Is your IT department worth its place on your payroll ?With the advances in technology simplifications, cloud computing and outsourcing contracts, is it worth keeping them on?

The temptation is there. Non-core, business-related IT functions and responsibilities could be handed over to an external partner, cutting labour, energy and other costs without doing any damage to the delivery of key products or services.

Outsourcing can also bring a greater breadth and depth of skillsets, the latest cutting-edge technologies, experience and round-the clock support and management of systems.

While this may seem like a win-win situation, the outsourcing of some, or all, of a company’s IT systems is generally not straightforward.

Many firms’ IT systems are complex and bespoke, and require expert tinkering and management. The threading of IT throughout a company’s internal processes and functions can make it challenging to find particular specific pieces of infrastructure or applications to outsource.

Partners may have their own best interests in mind when making decisions. So there may be sound strategic, privacy or business reasons for keeping your own staff in control of vital IT systems.

Costs

The numbers of companies considering handing over some or all of their IT to an outside partner had increased recently, according to Joe Molloy, managed services director of IT Force, a Dublin-based company.

“There is a definite trend in companies using an IT managed services company in an attempt to downsize their in-house IT department,” said Molloy.

“There is increased demand among IT departments and IT managers to hand over the management of a certain IT function to reduce costs, reduce or redeploy permanent resources and maintain or increase the service level to end users. We have seen particular growth in companies which have previously engaged a contractor onsite, and have now outsourced this function to us.”

Cutting costs was the main reason why companies considered partnering with an outside IT service provider, according to Jason Boyle, professional services manager at PFH.

“In the current environment you would expect a major drive towards outsourcing of IT, and certainly some companies are doing that,” said Boyle.

“Companies are also looking to get more efficient with what they do have.

People are asking,’ How much more can I get out of what I have if I manage it properly, as opposed to having to make a capital investment?’. This can be married up with looking for opportunities to reduce headcount.”

Boyle said that smaller companies in particular were questioning whether they could afford an internal IT department at present.

“In smaller companies you find that the’ IT guy’ is getting squeezed out,” he said.” Slightly bigger companies can be looking either to reduce from two guys down to one and outsource some of the work, or reduce down to no internal IT people.”

Frazer Furlong, general manager of Ergo IT infrastructure, said that it was not as simple as just firing your entire IT department and transferring al l their duties to a managed services partner.

“The opportunity to make people redundant and replace them directly with a managed services provider is limited by employment legislation,” he said.” Where there is a much greater opportunity is in outsourcing some or al l of the IT function itself. This will include responsibilities and costs that go beyond just headcount.”

Skillsets

Keeping IT experts in particular areas in-house could be expensive, particularly for smaller companies, said David Scanlan, business development manager for enterprise services at HP Ireland.

“Access to the right IT expertise and skills, which they might not have in house, is the main driver at the moment,’’ said Scanlan.

“Outsourcing their infrastructure or applications can enable a better service back to the business.” David Battigan, group IT director with mobile solutions providers 2020Mobile Group, said that his company regularly looked externally for certain specialised skillsets.

“We outsource key projects where there is an immediate business or client need and we do not have the required level of technical knowledge or the resource capacity to respond at the speed required,” he said.” Bringing in external partners to supplement an existing team’s knowledge has achieved excellent results for us.”

As IT functions or applications evolve, different skillsets may be required to develop or manage them. Denise Hannigan, head of IT at online trading company Delta Index, said that the development of Delta’s trading platform had been initially outsourced.

“We outsourced the initial development and coding of our proprietary trading application,” Hannigan said.” It worked extremely well then, as we took advantage of a surge of programmers in the initial stage of the project to get the platform rolled out quickly. At the time, it was difficult to find experienced personnel with the right skillset in Ireland.”

Furlong said that IT outsourcing could be a way for smaller companies to bring knowledge of new technologies into the business, without having to hire specialist full-time staff.

“There are huge cost saving benefits for small companies with virtualisation and consolidation,” he said.” Companies may not be able to achieve those savings with their in-house skillsets, so they need an outside provider.” Boyle said that companies rolling out new technologies were sometimes wary of investing heavily in training one staff member in its use.

“If you are a non-IT environment in a mid-size company, you are unlikely to be able to build resilience into your people,” he said.” If you decide to put in virtualisation and pay for training for your IT guy, he then has an opportunity with a certification to move on. You might lose the only person with the knowledge to support your IT and business systems and it can cost you a lot to replace that person.”

Fabien Peyaud, IT manager at Farm Relief Services (FRS), said that while most of the FRS group’s IT systems were internally managed, the company did look to cover expertise gaps by outsourcing.

“We look after about 90 per cent of the system, but we do outsource a couple of things,” said Peyaud.” We outsource our Microsoft Dynamics software support, as there would be the odd technical issue with the product that we would not have the technical knowledge in-house to resolve. The design of our websites is also done externally, but we would come up ideas of how the sites work ourselves.”

Bespoke/critical systems

Companies which had developed their own bespoke IT systems or business applications could often be wary of outsourcing their management or support, Molloy said.

“If a business has a particular IT process or internal IP that is important to their business, or indeed is bespoke to the point where it is difficult to deliver to a service level, it is advisable for them to keep this internal,” he said.” Our experiences shows that where bespoke technology, process or internal IP is the core competency of the organisation, they want to have full control.” This held true in the case of Delta Index, according to Hannigan.

“Our IT systems are integral to the day-to-day functioning of the business,” said Hannigan.” A trading platform is a highly specialised piece of software. The sheer volume of information being processed is enormous, with thousands of products with thousands of price updates per second.

As a consequence, the performance of the business is based directly on the ability of our internal IT and engineering team to deliver excellent performance.”

It could make sense to outsource certain elements of a bespoke application, while retaining the knowledge and management in-house, Peyaud said.

“We have a bespoke online CRM application which has been developed in the last year,” he said.

“We project-managed it in-house, we did all the requirements gathering in house, and made sure that it delivered, but we outsourced the actual web development to a partner.

We approached some out of the box products, but budget is a big issue for us. The solution we went for meant we got exactly what we needed, no more and no less, for the smallest amount of money.”

Management burden Furlong said that small companies without big IT departments or requirements could find managing complex IT systems a burden.

“In smallish companies which currently have no structured or permanent IT staff you might have a finance director looking after IT, trying to deal with multiple vendors,” he said.

“We would look to take that burden off his shoulders.”

Outsourcing of lower-level tasks within a company could free up IT staff to work on more complex or business-sensitive roles, Molloy said.

“The service provider can focus in on certain tasks and IT functions where we have better skills and better delivery mechanisms than the client,” he said.”

The client can then equally focus on functions they want control over. We work with a lot of IT managers who are stretched and under pressure. Their coping mechanism has been to identify an IT function that burdens them, hand it to us and then they can focus on the rest.”

Hannigan said that Delta had passed over the hosting of its servers to BT, allowing IT staff to look after more business orientated tasks.

“For commoditised services such as hosting it makes sense to partner with an expert who can provide the 24 -7-365 service required,” she said.

“This allows us to concentrate on the innovation at an application level to better serve our clients. However, for our unique back office and risk applications, ownership and control are always priority considerations.”

Battigan said that 2020 Mobile was currently outsourcing its print function to a managed services partner.

“We are in the process of moving our print service to a managed print partner,” he said.” We worked to identify a specialist in this space that will far exceed the service delivery performance of my department in this arena as it is not a core competency of our team. We have identified a strategic partner in this area to enhance the service to our internal clients while also reducing our overall operational cost in this area.”

Most companies would look to retain overall strategic control of the IT systems, no matter how much of it was outsourced, Scanlan said.

“The company will typically still have someone who is maintaining ownership of their IT strategy and direction,” he said.

“The level of outsourcing within the organisation will determine the level of role they will need to keep internally. For example, if a company has outsourced everything, they might look for a joint approach in their IT strategy.”

Mix and match

Battigan said a blend of in house and outsourcing tended to work best for companies.

“I believe that the partnership model works best,” he said.” It cannot be exclusively one or the other. The knowledge of the core business held by your own IT team, their knowledge of your own in house solutions developed to support your organisation’s specific processes and unique business unit functions cannot be replicated by a third party with ease.

“In the same way, your own team cannot compete with the deep delivery experience of a specialist technology partner in a specific realm of technology or service delivery.

Identifying where exactly your team can be enhanced through partnership is the key.”

Furlong said that larger companies only tended to outsource the parts of their IT function which could be easily peeled away from the core business.

“Larger corporate organisations might be looking to outsource their total IT operation or certain components of their IT responsibility,” he said.” It might be helpdesk, managed desktop services or managed print services. Server support and e-mail management can also be delivered as a service. These are areas that are very ring-fenceable and easy to hand out to a service provider.”

Whether an IT function was ring-fenceable or not depended on the type of business involved, Furlong said.

“Some of these areas may be of critical performance in certain organisations,” he said.” Printing in a manufacturing company may be hugely important – if the printers go on the production line there can be major issues.

So they might feel that they just cannot afford to outsource that function. In a financial services company, however, e-mail might be huge where print would not be that important.”

Challenges

Peyaud said that too much outsourcing could see a company’s management lose control of their IT strategies, with negative business consequences.

“If we outsource too much, then we lose touch of what is actual ly going on in the business,” he said.’

‘That is what the outsourcing partners love, as once they are in they have more internal knowledge of how the company operates than you do. But by keeping as much of that knowledge as we can within the company, we are better able to select the right solution for us, and to get the best deal for that solution.”

This was especially the case when a managed service partner offered a limited set of solutions or technologies, Peyaud said.

“On a few occasions, we have found that having a partner tends to direct you towards a particular path that they want you to take, rather than being open minded about the options,” he said.” They have preferred solutions and deals with vendors, and it is very difficult to get total ly independent advice with an outsourcing partner.”

Hannigan said that ongoing communication was at the heart of the best functioning managed services or outsourcing relationships.

“The key is the selection of the correct partner to outsource with and to be able to work closely in each phase, not only design and go live,” she said.

“Also it is necessary to keep the relationship updated, especially in challenging economic times.” Furlong said that both parties must be sure from the off which elements were included in the managed service agreement and which were not.

“It is very important to be able to pin-point and ring-fence the service that is being outsourced, so that both parties have a very clear picture of what they are being asked to do, and what they are paying for,” he said.

The flexibility to deal with business needed as and when they arrived must be built into a managed services agreement, Scanlan said.

“Flexibility is very important,” he said.” Customers can get locked into a very rigid managed services contract and not have the flexibility to change or add processes or infrastructure over time. A clear mechanism for increasing the scope and volume of the contract should be well thought-out up front.”

The future

Fast-improving communications and remote management tools were making the management of IT outsourcing projects

“Better and faster broadband for starters has had a significant impact,” he said.” This, coupled with web remote support tools, means remote support can now be quite intimate. Also, the ability for IT providers to deliver and communicate via web conferencing technology – where we can see and hear the end user – has grown in popularity in the market.”

Scanlan said that these developments were likely to lead to more opportunities for Irish companies to outsource some of their IT functions to partners with operations overseas.

“Resources in a shared pool located offshore can provide support remotely and quite cheaply, compared to an in-house alternative,” he said.” This is particularly so with the local costs in Ireland for IT administration staff. The same applies for application development, support and maintenance. Offshore can deliver significant savings.”

Molloy said that he expected more of the large IT vendors to offer managed services solutions going forward.

“As certain parts of functions of IT are becoming more commodity based, I feel there will be more consolidation in the market – more IT service providers will merge and offer a complete service,” he said.” Companies which only have skill in certain areas will either have to scale and adjust to a volume type of business, or upskill or merge to offer the client a broader, deeper type of service.”

Companies would increasingly buy some or al l of their IT at a fixed monthly price using a utility model, said Scanlan.

“Contracts used to be very specific in terms of delivering a certain set of services but now, especially for the larger vendors with big portfolios and capabilities, they are looking at including various different types of their IT – whether it is software, hardware or services – al l built into a single monthly service price,” he said.

Battigan said there would still continue to be a case for keeping at least some of the IT function house for a good while yet, however.

“As cost pressures continue to increase, I do see managed services partnerships becoming increasingly important to our IT strategy,” he said. “However, we will always strive to attain that balance between make or buy.

“We have consistently found that blending the industry-specific and business knowledge of an IT department with the relevant technology expertise and in-depth service delivery experience of a partner can lead to exceptional results.”