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Call in the Cavalry
Outsourcing can be more economical than hiring for growing companies.
Reprinted from Puget Sound Computer User
by Jeff Barbian
"I've always relied on the kindness of strangers"-Blanche Dubois in Tennessee Williams' "A Streetcar Named Desire."
"I've always relied on the kindness of strangers"-Blanche Dubois in Tennessee Williams' "A Streetcar Named Desire."
With the drama of the hyperdrive global economy, this sentiment is shared today by any business that relies on the kindness of outsourcers. Companies are striving to remain competitive, and there's a critical need for qualified technical talent. But are IT departments better off recruiting, hiring and training their own full-time team, or is outsourcing the more practical solution? For companies looking to establish themselves as players and build a hardy network with all the amenities of the latest technologies, outsourcing appears to be the logical choice.
"Companies have to keep up," says Chris Stephenson, vice president of Technology Services for iCorps Technologies, a Boston-based provider of IT services (http://www.icorpstech.com). "Organizations are realizing that they don't have time to hire IT staff and get them ramped up for planning and implementing in this new paradigm. By outsourcing, they can focus on their growth."
Stamford-Conn.-based GartnerGroup estimates that the market for outsourcing IT infrastructure will grow 13.3 percent annually, with outsourcing-applications management growing 18.6 percent. Also, GartnerGroup expects that by 2001, 60 percent of enterprises will engage in the selective outsourcing of network services, application maintenance, IT planning and application development.
The vigorous virtual economy is not the only thing energizing the outsourcing boon. With a growing emphasis on expanding into dot-com entities with Internet-based operations, companies are more likely to grow geographically than centrally.
"PCs themselves are becoming much less important than the information they provide," says Stephenson. The result, he says, is that outsourced application developers, customized programmers and networking engineers are increasingly in demand over the once-revered computer-hardware jocks.
Outsourcing benefits
The often arduous and expensive task of recruiting from an already shallow pool of talent also convinces many companies to turn to outsourcing.
"Some people have tried for months to attract talent and just can't do it," says Frank Casale, executive director of the Outsourcing Institute, a professional association and global executive network in Jericho, N.Y.
The option to retrain current employees does not appeal to many companies, because there are no guarantees. "Typically, an individual can get a few months of experience under his or her belt and jump ship for a quick 10 to 25 percent pay increase," says Stephenson. "Then you have to hire again, and think about the wasted recruiting fee and training time."
Another factor that leads many small-to-midsize companies to outsource, says Stephenson, is the lack of resources. Typically, larger companies have staffing infrastructures to contend with the several levels of job tiers involved in the IT network. The smaller companies, particularly those scrappy start-ups, have limited resources. With outsourcing, they can compete technologically without the risk and new acquisitions.
"When hiring, companies are left with the nearly impossible task of looking for individuals who have strategic vision and insight, but who also will roll up their sleeves and swap memory out of dusty machines while handling everything else in between," Stephenson says.
Teaming with an outsourcing firm provides depth as well. Full-time workers require 401(k) plans, insurance packages and equipped work spaces. They get sick, take vacations and need to be retrained to stay current. With a good outsourcing firm, you have endless access to fresh workers and the trendy technologies, which takes the burden of employee retention off of IT staffs.
Menlo Park, Calif.-based SRI Consulting outsourced with iCorps four years ago to build its network. iCorps set up a maintenance program that keeps SRI up and running with the latest virus definitions and memory upgrades. "For us, it made sense not to hire," says John MacDonald, graphics and technology coordinator for SRI. "There just seems to be a lot of expertise over there [at iCorps]. If one guy doesn't know the answer, someone else will. They have the resources that just one employee or two cannot possess. They have Mac people, PC people, NT people, HTML and Java people."
Outsourcing various functions, says Casale, can even ease an overloaded staff. "Then it becomes a tool to create a good work environment," says Casale. "It's tough enough to keep these people as it is. It becomes a perk."
Effective outsourcing also can benefit a company's existing base of employees, as companies look to absorb the know-how that migrates in from their outsourcers. Consequently, outsourcers can become a default training resource.
Says Ennis Rimawi, president of One World Software Solutions, an ebusiness solutions provider and Internet software developer based in San Diego, "We focus on transferring knowledge back to them. Their existing team can learn from us and we can bring them up to speed on the new technologies."
MacDonald says that the more he absorbs from iCorps, the less it is needed. "I'm the one who does the administration in our network on a day-to-day basis. From what I've learned from using iCorps, I can troubleshoot and do the little things that keep everyone happy. And they're just a call away if I need them."
Connect, collaborate
The foundation of the network has changed. The Internet and Web-based applications are redefining the role and the relationship between outsourcers and their clients, changing the way business is transacted and functions are managed. Networks are growing into protected extranets that allow intimate access to anyone in the loop, and outsourcers and clients are taking advantage of this to forge alliances that take a win/win approach.
"It's a partnership," says Rimawi. "You're dealing with an organization that's accountable for poor work and lives and dies along with its clients." Joe Hosey, CEO of HotOffTheWire.com, a business-to-business ecommerce wholesaler based in Medfield, Mass., employs Prospect, Conn.-based Web-worx to support his company's ecommerce infrastructure. It's in Web-worx' best interest to not only regulate the bandwidth and ensure smooth online transactions, but to also provide strategic guidance and advice. Says Hosey, "They get a cut of the action, so that tells me that they'll be there for us and act as if they're a part of our company. If we succeed, they succeed."
Ron Shevlen, research analyst for Cambridge, Mass.-based Forrester Research Inc., an independent research firm that analyzes the future of technology, warns that small-to-midsize companies and dot-com start-ups had better offer lucrative incentives if they hope to attract a worthy outsourcer. In fact, he says, smaller companies must not only market themselves to recruit employees, they have to market themselves to the vendors to get them to help them.
"The larger outsourcers can pick and choose what they do these days," Shevlen says, "and they'd rather work with blue-chip clients where there's a lot of upside."
Outsourcing pitfalls
Companies looking to outsource should be aware of hidden costs. Despite what the vendors may say, it's still an arm's-length relationship between outsourcer and client, and estimating long-term costs can be tricky. "It's a challenge to estimate the soft costs of coordination and to specify everything in advance," says Shevlen.
Shevlen also warns of culture clashes that may arise when handing over the keys to your business to an unfamiliar company. "It used to be easier when they were all working in the same building for the same company," says Shevlen. "I think many companies underestimate the cultural differences between firms."
In many cases, companies are more comfortable having an onsite staff that's accountable to the company in order to gain control of core business functions and speed implementation of IT projects. But with end-user requirements exceeding the capabilities of so many networks, companies often don't have a choice but to outsource remotely.
"Sure, I'd prefer to have workers standing over my shoulder telling me what to do," says Hosey, "but we realize our limitations and concentrate on the outsourcing."
Another downside to outsourcing is security concerns that come with entrusting your network to an outside source. Forrester recently polled companies who outsource and found that today, one-third of companies outsource their Web-hosting infrastructure, but that number is expected to decline to 23 percent in less than two years. The reason, Shevlen says, is that companies would rather not entrust these critical capabilities to outsiders and will eventually bring talent in-house.CU
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