Here are some real cases where it would make sense to outsource. In different organizations I have dealt with, they have radically added or changed an information system or platform. For example, having an employee training system developed replacing an older one using newer information and technology (Flash), migration from a desktop (CRM/Order Tracking) to a web application, and having an IT Customer Service Tracking system implemented.
In the first two cases, the operational functions of the legacy systems were done in-house and in all the cases, the development work was being performed by a contractor company that specializes in that type of migration or development. And in all cases where there was a legacy system, we ran into the problem where the current staff that supported that legacy system and would subsequently support the operations of the new system were not engaged and/or enthusiastic about the change.
These staff members did not embrace the upcoming change and instead sabotaged the migrations/implementations, especially the IT Tracking (Help Desk). On the other two, staff members did not absorb the training given to them or were so used to supporting the outgoing systems that they could not embrace the new systems.
In at least the migration, it would probably make more sense to either replace the staff entirely with new staff or outsource the business functionality from a pure support/service aspect. Bringing in an organization with the right skill set could also garner cost savings with the replacement of the staff, and would also facilitate the support of the new systems now driving the business.
When taking into account all costs associated with housing an IT function, one must take into account the loaded costs of FTE (Full-time employees/equivalent). These costs include Salary, Paid Time Off, Holidays, Bonuses, Healthcare, Training, 401K/Pension, Payroll Taxes. Say an employee’s salary is $50,000/yr – this can cost an organization $90,000+/yr in loaded costs. And that’s not all…
You need managers, supervisors, and directors to manage, supervise, and direct these employees. You end up with a hypothetical $1M a year cost to support the said business function, so out goes the RFPs to companies that can reduce this cost and save you money, while delivering better service.
HR is happy because it is less benefits they have to administer, the CFO is happy because it is saving the organization money, and your customers are happy because the support levels have improved. You have signed an agreement with a company to outsource the business function. You have just saved the organization some large cash. You’re looking good!
Let’s also look at the SMB that has no IT staff, but needs custom software and/or mobile apps developed – I’ve had many of these, but let’s just say for this article that it is a professional with an easier way, which is projected to increase his/her income by a large percentage or a business that can’t find the perfect software fit for them.
Obviously, it would not be cost-effective to hire programmers with the current cost of benefits being almost twice the salary, plus there’s another twist – salaried programmers are in no hurry to complete a project unless you add an extra cost of bonuses based on completion date. Also, once developed, you wouldn’t need to keep extra programmers for support. What then?
These systems, once completed, would need continuing support after the development phase at a much lower level, providing adjustments and maybe some added functionality. Having outsourced developers do this would make the most economic sense, especially having pointed out the costs of full-time employment.
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