget for enough IT staff to build depth in the team, have time to manage the toolset and be proactive with risk management.
If you outsource at this stage, strategy, rather than cost, is likely your number-one driver. While this approach can lead to cost advantages overall as a company, your outsourced IT provider services won’t be lower cost.
Don’t Be Cheap
One last word of caution about your IT cost strategy: There is a difference between cheap and frugal. It’s important to understand the type of IT you want delivered in your business. Do you want the lower-end value provider, the standard, the premium or the high-end luxury option? It’s important to decide, because they all exist.
Regardless of the type of IT provider you choose, you should never stand for ineffective or risky IT. No matter your value judgment on the costs, if you are cheap, then you will likely regret it. There are too many attacks, too many ways data is lost, too many IT legal risks, and so on. It’s okay to be frugal and make sure you get the most value for your dollar, but don’t turn away good providers because you’re cheap.