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Australian businesses will spend in excess of $7 billion in 2010 on IT outsourcing. So, how do businesses know they are getting the best deal, and how do they choose the best supplier for their business?
IT outsourcing is a well-established practice for larger businesses – quite often when the outsourcing company will take on full management of a company’s IT system – but now, there is a growing number of outsourcing deals focused on smaller contracts.
For big businesses, establishing an offshore outsourcer can result in significant cost savings. But to achieve these benefits, businesses need to choose carefully, investing significant time, effort and cost to make sure the contractual terms and knowledge transfer have been carried out thoroughly, and that the expected benefits will be delivered.
For SMBs, without the spending of larger businesses, it is far more difficult to justify the upfront resource to do the groundwork necessary for an offshore outsourcing contract, and so, they generally end up retaining IT services in-house, or outsource incremental IT services to a local IT-service provider – where the cost benefits are more difficult to achieve.
This, coupled with the traditional view that offshore outsourcing means taking a service from a low-cost region, traditionally involving countries such as India, China and Brazil, which could lead to additional contractual challenges, as well as communication and cultural issues, there’s little wonder that SMBs view IT outsourcing as too risky or not cost beneficial.
There is no doubt that for some SMBs, choosing to outsource with a provider in a low-cost region, is mainly price driven. However, IT outsourcing needs to be viewed as a benefit to the business as a whole, not just on the cost savings to the in-house IT department. Services provided by the IT outsourcer have an impact on every area of the business, so the ability to get tasks done quickly and effectively need to be weighed against the overall contract costs.
In the modern global marketplace few businesses can escape from the insatiable round-the-clock demand for real time systems interaction. The potential knock-on cost impact of, for example, a customer not being able to place an order because of a sub-standard systems-support response can equate to more than the cost of the support contract itself.
Specialist skill and experience should add value to the customer’s business, most importantly, to bring innovative ideas to improve service. Interestingly, for most outsourcers, delivering innovation to customers is counter intuitive as it is often in their best interest to remain inefficient, and for the customer to become increasingly dependent on their services.
So, what should businesses consider when outsourcing, and how can they ensure the best long-term outcomes? Alan Kerr, commercial director at velos-IT, a UK and Australian-based Oracle-managed services company, whose customers rely on complex applications to run core functions such as finance, operations and management processes, advises SMBs need to weigh-up requirements extremely carefully.
He said: “Businesses need to be wary of opting for the cheapest option, IT outsourcing needs to be viewed as a long-term relationship, one that can bring best practice and expertise in its field to the customer.
“We often hear from customers who have experienced other IT outsourcing deals, that the supplier did not offer input above the service agreement, it’s so important that supplier offers advice and, on occasion, challenges the decision of customers if it will result in a better outcome.
“Businesses need to check out the track record of the supplier, can it offer innovation, will there be cultural or language challenges, does its out-of-hours service suit? Most of our customers come through recommendation, so I would encourage businesses to use their contacts and get testimonials before making a final decision.”