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The Value of IT Outsourcing

Professional firms have for some time now, relied heavily on outsourcing part or all of their needs. These have ranged from outsourcing small projects, like implementing a time & billing system or upgrading one's software and complete back-office hosting.

A closer look indicates a pattern of reasoning for most of the outsourced work. They can be summarized as follows:

  • Cost of labor is the biggest component
  • The need for a dedicated, experienced and highly skilled work force for the long term
  • Operation and management overhead reduction
  • Cost of training

While a number of companies were outsourcing their IT needs, others hired contractors to fulfill their needs. By hiring contractors, they were able to get a highly skilled work force for short periods without having to bear all of the overheads associated with regular employees. With contractors however, one still has to provide them with the tools, infrastructure and office space.

As a result of some of the court's decisions in the recent past on contractor/employer relationship, contractors are no longer as attractive as they once used to be. Contractor and employee relationships have been challenged by the IRS for tax withholdings and by contractors themselves for benefits extended to other employees of the company. The courts have decided that in most cases, common law would uphold the rights of a contractor vis-á-vis those of other employees. On the other hand, some firms have used their own professionals with IT expertise to manage or resolve all but the most difficult issues. The problem here, of course, is the loss of that professional's billable hours to a client job. Additionally, sometimes the underlying problem is made worse creating more downtime or higher costs when outside help is called in. There has been a steady increase in moving IT work to an outside firm. With a good Service Level Agreement (SLA) in place, outsourcing can produce more expert IT solutions while reducing costs and downtime leaving professionals working on what they do best.

Outsourcing provides other benefits over and above average cost savings and skilled work force. It forces groups and teams within the company to more clearly define their roles. It necessitates the introduction of processes, goals and expectations within the organization to effectively utilize the outsourced resources.

The value proposition for outsourcing could be summarized as follows:

  • Direct cost savings to the bottom line
  • Reduced overhead and management
  • Availability of highly skilled workforce with no cost of training
  • Improved communications and processes
  • Off load non-value-added work to focus on core competency.​