The two sides of IT outsourcing: Benefits and Drawbacks

Alfred Sloan Jr. — this name may only tell you something if you find out he started outsourcing much before the term originated. As the CEO of “General Motors,” he created a business model which didn’t exercise total control over all production units. He delivered advertising and public relations to external teams who could deal with it better. That’s how Alfred Sloan Jr. started outsourcing early in the 20th century.

Outsourcing is the process of delegating business functions to external organizations. As companies evolve and become more complex, they find it hard to handle all operations on their own. That’s why they contract vendors to save money, access global talents, and focus on their core tasks.

In the 1980s, outsourcing expanded to other industries such as IT and telecommunications. In 1989 IBM signed an outsourcing agreement with Eastman Kodak to manage Kodak’s data center. This marked the beginning of IT outsourcing history.

Companies outsource their IT functions to save money, get specialized skills, and adapt to the changing market.

The Global Outsourcing Survey by Deloitte in 2022 found that 76% of all surveyed executives (more than 500 business leaders) delegate their IT services to third parties.

Cost Reduction and More: The Benefits of Outsourcing Your IT functions

Cost Savings

One of the primary reasons why companies choose to outsource their IT functions is to save money. Outsourcing can be more cost-effective than maintaining an in-house IT department. As businesses start out, they may not have the resources to hire skilled IT professionals. Changing needs may lead to even higher costs. Besides, outsourcing can be a competitive advantage to companies that can’t afford the latest technologies.

Whatsapp is a bright example of outsourcing software development for reduced costs. You know your app is a success when 2.24 billion people use it monthly. But how did Whatsapp succeed? Advertising? No! Outsourcing? Exactly!

Back in 2012, WhatsApp had a team of 30 full-timers and 5 part-timers. Based in California, they realized they needed to keep software development costs low to expand. That’s when they turned to Igor Solomennikov from Russia. He helped to develop the preliminary IOS version of the app. That’s how Whatsapp outsourced development services much cheaper than what they would have had to pay in the US.

Global Expertise

Access to the global talent pool takes the crown among outsourcing drivers in 2022. Connecting with IT experts worldwide allows companies to gain expertise and experience. This can be especially beneficial for companies that need to scale up their operations.

Moreover, the specialized skills that companies need may not be available in the local talent market. That was the case with e-commerce giant Alibaba. The company outsourced much of its technology development to third-party vendors in the early stages.

You may think they opted for a cost-effective solution. Yet, all they needed was talent! In fact, at the time Alibaba was founded, China lacked professional software engineers. So, they started to look for skills offshore and found many of them in the US. That’s how Alibaba got ahead — due to outsourcers.

So, by outsourcing IT services, companies can access top-quality talent from around the world. This can help them innovate, grow, and remain competitive in the field.

Focused Performance

Outsourcing can free up internal resources and allow businesses to focus on their core competencies. Your in-house department won’t have to divert their time and efforts to solve IT issues. Third-party vendors will take up the job!

If you email Google Ads support, an agent from China or the Philippines will deal with your inquiry. Google has realized that it can’t succeed with all the functions in-house. That’s why it has outsourced some of its non-core activities, including data center management, manufacturing, and customer support. This allows the company to focus on its main functions like search and cloud computing. That is how Google benefits from specialized and cost-efficient vendors.

Increased Productivity

Outsourcing in the early stages can significantly influence your business strategy. This can bring about positive changes that can lead to success.

Slack would definitely back up this statement. Slack as we know it today owes its success to Metalab, a design agency based in Canada. Everyone who uses Slack would never confuse its logo and enjoyable user interface. That’s Metalab’s merit. They cooperated with the internal design firm for the company’s visual identity.

Slack realized that they needed to contract a design firm for beta testing and get valuable feedback from the customer’s stance. Metalab created a new branding system for Slack and made the company an absolute winner.

Risk Management

Finally, outsourcing IT support lets vendors mitigate risks even before they show up. Not all companies are immune to cyber threats or can manage their cybersecurity operations in-house. To that end, you can outsource your business to protect your data.

As Deloitte studies show at least 3 out of 4 executives surveyed outsource their cybersecurity functions. Companies need strategic and efficient data management. As a result, they seek support from third-party providers to get the necessary skills. 75% of the companies surveyed leverage data and analytics via external providers.

This is where you get to know managed security service providers or MSSPs. They use advanced threat detection and response technologies to identify and respond to cyber threats. In short, their job is to watch your IT security 24/7.

The Other Side of IT Outsourcing

While IT outsourcing can offer many benefits, there are potential drawbacks to consider.

Losing Control/Gaining Dependance

Outsourcing IT functions means giving control of those functions to a third-party provider. As a result, you may have less control over operations, decision-making, and security.

Besides, companies may become reliant on third-party providers. This can result in reduced flexibility and agility.

Communication and Cultural Barriers

Language and cultural barriers can make communication and collaboration difficult in offshore outsourcing. Differences in time zones can add up, too.

Quality and Security Risks

If you outsource your business to a low-cost provider, you may end up with low-quality work. Poor security practices of the outsourcing company can risk your sensitive data.

Hidden Costs

Outsourcing may have hidden costs that may not be clear in the beginning. You may need to allocate resources to oversee performance metrics and communicate with the provider.

Outsourcing also means investing to integrate outsourced services with existing systems and processes. This can bring significant expenses.

Conclusion

Choosing the right outsourcing company is a crucial factor in the success of your business. Outsourcing can provide many benefits, including access to global talents, increased efficiency, and cost savings. These benefits can overshadow the drawbacks with the right outsourcing partner.

To find an outsourcing company that matches your needs, do some research. Track their record of delivering quality work, communication skills, and culture. Choose a reputable vendor who can provide transparent project management and quality assurance.

How to check this? Ask for references and case studies. Read reviews of previous partners. Schedule a meeting. Take your time to assess your outsourcing partner. The right outsourcing company can position your business for success and ensure your reputation in the future.

P.S. Huge appreciation for the valuable contributions and research for this article to Lusine Abgaryan.