How to Use a Practical Approach to IT Outsourcing

10 May 2018

What do you know about IT outsourcing? Whether you’re an experienced entrepreneur or a newcomer trying to figure out the term “startup,” there comes a time when you consider it.
In an era where everything is linked electronically, it probably is not shocking that one of the biggest growth sectors in the tech industry is IT Outsourcing. This is one of the most sought-after management models in various business areas. Some of business owners shy away from outsourcing, while other entrepreneurs depend on it religiously. Regardless of what side of the fence you lean on, it is important to know outsourcing is gaining popularity with incredible speed.

What are the effects of outsourcing?

The impacts of outsourcing are subject to the industry and the purpose for which it is undertaken. However, this model enables companies to generate revenue and save their time and funding. It also has an enhancing effect on the quality of products and services. Outsourcing serves to provide companies with a sharper competitive edge and results in easier project management and better productivity..

By the way, according to these statistics, in 2016, global business and government spending on outsourcing reached $440 billion.As we move forward, it’s necessary to compare all the pros and cons of outsourcing to understand what effect it can have on company.

practical approach to IT outsourcing

The main advantages of outsourcing

Knowing the benefits of outsourcing helps you decide if this is something that works for your business. Here are the positive points:

1. Cost

When IT is outsourced, burdens on the human resources departments are eased. The business has lower recruiting costs, payroll costs and benefit payments to employees. Outsourcing places the onus of taxes and benefits on the contractor doing the IT work.

  • Offshore resources cost 2-3 times less than in-house staff.
  • Offshore resources cost 4-6 times less than onshore IT consultants.
  • Hidden savings: The costs of recruiting, training, staff insurance, resigning, etc are shifted from you to the vendor.
  • Hidden gain: No management overhead. You get effective, built-in management of your offshore team as part of the service.

2. Flexibility

Instead of hiring new people and training them, companies lower labor costs by working with external professionals. Outsourcing allows cooperation with skilled specialists who’ve got a ton of experience working within a certain sphere. They are well trained, qualified, certified, and have impressive resumes and portfolios

  • Shift the maintenance of current and legacy systems offshore and let your in-house team concentrate on new projects.
  • Ramp up or down as your needs change.
  • Access specific technical expertise you don’t have in-house.
  • Concentrate on business and its complex requirements and let your vendor implement the systems you need.

3. Capital funds available

By outsourcing non-core business functions, you can spend your capital funds on items directly related to your product or your customers.

The disadvantages of outsourcing

Surprisingly, if you have the right with huge enthusiasm from top management, extra/permanent micro-management, resistance from middle management and regular staff is one of the most common reasons outsourcing initiatives may not work.

The main reasons are:

  • Unwillingness to change.
  • Hidden agenda (some groups may want to employ their own vendor).
  • Fear of competition (“They want to steal my job!”).
  • A negative experience in the past.
  • Resistance without resistance (vendor engagement is a lower priority).

How to find a right side

First, identify potential knots of resistance early:

Knowing the problem is 50% of the resolution. Try to quash it quickly.

Second, show benefits to your current team from outsourcing: they can do legacy – we can focus on a new development.

In most cases, the outsourcing team is able to significantly simplify work, help your business to grow, and cooperation with such team can bring benefits to both parties because responsibilities are divided and each team does necessary work.

Furthermore, it’s possible to hold an onsite kickoff meeting to introduce everybody. In such a way, it’ll show that these particular people want to do only their outsourcing jobs they like, and they don’t look for another job – they don’t need it.

Let’s highlight benefits for you:

  • People tend to initiate more ideas.
  • The success of the offshore initiative and the extension of the team via the offshore model opens potentials for self-actualization and career development.

In this way, trust and personal relations boost team play and performance.

Of course, no one is immune from risks, since all companies are different, and it’s difficult to predict results. However, most situations can be resolved with both sides satisfied.

Initially starting with micromanagement

In the offshore model, we often deal with time zone differences, i.e., limited hours of online communication. That’s why each piece of information should provide direct value to the operation or product. It’s important to be aware in product development of problems lurking around corners at different stages of production, etc. You can agree in advance about communication times and keep information flowing about the work.

Micro-management compounds the amount of unproductive time, kills proactivity and questions the tactical independence of the offshore team. But, this is neither good nor bad. It’s a tool that has to be used in certain conditions. We all know that to start the collaboration smoothly, we need to dedicate more effort. And in this case, micro-management could be a good thing, despite the fact that many people consider it last one of the worst management tools. However, if it will be used on a permanent basis by client – this is a disaster because both sides will not see any advantages of outsourcing. The client needs to see when his/her vendor produces the expected value and everything is moving in the right way – it’s good time to stop conducting micromanagement and switch to delegation. In this way, the client’s team will have free time to do new tasks and both teams can acquire greater value.

In order to avoid unpleasant moments, try to build good communications with the offshore team. Explain and set expectations, communicate standards, make sure the team is aware of milestones, long-term planning, and business impact. Ask them to provide timely responses and always notify them about the quality of the work.

How to build a successful offshore team

To build a reliable team for long-term work is not often easy. Each person has his own requirements and works in familiar routines. However, teamwork requires another set of efforts and skills. We have prepared some tips to help find a common language for the team and achieve the best results.

  1. Treat the offshore team as a virtual extension of your in-house team. It is important for all people to be appreciated and feel included. Share the broad vision of the project mission, overall progress, achievements, customer feedback, etc.
  2. The offshore team is unable to attend all meetings and doesn’t participate in coffee break chats. Keep them updated about project changes, key decisions and the context in which those decisions are made. In this way, they can make the correct adjustments to continue their work.
  3. Encourage the offshore team to suggest improvements. This approach allows them to feel confident and be more open to communication. If the suggestions are rejected, please explain why and help find another useful solution.

As you can see, outsourcing has been considered as a way to lower costs and gain working efficiency, but now it’s increasingly becoming a strategic tool for companies.

A lot of companies understand outsourcing many functions can help them gain a competitive advantage by accessing expertise or innovative technologies they don’t have in-house to deliver products or services more quickly, or to enable them to shift resources to more critical areas of the business. It’s profitable for them and gives great opportunities to grow and gain more experience for employees.