Outsourcing IT infrastructure for SMEs
Outsourcing presents a host of advantages for small-to-medium enterprises (SMEs). Businesses that lack IT resources and capabilities required for organizational and business effectiveness can subcontract their essential activities and function to third part service providers.
IT outsourcing is not too different. It can help SMEs gain access to technologies not known previously and relieve them of underutilized resources. However, outsourcing IT infrastructure comes with its fair share of risks and CIOs or IT managers need to be cautious in how much of their IT infrastructure to subcontract.
Here, we will shed on some of the reasons why outsourcing IT infrastructure is an important aspect facing SMEs today.
Benefits of outsourcing
The main benefits associated with outsourcing are firstly to reduce costs. Outsourcing your IT operations to third-party service providers means that SMEs can expect greater reductions in IT administration costs and labor costs.
SMEs are usually characterized by a limited amount of resources and capital and those which face higher costs can take a safe exit via outsourcing. It could also be due to its lack of efficient labor or IT systems especially if it operates in a non-IT sector. Other considerations could arise from economic pressures such as a recession.
Following the 2008 economic crisis, approximately 60% of UK-based firms announced increasing their IT outsourcing to suppliers to adapt their operations to the stringent cost-cutting requirements according to a study by Equaterra.
A second advantage that SMEs could gain from outsourcing is obtaining access to advanced technologies and IT skills. In many cases, SMEs lack the expertise or resources to develop dedicated IT systems that can provide them the solutions they seek. A study conducted in 2013 estimated that by 2017, nearly 70% of all IT operations will be outsourced.
Although the benefits of outsourcing may seem promising, SMEs should evaluate the risks of losing control over their IT functions when outsourcing it to third-party service providers.
Outsourcing too much of your IT infrastructure can give your subcontractors the upper hand in relation to prices and other areas. Despite agreeing on a contract, service providers can gain considerable power as they could have an entirely different set of procedures and standards. Compromises in their quality or loss of confidential information could put your credibility at risk.
Loss of competitive advantage
SMEs can attain new competitive advantages by having access to new technologies and expertise. However, if most of your rivals are subcontracting their IT operations to service providers, there are chances that your IT operations will not stand out in terms of competition. Inevitably, this can lead to a zero-sum game where no company dominates stagnating your market share and dominance.
More importantly, you will not be flexible enough to respond to the changing dynamics of the market. How well your IT adapt to new changes, threats and opportunities will lie totally at the discretion of your service provider.
This way you will become more like the competition and less like a market leader.
On the whole, outsourcing IT infrastructure presents strategic benefits as well as threats to SMEs. SMEs will need to determine the costs and benefits according to their industry, resources and skill set to make the best decision.