Start-ups to gain from IT outsourcing

Small businesses have always confronted with addressing their IT necessities. The lack of resources – be it staff, budgets or managing resources – have determined SMBs to start exploring the offshore outsourcing option. Throughout my experience as an IT services provider, I’ve realized that start ups and small enterprises have specific needs that few outsourcing providers can address correctly. Affordable IT solutions that are easily to install and configure, service/support requirements and, most of all, integrated ready-to-use methodologies and tools are the most critical demands of an SMB willing to outsource its IT department.

What drives small companies to IT outsourcing?

The SMB market is eager to find affordable IT solutions that are easy to use. Just as important, however, are the requirement that address SMB deployment issues, operational challenges and service/support requirements. SMBs want IT solutions that are easy to install and configure, and require minimal customization and integration. More importantly, they demand responsive and reliable after-sales service and support.

SMB specific challenges and “pain points” determine specific needs for small enterprises. Most outsourcing providers are specialized on the early adopters of outsourced software services – large multinational companies. Therefore there are few specialized providers for SMBs and able to adapt to their business model and needs. Small businesses should choose outsourcing their IT to those providers with experience in managing SMB projects.

What holds them back?

Affordability: Market figures point out that approx 40% of SMBs state cost as still the strongest reason preventing them from outsourcing. But offshoring proved that in most cases the outsourcing option will be significantly cheaper than hiring in-house staff – since manpower or infrastructure costs are lower at the vendor’s location.

Trust: Lack of clearly defined methodologies and contracts, quality certifications, security assurance and even cultural issues can contribute to low trust levels among SMBs when engaging in an outsourcing relationship. The vendor must be able to place confidence, expect with assurance, agree to the contract, and act predictably and fairly in order to obtain trust from their clients.

Intellectual Property and Data Security: One of the major drawbacks for outsourcing adoption among SMBs is related to protection of intellectual property and information in general. Especially for technology-intensive start ups that rely on innovation, these are business-critical issues, and not all providers have yet in place the procedures for ensuring all these.

Understanding: A clear understanding of the outsourcing process and benefits is minimal among small companies. Offshore software services vendors are more interested in adding Fortune 500 names to their client lists and hence have failed to educate small businesses about the benefits of outsourcing.

Volume of work: Large service providers would rather work with large corporations that can outsource large volumes of work. The volume of work outsourced by SMBs may not be feasible for large vendors. This trend seems to be reversing, but slowly.

Management experience: Small and medium businesses do not have the “management experience” required to work with an outsourcing project. Large corporations, for instance, have dedicated specialized resources to manage vendors.  

True benefits of IT Outsourcing for SMBs

Process Maturity: Perhaps the main reason companies would want to outsource is to engage a mature team for its development tasks. Types of processes, the investments being made in services, the infrastructure and the level of communication, trust and understanding that exists between the vendor and client’s company all influence the quality, results and outcomes of the process. The maturity process should be adapted and flexible not static, developing in scale, scope and framework as the relationship evolves and business results need to be maximized. Process maturity is effective when it improves costs, efficiency and productivity in a total quality control approach.

Cost Savings: The cost savings are commonly based on the wage difference between the Western world and offshore destinations. Other factors such as economies of scale and specialization could also have a considerable impact.

Knowledge & Expertise: Outsourcing gives you access to knowledge pools that you might not have inside your own company. Outsourcing also enables you to focus on your company’s core business and competences.

Staffing: By using external resources, you can overcome possible shortages on the job market. This is especially the case for highly specialized roles in, such as the information technology industry.Despite the proven benefits of outsourcing, SMB managers still seem to be reluctant when it comes to IT outsourcing. Many of them share so-called “myth” beliefs which are minutely addressed in this white paper.