Today, thousands of companies use IT outsourcing, especially in the technology sector. Before you take your mind across the globe after reading “outsourcing,” it’s not a service exclusively targeted for workers thousands of miles away from the company contracting them. Different types of outsourcing provide varying advantages and disadvantages for businesses.
What is IT Outsourcing?
When a business chooses to depart from in-house services, it might hire a third-party to continue performing specific information technology functions such as infrastructure management and running service desks. A company might use one or all their IT requirements to complete different tasks across departments. For example, a startup might use a third-party company to administer human resources and another provider for web and marketing development services.
American manufacturing jobs that started being outsourced in the 1970s included textile, electronic and automotive industries, as reported by CNBC. As the method began to save companies money, the IT services industry was quick to join in.
Types of Outsourcing
Offshore outsourcing is the process of delegating IT work to companies in foreign countries. American companies tend to outsource to China, India or the Philippines because of lower costs and tax savings.
Nearshore outsourcing is like offshore outsourcing, but companies that partner with each other share a border, which makes travel and communication between the companies easier.
Onshore outsourcing involves finding an external service provider in the same country where the contractor is located to provide remote or on-site work.
Cloud computing is when the third-party offers IT-related services over the internet. This can include Infrastructure-as-a-Service (IAAS) and Software-as-a-Service (SAAS).
Managed services occur when a company needs to outsource various communication tasks, it can offer a contract to a third-party that will provide multiple network management functions like call centers, virtual private networks (VPNs), firewalls and network monitoring.
Advantages of Outsourcing
Outsourcing allows companies to benefit from two major factors: cost savings and time to focus on the core aspects of their business. These two factors play a crucial role in transformational change and improve business results.
A law firm, for example, might find it crucial to organize its files using a cloud-computing service provider so that they don’t have to spend too much money to own the technology. Outsourcing this non-core activity could improve in-house productivity while the third-party performs the smaller task with more accuracy.
Disadvantages of Outsourcing
The main drawback of IT outsourcing is the decentralization of jobs in the U.S. (or whichever country is doing the outsourcing). While workers may be accepting job opportunities they hadn’t expected, manufacturing workers, as well as customer service workers, could find outsourcing less comforting due to closures in their field. Large corporations have eliminated their in-house customer service centers to outsource that function to third-part companies located in lower-cost locations.
Another criticism of outsourcing is a lack of transparency. Consumers are now more aware of the footprint and sourcing of their products, and outsourcing can make this kind of transparency difficult. If a U.S. company outsources part of its business to a company in Bangladesh, which might also outsource to another local company, tracing the money and insights into labor conditions becomes complicated.
When Should a Company Outsource its IT Department?
Companies that choose to outsource their IT services should be well informed and consider all sides to the question. When top management fails to analyze their decision concerning outsourcing, they can experience challenges when implementing the changes.
According to Forbes’ Technology Council, if businesses want to avoid managerial risks, they should introduce outsourcing if:
- IT affects business operations: When IT takes time away from essential business functions, it can dampen companies’ established goals. Teams with the right set of skills can come in to assist in-house resources.
- Outsourcing enables better IT: If a company already outsources some IT-related work, it can consider whether it’s beneficial for them to outsource more solutions or services in the name of innovation rather than budgets.
- Skill sets don’t match needs: When a company’s IT workforce is outdated or doesn’t foster growth, it may want to consider outsourcing. This may or may not include reducing staff departments. But if a detailed analysis proves that outsourcing is a need to stay relevant and afloat, companies should move forward with the decision.
- IT is not a core competency: Companies whose IT isn’t an integral part of their primary skills can receive the same service at a lower cost and better quality without risk of losing any competitive advantages.
- Outsourcing makes sense strategically: When things look right, that can be enough. If there are no budgetary concerns or lack of resources, choosing to work with a third-party team is the most strategic decision.
Where is the IT Outsourcing Market Headed?
Throughout the years, the term outsourcing has been obscured and presented in a negative light due to the increase in U.S. unemployment when companies choose to outsource. But times are changing.
Companies have been adopting a hybrid approach by using nearshore locations when targeted skills are needed, and large offshore centers when pressing needs are at a low cost.
Moreover, according to the Deloitte survey, respondents say that they plan to increase IT outsourcing because of the proven impacts of innovation and ease of relationship management. This outsource includes foreign as well as local services.
“Domestic sourcing is here to stay, and it’s going to grow rapidly,” said Helen Huntley, an analyst for Gartner, in an interview for The New York Times. According to the article, U.S companies are embracing the idea of onshoring more than ever before, with one company having an estimated 10,000 jobs in their location in Indiana and North Carolina by 2019.
“Every business now realizes it’s a digital business. They need technical help, and that’s really driven the demand for our U.S.-based talent.” -Monty Hamilton, CEO of Rural Outsourcing
IT Outsourcing Jobs – No Different Than IT Jobs
According to the U.S. Bureau of Labor Statistics, computer and information technology occupations are expected to increase by 12% between 2018 and 2028*. The ubiquity of technology makes it easier for the business sector to embrace IT as a competitive service, primarily if they invest in third-party IT providers. IT professionals interested in working for a third-party company require the same skills as an in-house employee.
Jobs that fall under the onshore outsourcing umbrella can include:
*Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, on the internet at https://www.bls.gov/ooh/computer-and-information-technology/home.htm (visited November 20, 2019).
National long-term projections may not reflect local and/or short-term economic or job conditions, and do not guarantee actual job growth. Degree and/or certificate program options do not guarantee career or salary outcomes. Students should conduct independent research for specific employment information.
