IT outsourcing: Expectations vs. reality

IT Outsourcing

What is IT outsourcing?

IT outsourcing is a common term in technology. But what does IT outsourcing actually mean? IT outsourcing is hiring outside service providers to take over certain information technology tasks. An example would be to outsource data storage to a third party company that may be able to provide this service at a lower cost than building own and more expensive IT infrastructures.

An outside service partner can be located anywhere in the world – just down the road or on another continent. With IT outsourcing, companies can outsource the entire IT infrastructure or individual areas and tasks into professional IT hands. Closely related to this is cloud utilization. This is because IT outsourcing and the cloud are mutually dependent nowadays, because outsourced servers, software and services such as backups are obtained from the cloud.

In most cases, outsourcing also means cost reduction. Reasons for this are lower labor costs, a cheaper infrastructure or an advantageous tax system at the outsourcing location.

Sometimes it can be hard to find skilled IT-workers locally but easier to access in other locations. IT outsourcing makes it easier for companies to access professionals with appropriate IT skills.

Another reason for IT outsourcing some of your software processes to IT outsourcing services is to free up internal staff to focus on the core offerings of the company and to accelerate internal key competences.

By turning to IT outsourcing services, companies also hand over and spread responsibilities to a third-party and therefore some of the risks.

IT outsourcing services

IT outsourcing services, also called service providers, offer, for example, hosting and cloud services, develop software or provide the telecommunication of a company.

The cooperation between a company and the IT outsourcing provider is regulated in the service-level-agreement. It can go so far that existing personnel, hardware and even buildings are temporarily transferred to the provider. In this case, it is referred to as a personnel or asset transfer.

A distinction is made between single-vendor outsourcing and multi-vendor outsourcing. In the first case, you work exclusively with one provider, in the second case with several providers covering different IT segments. In addition, outsourcing can take place onshore locally or offshore abroad.

There are three service levels in IT outsourcing:

  1. Infrastructure outsourcing: at the infrastructure level, for example, server services, cloud services or data centers are outsourced.
  2. Application outsourcing: At the application level, for example, software solutions, website development or store systems are outsourced from within the company.
  3. Business process outsourcing: At the business process level, for example, accounting services or online marketing services are outsourced.

Small business outsourcing

Agility and size are two key characteristics that make for a good combination of small businesses and IT outsourcing. Small businesses are extremely quick to adopt new approaches, services and technologies. For small businesses, it is often easier to offload heavy workloads or non-essential operations to foreign service providers than to expand their internal teams.

According to experts, small business outsourcing will be about 52 percent by the end of 2021 and the budget for small business outsourcing will increase to almost 10%.It has also been observed that small businesses started using Software as a Service (Saas) before larger companies did. Although larger businesses are far behind smaller ones, it is estimated that big enterprises will invest more in Saas as well.

IT outsourcing trends

Nowhere else has the attitude towards outsourcing changed as positively in recent years as in IT outsourcing. IT outsourcing today consists not only in administration and troubleshooting, but also in the individual adaptation and design of the IT infrastructure to the business processes in the company in the course of modernization and the subsequent professional support by specialist personnel.

Today, in the age of digital transformation and rapid technological progress, many services can be delivered much faster and offered more cheaply.

To maintain the competitiveness, it is necessary for many companies to adapt their existing and outdated IT infrastructure and optimize their workflows with the help of technology. The growth of cloud services and the increasing remote capability of technology makes it increasingly lucrative for many companies to confidently place the adaptation of their IT infrastructure in the hands of service providers.

Statista predicts that by 2021, more than 2.14 billion people worldwide will buy services and goods online. This explains why online businesses will focus their transformations on making online shopping more convenient.

Specially AI-powered (Artificial Intelligence) networks are being used to improve the quality of customer service. Ideally, AI will support e-commerce platforms by analyzing customer behavior and buying habits. In this way, online stores can provide a more personalized customer experience where past interactions feed into further interactions customers have with the platforms.

About 70 percent of Millennials surveyed are satisfied with their interactions with chatbots. According to studies, about 85 percent of customers will buy goods or services in the future without having contact with a human. Chatbots can replace human salespeople in online consultations.

More and more companies are planning to reduce their operational costs by implementing RPA (Robotic process automation). We will notably see more automation solutions for logistics management, payment processing, and ERP (Enterprise Resource Planning) management.

IT outsourcing articles

You will find plenty of IT outsourcing articles on the internet or in HR magazines. IT outsourcing articles help companies understand the way IT outsourcing works and the importance and advantages that can be brought to companies by using IT outsourcing services.

Companies should not only pay attention to the costs, but also to the quality of the services. They should evaluate carefully about which part or function should be outsourced. After all, outsourcing IT services to an external service provider may also involve the transfer of sensitive data. Do you have the resources and expertise in your company to manage IT yourself? Or would the benefits be greater if you outsourced maintenance and operation to an IT partner? IT outsourcing articles can give helpful insights and help finding the right approach for a company’s needs.

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