The REAL Advantages and Disadvantages of IT Outsourcing
IT outsourcing has redefined the way startups and corporations manage their human resources. Current competitive business environment forces companies to improve their technologies and adapt to the new market requirements instantly to stay ahead of the competition. As a result, contracting a 3rd party IT vendor becomes a necessity. Below you will find most common advantages and disadvantages of outsourcing IT projects.
Pros of IT Outsourcing
Cost-saving. The main outsourcing benefits are low startup and maintenance costs. When outsourcing your IT team, you remove the burden associated with hiring employees. You don’t have to worry about mandatory health insurance, retirement plans, training, overtime pay, and so on.
All this influences the scalability of your business. When it is properly executed, outsourcing can significantly increase your revenues while keeping costs low.
For example, the Silicon Valley’s hottest startup Slack outsourced their entire development process during its earliest days, which allowed Slack to allocate saved costs to other important business processes. Now the company is valued at nearly $3 billion.
Greater Access to IT experts. Startups and SMB often cannot afford to hire top IT experts. It is especially noticeable when it comes to backend development, which is one of the most important and expensive parts of every IT project. Inability to access skilled labor weakens companies’ capabilities to deliver competitive solutions. In this case, advantages of outsourcing IT services are undoubtful. You get highly skilled professionals working on your project, who can deliver results with almost no system problems and downtime.
Fast Results. One of the top advantages of IT outsourcing is performance. You don’t have to spend time on hiring, training and managing IT stuff. Therefore, you complete your project much faster. Qualified IT outsourcing providers have collective team experience where each member knows own responsibilities and strong points. For instance, AletBoot – company offering cloud-based data and mobile device security devices for enterprises – outsourced their infrastructure-as-a-Service (IaaS) and cloud hosting so they could achieve a rapid growth at no time.
Reduced Risk. When outsourcing IT, you automatically mitigate the risks by transferring responsibilities to the service provider. Reliable IT outsourcing companies care about their reputation. That’s why your project is likely to be delivered within industry’s best practices and on time.
Cons of IT outsourcing
Privacy Risks. By using IT outsourcing, you risk exposing confidential information and proprietary data. This is probably one of the most significant disadvantages of outsourcing. However, by signing NDA agreement you can reduce the risk of your data being leaked or used unlawfully.
Dependency risk. If your business heavily depends on the IT service provider, you should seriously think about advantages and disadvantages of business process outsourcing. Make sure your vendor can maintain operations consistently. You should always have a backup plan in case your IT provider goes out of the business. This will help you minimize IT outsourcing risks.
Hidden Costs. There are two potential risks. First, companies often underestimate the setup costs and long-term running costs. One U.S. company recently asked its European client to reimburse $700,000 of these costs in the first year.
Second, when technical requirements are not clear, the cost of the IT project may increase dramatically. For example, Queensland contracted IBM to develop an application to administer payroll for its health department for $6 million. Shortly, IBM announced that they faced several unforeseen technical challenges and the project would cost $27 million. In the end, the project costs escalated to $1.2 billion, 16,000 percent above projected cost. To mitigate this outsourcing risk, always sign a proper business agreement with your vendor.
It is always beneficial for the company to consider all the outsourcing advantages and disadvantages before using it.
By outsourcing your web and mobile development projects, you can save up to 60% costs of operational costs and significantly increase your profit margins. You will reduce the time needed to train in-house employees so you can develop your services faster, launch sooner and start scaling quicker.
Always contract reliable IT specialists who can deliver consistent quality, timely results and have strong working ethics.