Choosing the Right Outsourcing Model

By Dan Cobb

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During the '80s and '90s, large firms took advantage of the availability of specialized consulting firms and outsourced many of their internal IT functions, allowing their internal staffs to focus on their primary product deliverables.

Now, as these specialized consulting services have become more affordable and available, outsourcing of IT and business process functions is heating up in the small- and mid-sized business (SMB) space. In fact, according to International Data Corp. (IDC), the U.S. outsourcing market will increase by 6.6 percent to $268.7 billion in 2005 and ultimately reach $355 billion by 2009 -- driven in part by an increase in spending by SMBs, which accounted for 23 percent of spending in 2004 and are expected to account for 27 percent by 2009.

In order to realize the full advantage of outsourcing and maximize their return on investment, SMBs should take a hard look at their organization and define what type of outsourcing model would be the most viable alternative for their particular business situation -- Personnel, Function or Project.

1. Personnel: Personnel Outsourcing is the most basic form of outsourcing. It's essentially the use of consulting personnel to perform a variety of tasks without the burden of additional full time equivalent headcount (FTEs). This is similar to simple staff augmentation; however, an onsite lead or account manager independently manages the outsourced personnel, and deliverables are provided based on the changing needs of the organization. In other words, if what you need is a stable of self-managed IT professionals of varying skill sets to tap as necessary -- for example when you need additional help to backfill on basic duties during a project rollout -- the flexibility of personnel outsourcing makes it a viable option.

2. Function: The Function Outsourcing model allows an organization to break off a particular IT task and move it to an outsourcing provider similar to what many companies have been doing with payroll for years. This model works best for compartmentalized responsibilities that can be grouped individually and require little collaboration with other internal functions. Popular functions to outsource are support related, such as help desk support, desk side services and server maintenance. For example, employee-based service requests are dispatched to the outsourced team to handle the problem, freeing your internal IT staff to focus on more critical company issues.

Other common areas are procurement, warranty and maintenance; almost any task that doesn't integrate heavily with the internal structure of your IT department. Outsourcing a particular function may carry a higher price tag in terms of hourly bill rates, but savings are generally realized because the task is completed more efficiently; service level agreements can be assured; in-house staff and supervisors are freed to focus on core responsibilities; and the soft costs such as retention/hiring and benefits that you'd need to pay a full-time employee are eliminated.

3. Project: Project Outsourcing is the easiest model to define. Simply put, any engagement that has a defined deliverable and a set start and end point is a project that can be outsourced. Most are typically one-time engagements that encompass skill sets your department may be lacking, or that you simply don't have the manpower to accomplish while still handling core responsibilities. A good example is a standard desktop upgrade; completing the task creates a temporary spike in demand for your IT department, but hiring additional full-time staff doesn't make fiscal sense. Implementing the Project Outsourcing model gets the job done quickly and eliminates any ongoing costs you'd incur if you had to hire additional full time staff.

Once you understand the three outsourcing models, there are other factors that must be considered before deciding which -- if any -- is the best fit for your company:

  • Identify the business objectives you want to accomplish through outsourcing and how bringing in an outside vendor will impact internal workflow and productivity.

  • Understand the significance of the project or function on the overall success of the company and determine the risk/reward level of handling it internally vs. outsourcing.

  • Evaluate the ROI of the project. If it's significant, and you don't have the resources to deploy or the expertise to ensure success, outsourcing may be the best alternative.

  • Know the price you are willing/able to pay for outsourcing, although it should not be the sole deciding factor. Quality, responsiveness, support and expertise are far more critical to the success of any outsourcing relationship.
  • Once you've made the determination that utilizing an IT outsourcing solution is the best thing for your SMB, you need to identify the right outsourcing partner. Look for a firm with a history of providing the particular solution you need. Youre looking for a team that can do the job as well or better than you could yourself; there is no reason for them to learn on your nickel. Also, make sure they take a consultative approach toward designing a solution and that the model ultimately implemented truly is the best for your company.

    Size is another consideration; a smaller firm may offer greater attention to its clients and typically carries a smaller price tag, but a bigger firm has access to a larger pool of experts, has a larger geographic footprint, and is more likely to be financially stable.

    Finally, make sure you are comfortable with the people you are working with; depending upon your solution, they may be a part of your organization for an extended period of time.

    Particularly for SMBs, investing the time and resources toward identifying the right outsourcing model and the right outsourcing partner will ensure that the solution implemented is appropriate for your firm and will free you and your staff to focus on business-critical functions that are best handled in-house.

    Dan Cobb is vice president, national sales, with Kforce Technology Staffing, a division of Kforce Inc.. He can be reached via email at dcobb@kforce.com