The Outsourcing Continuum, Part I

By Mike Scheuerman

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There are lots people looking at outsourcing these days as a potential cost cutter. Let me say right up front that, more often than not, outsourcing won’t save you a significant amount of money. More likely, what you will get is more value for the dollars spent.

The decision to outsource some or all of your IT infrastructure support is one that shouldn’t be taken lightly. Or without a significant amount of due diligence when considering what partner(s) to work with. Managing and maintaining the portions of your IT functions that are critical, but not strategic, requires considerable time and effort. You have to think about what elements of IT are contributing directly to your company’s business strategies and which ones are providing "back office" type support.

Those that are back office functions are probably the ones that are good candidates for outsourcing. Those that are strategic are ones that you want to give more time and resources. Even the strategic projects may have an element of outsourcing if you look closely at what items are one shot tasks and which are on going.

In this article we’re going to focus primarily on IT infrastructure management and maintenance. The development of applications can be outsourced as well, but if you’re developing applications, they are most likely competitive differentiators and you’ll want to keep them close. If you happen to be developing an application that doesn’t provide competitive advantage you’d best look and see if it’s worth doing at all.

When you start looking at IT infrastructure outsourcing you need to know that there is a continuum of services that range from very little outsourcing to lots of outsourcing. There are three broad categories of outsourcing are:

Each of these categories has both positive and negative aspects and each should be considered when deciding on what outsourcing model works best for your organization.

In-House Managed

This category of outsourcing is probably the least costly because what you’re paying for is remote expertise. You get the experts sitting off-site providing capability that you don’t have. In this environment, your partner will have connections to your in-house systems. They can monitor and manage the systems as if they were located in your office. The great thing about this model is you don’t have to hire the specialist you may need only occasionally. The cost of that expert is spread across multiple clients and you’re only paying for a tiny portion of the cost. The down side is you may not get quite the same level of response to requests for service that you might with a dedicated person. That can be mitigated by negotiating a service level agreement (SLA) that provides for the response time you believe you need and can afford. You also don’t get some of the security of having your servers sitting in a hardened data center in the event of a disaster.


Co-Location Managed

This model is very similar to the in-house managed environment except the servers running your business are housed outside of your offices. The advantage is you will be more likely to have a robust physical facility with multiple sources of communication and power. That will ensure that your systems are available in the event of a disaster. The downside is you won’t have quick, physical access to the machines.

You’re also paying for the physical plant so it will be more costly than having the machines on site. However, odds are you won’t have the same level of physical security and reliability on site so you have to weigh that risk against the cost of a better environment. You’ll still have the cost of owning and maintaining the equipment. You’ll also have to pay, as in the in-house model, for expertise to manage your systems.

Fully Managed

In this environment you don’t own the servers and don’t have to worry about whether they are up-to-date. You are paying for someone else to take on the technology refresh costs. You are also paying for the expertise to manage and monitor the systems. The systems you’re using are housed in a risk managed environment with backup power and communications. Again, this is more expensive than the other models, but you have to weight that cost against the resources that you would be dedicating to the acquisition, management and maintenance of your systems.

Decisions, Decisions

In order to decide the right path for your organization, you have to understand the strategic business goals and how IT contributes to those plans. You also have to determine the risk that your company is willing to absorb and if outsourcing will mitigate or aggravate that risk.

Reviewing the offerings of multiple service providers can be daunting unless you have a good benchmark to measure those services against. You’ll need to negotiate an SLA that protects against poor service. All of these tasks take time and effort to do right but, if well done, it can lead to a far stronger IT contribution to the company’s business.

In future articles, I’ll examine more of the details of how each of these outsourcing models work and what you need to do to determine what is the best plan of action for you and your company.

Mike Scheuerman is an independent consultant with more than 26 years experience in strategic business planning and implementation. His experience from the computer room to the boardroom provides a broad spectrum view of how technology can be integrated with and contributes significantly to business strategy. Mike can be reached at mike@scheuerman.org.