IT consulting has become increasingly popular among smaller businesses. But you need to do your homework before deciding whether or not your business should outsource its tech functions.

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Is IT consulting the wave of the future for small businesses? According to a recent Computer Economics study, smaller companies (those with fewer than 300 employees) are leading the way when it comes to outsourcing information technology processes. And some estimates say cost savings are the chief driver of this trend, placing the average cost savings for companies who choose to outsource IT as high as 25% to 40%.

Whether or not your company should outsource a specific business function is always a complicated question for small businesses. For some business services — legal work or equipment maintenance, for example — it just makes the most sense to trust the professional with very specific experience. Services like information technology can be a more complex issue, though. Can you trust an outside firm with your data? Are costs predictably lower than hiring an in-house IT staff? How do you know if outsourcing IT is the right choice for your business?

Why Companies Choose To Outsource IT

For small-to-medium sized businesses, business process outsourcing (BPO) — tasking a specific project, task, or service to a third-party provider — is fairly common. Outsourcing tech support, customer help desk functions, and on-site maintenance all fall into this category. According to IT Management, many companies turn to IT outsourcing for access to otherwise unavailable resources: staff capabilities, hardware or infrastructure access, or other capabilities.

Outsourcing can make costs more predictable — for example, using a hosted server (instead of purchasing and maintaining your own equipment) lets businesses fix expenses at pre-set amounts each month. There are no up-front equipment expenses or variable maintenance costs beyond this fixed amount. Here are some of the reasons small businesses are outsourcing IT:

• Flexibility: Companies in transition — particularly those that are rapidly growing, moving, initiating new projects, or merging with other organizations — like the flexibility provided by an outsourcing company. Instead of hiring new employees for temporary projects, a company can contract for specific services or for specific time periods.
• Expertise: One of the most popular reasons for outsourcing any project is to get access to expert knowledge and experience that current employees can’t provide. You also won’t have to pay for your IT person to keep up-to-date on new techniques and programs via training. The outsource company trains those employees for you.
• Access to Resources: One of the most commonly outsourced business functions is the customer service help desk. Outsourcing can help businesses without the office space, employee availability, or personnel language capacity to serve clients across time zones at all hours of the day.
• Savings: Cost savings from outsourcing can be dramatic: a study by Gartner Inc. estimates that 80% of businesses with fewer than 300 employees would realize significant savings from outsourcing e-mail management alone. IT companies are often able to provide access to services and equipment at far lower costs than your business would incur trying to go it alone.

Of course, outsourcing also has its disadvantages. For one, trusting a third-party provider for all of your company’s IT needs can create serious security issues. And outsourcing is not a panacea. If your business is having trouble managing technology on its own, it’s likely that an IT outsourcing provider will be bound by the same constraints that make in-house management difficult — poor system construction, inefficient communication, and lack of scalability aren’t problems that an outsourcing company will be able to fix overnight.

It’s a good idea to ask yourself why you’re considering outsourcing. If it’s to take advantage of the specific benefits mentioned above, you’re probably a good candidate. If it’s because you’re unable to manage problem systems or processes on your own, you may need to address these issues first before involving a third party.

What Can You Outsource?

According to the Computer Economics study, the most commonly outsourced IT categories are data center operations, disaster recovery, and e-commerce Web design functions. Many companies start out outsourcing basic support services (help desks, etc.) and eventually begin to include more advanced operations (security management, for example) in the outsourcing contract. IT outsourcing companies also provide services like e-mail marketing management, virus protection, data backup and recovery, wireless support, purchase consulting, and network architecture.

The following functions are commonly outsourced by small-to-medium sized businesses:

• Strategic Planning and Management: Outsourced IT firms can act as a CIO or as a management consultant for specific projects or initiatives.
• In-Office Support: IT firms can perform regular maintenance and everyday “fixes” to hardware, computer software, or network devices.
• Managed Hosting: Server or application hosting is similar to “leasing” a particular program or software from the outsourcing company. You can use a shared server or pay for the use of your own “dedicated” server. That’s a popular option for companies that do not have the skills or resources to maintain or update software on their own.
• Data Center Outsourcing: Since data centers require more resources (space, maintenance, power, etc.) than many businesses are able to provide, data processing and data storage are common uses of outsourced IT.

The Next Step: Evaluating IT Service Providers

Before you request price quotes or contact any outsourcing companies, it’s a good idea to make a list of all the services you require. This should be fairly simple, especially if you’re switching from an in-house IT department to an outsourced or IT management consulting firm.

For businesses with minimal experience with IT in general, start with the basics: server, software, and maintenance requirements, data storage needs, on-site or virtual support for employees, customer support functions, and plans for expansion. Keep in mind that you can split your needs among multiple providers if one company can’t do everything you require.

One of the largest factors to consider when making any outsourcing decision is cost. In-house costs are fixed (for example, $50,000 or more yearly in salary for very basic IT duties) but are not “guaranteed” in the same way that outsourced services are. With outsourcing, these services are contracted for — if they aren’t delivered, you might be eligible for refunds or penalties from the outsourcing firm.

The Outsourcing Contract

IT consulting companies use contracts to outline services performed and specific costs. A separate service level agreement (SLA) outlines the specific details. The SLA specifies the “nuts and bolts” of the transaction: for example, that the help desk will be available between the hours of 7am and 10pm daily. The outsourcing contract itself should include the general details of the transaction:

• Cost and Scope of Work: Outsourcing contracts should outline what you’re purchasing in easily understandable terms. Most of the time, you’ll pay a monthly rate for ongoing services. Even temporary project costs can be paid as a series of payments. Prices for IT services can fall quickly as technology improves, so make sure your contract includes a “benchmarking” provision, which allows for a third-party opinion (and often renegotiation) if you suspect that ongoing expenses associated with your project have dropped.
• Work Monitoring/Governance: Governance software, which allows you to evaluate work as it is completed, can be a valuable tool for both parties in an IT outsourcing transaction. The service contract should allow the use of governance software and contain provisions that specify actions you can take if service level requirements are not met.
• Disengagement Plan: Disengagement plans describe the “unwinding” of an outsourcing relationship, whether that means terminating the contract or handing tasks over to an in-house IT department as projects are finished. The contract should address ownership rights, information and data transfers, and other issues associated with terminating an ongoing service.

Though IT consulting has become increasingly popular among smaller businesses, whether or not your business should outsource remains a complicated issue. Do your research and make an educated decision before you trust a third party with the technological keys to your kingdom.