IT Outsourcing Benefits and Drawbacks to Be Aware Of

The IT outsourcing market is booming. Research&Market survey indicates the global outsourcing services sector is about to reach $904.948 billion by 2027. That means more and more companies delegate their IT tasks to third-party specialists. 

Businesses can outsource either the entire project, for example, mobile app development,  or just parts of tasks. It depends on the project’s complexity, deadlines, goals, etc.

Even big companies with many tech experts often hire outside help to finish projects on time. Nike, for example, outsources over a million jobs globally. 

For small and medium-sized businesses, outsourcing web development and other IT tasks can be a smart way to keep up with new technology without spending too much money.

Is it beneficial for your company? What are the issues to be aware of? Let’s find out. 

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What is IT Outsourcing?

IT outsourcing involves contracting out specific IT functions or tasks to external service providers. 

This allows businesses to leverage the expertise and resources of external specialists to meet their IT needs more efficiently.

According to the Spiceworks State of IT research, 66% of companies are going to grow their  IT budgets in 2024. Only 4% are going to cut their tech spending. 

Here are some common types and models on which IT outsourcing companies can spend their budget. 

Types of IT Outsourcing

Onshore Outsourcing

IT services are outsourced to companies within the same country or geographical region as the client organization. 

This type of outsourcing means language alignment and cultural similarity between the client and the service provider.

Offshore Outsourcing

IT services are outsourced to companies located in a different country or region. 

Offshore outsourcing is often chosen for cost savings and access to specialized skills. Due to different time zones, you can benefit from around-the-clock service availability.

Nearshore Outsourcing

IT services are outsourced to companies in nearby countries or regions. They often share similar time zones, cultural attributes, and business practices. 

Nearshore outsourcing balances cost savings with geographical proximity and cultural alignment.

Models of IT Outsourcing

Project-Based Outsourcing

In this model, specific IT projects or tasks are outsourced to external vendors on a project-by-project basis. Once the project is completed, the contract typically ends.

Managed Services

Managed services mean hiring outside experts to manage and maintain IT systems, infrastructure, and processes continuously. This model ensures continuous support and monitoring of IT functions.

Staff Augmentation

With staff augmentation, companies bring in outside IT professionals or teams to add to their current staff for a certain period or project. This model provides flexibility in scaling up or down based on project requirements.

Business Process Outsourcing (BPO)

While not strictly IT-focused, BPO involves outsourcing non-core business functions. This includes IT-related processes such as data entry, customer support, and back-office operations.

BPO and information technology outsourcing (ITO) are closely linked because many business processes rely on technology. Together, they generated $92.5 billion in 2019, according to Statista.

IT outsourcing offers businesses flexibility, access to specialized expertise, and cost savings. It enables companies to focus on their core competencies and strategic objectives.

8 Benefits of IT Outsourcing

Now that you know the IT outsourcing types and models,  let’s see the advantages of delegating your tasks to external specialists. Here are 8 benefits you can expect when outsourcing your IT department:

• Cost efficiency

Outsourcing IT tasks can often be more cost-effective than hiring and maintaining an in-house team. That is why over 70% of companies see outsourcing as a money saver. It eliminates expenses related to salaries, benefits, training, and infrastructure.

If you aim to cut costs in 2024, consider global IT outsourcing.

• Scalability

An outsourcing model allows businesses to quickly scale their IT operations up or down in response to changing needs and demands, such as seasonal spikes in website traffic.

You can adjust your IT resources as needed without the cost of keeping infrastructure all year. 

• Access to specialized skills

External IT service providers offer a wider talent pool with diverse skill sets and expertise. It allows you access to specialized knowledge and capabilities that may not be available in-house.

• Faster recruitment and onboarding

Speed up hiring and training since external providers have teams and processes set up. Thus saving time on finding and teaching new employees.

• Focus on core activities

Redirect your internal resources and attention toward core business activities and strategic initiatives. This way, you can level up overall productivity and efficiency.

• Flexibility

Be flexible in managing resources and projects. Adjust to changes in the market, technology, and business goals more easily.

• Innovation and technological advancement

You can expose your business to innovative technologies, best practices, and industry trends. This helps foster continuous improvement and stay competitive in the market.

• Enhanced service levels

Expect improved service levels, faster response times, and higher customer satisfaction. This is because your service provider focuses solely on delivering results for you.  

IT Outsourcing Disadvantages and How to Avoid Them

When it comes to IT outsourcing, there are both advantages and potential risks to consider. Let’s explore the disadvantages and ways to mitigate them.

Issue: Loss of control. Outsourcing can lead to a feeling of losing control over project management and decision-making. 

Solution: Clear communication with your vendor. Set expectations and establish regular checkpoints to monitor progress.

Issue: Communication barriers. Differing time zones, language barriers, and cultural nuances can prevent effective communication.

Solution: Establish open channels by using collaboration tools. Schedule regular meetings and ensure both parties understand project requirements.

Issue: Unforeseen and hidden costs. Unexpected expenses can arise during outsourcing. Solution: Conduct thorough due diligence, define project scope, and negotiate transparent pricing. Regularly review the budget to catch any hidden costs early on.

Issue: It is difficult to find the perfect vendor.

Solution: Choosing the right vendor is crucial. Take your time to do your research, assess the company’s expertise, and check references. Consider if they align with your business goals. Don’t rush the selection process.

Issue: Privacy and security concerns.

Solution: Implement Implement robust security measures to protect your sensitive data. Clearly define data handling protocols. Sign non-disclosure agreements and ensure compliance with industry standards.

Remember, when done correctly, outsourcing can be a valuable strategy for businesses.

IT Outsourcing Best Practices

Did you know that 78% of companies that outsource enjoy working with their outsourcing partners?

However, finding a reliable and trustworthy outsourcing provider is harder than it might seem. Here are some best practices for IT outsourcing that can help you navigate the process effectively:

1. Establish clear objectives

Before diving into outsourcing, define your goals clearly. Understand what you want to achieve and how outsourcing fits your business strategy. Lack of clear objectives can lead to unexpected challenges down the road.

1. Choose a compatible provider

Look beyond technical skills. Ensure that your service provider aligns with your company’s culture, business objectives, and working style. They should integrate seamlessly into your organization, just like actual employees would.

1. Keep your long-term goals in mind 

Don’t focus exclusively on immediate cost savings. Consider the long-term impact of outsourcing. What are the desired results beyond the initial deal? Keep the big picture in mind.

1. Prioritize delivery

While sales negotiations are crucial, don’t forget about the execution. Ensure that the delivery details are well-defined and not lost in the transition from deal-making to implementation.

1. Ensure effective communication

Clearly communicate project specifications to your service provider. Be detailed and precise. Outsourcing requires coordination and ongoing communication. Especially when functions are distributed outside your organization.

What’s Next?

The question remains: Is outsourcing the right choice for your company? 

Well, considering all the advantages we’ve covered above, it might be a reasonable choice for you. 

Outsourcing allows you to delegate IT tasks to experts who can handle them better, faster, and at a more affordable cost. However, we understand that you might need more time to select a reliable IT outsourcing partner.

At SPDLoad, we’ve got you covered. We value our strong client relationships and are committed to delivering the best results for everyone. We understand that every situation is unique, especially regarding IT challenges and struggles. 

Transitioning from in-house to outsourcing can be challenging, but you can always rely on our expertise and over 10 years of experience developing innovative SaaS solutions.  

Connect with one of our specialists today to explore how SPDLoad can assist you. We’ll work closely with you to understand your needs and develop a tailored outsourcing solution.