Get Outsourcing, or Get Outpaced
By Ian H. Turvill, The Revere Group
Fortune 500 firms have been on the outsourcing bandwagon for a long time. But perhaps one of the more overlooked trends is that outsourcing will become more and more attractive for small- and medium-sized businesses. This fact is perhaps not obvious, because the common perception of outsourcing is rather one-dimensional: to many people, it means shipping large development project overseas to get them done at lower cost.
However, the range of activities that should actually be included within the term is much broader. Outsourcing involves any transfer of ownership and responsibility for IT assets and processes. As such, it comes in many different flavors, ranging from contracting for helpdesk support, to hosting and operating enterprise applications offsite, and even engaging experienced consultants to act as a part-time CIO.
The economic benefits of outsourcing are significant. They include:
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Automation of key internal and external processes
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Increased employee productivity
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Acquisition, development, and retention of profitable customers
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More capital to exploit new business opportunities
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Elimination of major sources of operating and financial risk
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Improve overall business performance
But if you are the owner or part of the management team of a small and medium-sized business, here are four more reasons to consider outsourcing that you might have not previously realized.
Reason #1: Challenges of the New New Economy
It’s hard to believe, but the US economy officially came out of recession in November 2001. Yet, in spite of economic growth, unemployment didn’t fall until October 2003. Why? Because US firms were learning to do much more with much less, and the growth in productivity was outpacing the growth in their demand for labor.
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The good news is that higher productivity has led to greater profits and incredibly strong increases in output. It should also result in rapid increases in hiring and a significant expansion in business investment. But now US firms are faced with several new challenges:
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How can they maintain anything like these recent breakneck increases in productivity?
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How can organizations quickly absorb new employees into their operations, without sacrificing productivity?
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How can companies (re)connect with profitable buyers of their products and services?
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How can executives manage the many new demands on their businesses?
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How can firms find the capital necessary to fund investment and expansion?
The answer lies, in part, in better management and use of information technology. While IT has already contributed to much of the productivity increase, new technologies and new applications — developed specifically for mid-market firms — have the potential to reinvigorate efficiency gains. And those firms that have fallen short in applying IT constructively should now seize the opportunity to close the gap.
By outsourcing more of their IT infrastructure, applications, and operations, SMBs can use information technology to quickly realize the productivity gains needed to remain competitive in today’s economy, and to continue a rapid expansion in output.
Reason #2: New Low Cost Applications Designed Specifically for Mid-Sized Firms
As their core markets have become oversaturated, many high-tech firms that focused on supplying Fortune 500 companies have turned their sights to mid‑sized companies. Well-known vendors, such as PeopleSoft, Hewlett Packard, and Business Objects, have all committed significant resources to developing solutions that are far better suited to the needs of the middle market. The result is that many technologies that were once only affordable for much larger organizations are now well within the reach of smaller firms.
At the same time, Microsoft — whose traditional focus was in operating systems and individual productivity applications, such as Office — has been expanding to serve a far broader range of business needs. Its Microsoft Business Solutions division offers business management software specifically designed for small- and mid-sized organizations. MBS delivers integrated solutions in the areas of enterprise resource management, customer relationship management, financial accounting, and reporting and analysis.
Outsourcing – and specifically using applications hosted through ASPs — gives medium-sized businesses access to capabilities that were previously beyond their reach. SMBs now have quick, easy and relatively inexpensive access to enterprise-class applications, such as ERP, customer relationship management, and human resources management, that can have a significant and favorable impact on financial and operating performance.
Reason #3: Emergence of New Technologies
The entrance of at least four new technologies into the mainstream will force companies to soon reexamine their IT strategies:
· Web Services: The Web revolutionized how users talk to applications. Web Services are revolutionizing how applications talk to other applications by providing a universal data format that lets data be easily adapted or transformed. Web Services will lower the cost of developing new applications, and they will significantly increase integration between and within businesses.
· Mobile Devices: New devices, such as Tablet PCs and Smart Phones, have the potential to significantly shift the boundary of computing. Manufacturers and field service organizations will give these tools to front-line employees to automate processes and to communicate up‑to‑the‑minute data.
· Wireless Networking: By linking PCs to networks through radiofrequency connections, wireless networking can free companies from expensive investments in cabling, and give users the freedom to connect anywhere in the office.
· Information Rights Management: Today, an employee can too easily walk out the door and remove copies of a firm’s proprietary data on the way. New technologies, which control access to information, can limit who can e-mail, print, and even e-mail files, for how long, and under what circumstances.
However, there are two fundamental problems when companies consider adoption of new technologies:
1. Firms adopt technology for the wrong reasons: Too often firms – and particularly IT departments – can become enamored of technology for its own sake, rather than for the business benefits it brings
2. Firms may lack the requisite skills to implement new technology correctly: By definition, new technology requires new skills, and these can be difficult and expensive to acquire, limiting a firm’s capacity to assimilate new capabilities into their operations.
Outsourcing the development and integration of new systems into a firm’s operations to a third-party can allow businesses to access technical talent that would otherwise not be available to them. Firms may also consider outsourcing senior-level management of their technology, for example, by hiring a “Fractional CIO”, that is, someone with the right experience, but who works with several different firms, each on a part-time basis.
Reason #4: Availability of Low-Cost, High Capacity Internet Connections
Thanks to the proliferation of alternative technologies, including DSL, cable, and satellite, and intense competition among providers, there are now few US businesses that cannot access low‑cost, high‑speed Internet connections. Firms can now confidently expand their web presence, including the range of information and services they provide online, knowing that more of their customers will be relying on the Web as a source of information. Companies can also rely on the Internet, and Web Services specifically, to streamline their interactions with suppliers, partners, and customers by automating the transfer of data among them.
Moving online also allows information technology to be delivered to firms in new ways. A high-capacity, “always-on” connection allows firms to turn over activities such as application administration or database backups from dedicated internal staff to a remote monitoring and operations center. Similarly, a permanent link to the Internet allows employees to access applications housed not only onsite, but also remotely, perhaps hundreds or thousands of miles away. No longer does a firm need to maintain a license for every desktop where an application will be installed; instead, it can pay for software on a “per drink” basis.
The increasing availability of reliable, high-bandwidth Internet connections permits mid-sized firms to undertake many new forms of outsourcing. Services such as secure remote monitoring and hosting, or simply using the Internet as a new method of communicating with other parts of the value chain, can dramatically alter a firm’s economics for the better.
CONCLUSION
Outsourcing can have significant and positive impact on any business, but this is becoming increasingly true for organizations that once considered themselves too small to benefit.
Small- and medium-sized firms should be looking to realize the benefits of outsourcing as soon as possible – if they don’t, they may find that they have been outpaced by competitors that are already on board the outsourcing movement
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