Eric D. Brown, D.Sc.

Data Science | Entrepreneurship | ..and sometimes Photography

Category: Outsourcing

Small Business Technology Outsourcing

small business technologyI’ve been thinking about approaches to small business technology initiatives and whether it makes sense for small business to outsource a good portion of their IT infrastructure and platforms.

Most of the things I’ve read on the topic of small business IT outsourcing has been fairly light in terms of advice for small business owners. Most articles are written with the vendor in mind but there are a few focused on the small business owner who’s looking to outsource.

One of the better articles was found on Small Business Computing in an article titled “Ten Points to Ponder before you Outsource“. The “ten points” offered in the above article are quite good but I felt like they could be expanded a bit to include some examples.  Below is a summary of the ten points plus some additional discussion and examples.

Outsourcing Small Business IT & Technology – Key points to consider

  • Look at the big picture. Do you need to be focused on keeping an email server or web server running or focus on marketing and business development?   Should you be focused on keeping your small business technology running or growing your small business?  If you want to be around next year, you’d better focus on growing your small business.
  • Look at value over price. As a small business, you need to save as much money as possible whenever and wherever you can…but….you also get what you pay for.  If you pay someone for email service, do you pick the cheapest vendor that will setup a few email accounts for you and then never answer your phone calls….or do you pick the mid-tier vendor who asks for a bit more money and then holds your hand throughout migration process and offers 24/7 support?
  • Pay for expertise. If you are going to spend your hard earned money for something, you should get as much value as possible from that outsourced service/product/person.   Part of the decision making process for outsourcing should include the amount of expertise you are paying for.  For example, if you outsource your payroll, you sure as heck better get an expert payroll provider.
  • Stay on the cutting edge When you outsource your IT functions, do you want to give your business to someone who’s using yesterday’s technology or tomorrow’s?  Let’s look at a web developer as an example.  You need to outsource your new website…do you hire someone still using Frontpage to design/build websites or do you hire someone who can build a website using a much more modern technology/platform?  Hint: go with modern on this one.
  • Does the vendor have similar values as you? Have you ever hired someone to do some work for you and then found out that they didn’t have the work ethic you had?  That would be a huge issue for a small business owner outsourcing IT functions.  When looking to outsource, take some time to get to know your vendor(s) (and they should want to get to know you too) to make sure your values are their values…or at least that their values don’t clash with yours.
  • Meet the Vendor’s team before signing the contract.  While many people meet with the sales person or perhaps the vendor’s leadership team, I strongly suggest that you reach out and try to meet with the team that would be working on your project.  Sometimes this is impossible to get to know the whole team but if possible, do it.
  • Know what you’re getting.  This is a no-brainer on the surface. Let’s say you want to outsource the design/build of a new website.  You hire a firm to design and build your website and you expect them to completely migrate content and/or create content. Content is part of the website correct?  They sell you a design/build project without clearly stating that content migration isn’t included.  When they finish, you have a website that looks pretty and works well but with no content!  Now you’ve got to spend more money to get content into the website.  Not a good situation to be in.
  • Understand Responsibilities. While the deliverables of the service/product should be clearly outlined in any contract, you’ve also got to fully understand the responsibilities of each side.   This should be clearly stated in a scope of work document when working with a good vendor…but you need to be absolutely certain you know who’s doing what before signing the contract.
  • Should you outsource to a big player or small business? This is a personal decision for each business.  You can outsource your email service to Google or you can find a local small business that can do something very similar for you.   You’ll sometimes pay more to the local business, but you’ll also receive more personalized service from a good vendor.
  • Find a vendor that can educate. Ever talked to an IT person and heard lots of acronyms and technical mumbo-jumbo and had no clue what they were talking about?  Would you hire them to do your IT? Maybe you would…but you’d have a hard time understanding what they are doing or want to do for you.  Find a vendor that can speak to you in terms you can understand.  Find someone that can educate you along the way. That’s the person you want to hire.

Outsourcing anything, whether email, payroll or brochure design, takes the same type of thought process for small business owners.   While price is a consideration for you, there are many other items to think about when outsourcing part of your business.

Stay tuned for more small business technology related posts…looking to make this a regular feature.

Small Business IT Outsourcing – don’t go too far

Outsourcing Small Business ITCan all of the information technology assets within a small business be outsourced?  Could we see the IT desks within small businesses be as empty as those in the photo? I hope not.

The question of outsourcing all IT functions within a small business was asked of me by an acquaintance after she read two of my Small Business CIO articles: Small Business CIO – Manager of Constraints and Outsourcing, Value & Capabilities – Priorities for Small Business CIO’s.

This person, who I’ll call Heather,  is the owner & CEO of a ~ 100 person firm. She’s thinking long and hard about dropping her entire IT team and starting from scratch.  As part of her thought process, she had been looking at outsourcing a good portion of her IT infrastructure and only keeping the core assets that she needs in-house.

Heather had already determined that she’d offload her email platform.   To her, that was an easy decision…they’ve had nothing but trouble with their in-house exchange server.  She’s also determined that her website hosting will go off-site to a managed services firm.  Both are pretty straightforward decisions and are easily supported by an cost/benefit analysis.

But…she’s now rethinking her entire plan. When she contacted me, she’d come to the conclusion that she should do away with 75% of her IT staff, outsource all IT platforms and save hundreds of thousands per year.

Outsourcing Small Business IT

While I’ve been a big proponent of outsourcing some information technology functions, especially within Small Business IT shops, I’m alarmed at the level of cuts Heather’s proposing.

Heather’s core business revolves around services.  Her company provides marketing services to real estate firms.  In talking through the issues with Heather, she doesn’t see her information technology team and assets as a core piece of her company’s competitive advantage.

During a few phone calls and email exchanges on the subject with Heather, I was able to convince her to take a step back and rethink her approach.

While she is still convinced that she can outsource most of her IT platforms, she’s realized that there are a few that would be nice to have some ownership on.

For one, her financial IT system(accounting, billing, etc).  She had thought she could easily outsource the entire technology platform but has come to realize that her livelihood is based around how her financial platform.

Another outcome of Heather’s rethinking her IT outsourcing initiative – the majority of her IT staff will keep their jobs.    Like many IT teams in the small business world, their focus will be changing from platform maintenance to technology initiatives that help the organization position themselves as a leader in their field.

Cutting Small Business IT to the bone

Heather is the second small business owner that I’ve talked to in the last month who’s been thinking about outsourcing their entire IT team.  In addition, many CIO’s and IT leader’s that I’ve talked with have said the same thing (you can read more on the subject in my post titled Outsourcing, Value & Capabilities – Priorities for Small Business CIO’s.

I’d caution everyone out there who’s looking at outsourcing part (or all) of their information technology function to be careful. Sure you can get away with going to the cloud for some IT platforms and you can easily outsource things like web and email hosting, but outsourcing to much IT can be deadly.  More on that in another post.

PS – While I wasn’t paid for my time by Heather and didn’t ask for payment…I offered my suggestions on her plans and, thankfully, she listened. That said, I may start up a consulting practice solely focus on Small Business IT…seems to be a lot of folks in the SMB space needing assistance.

Links for March 21 2010

Too Big to Trust? Or Too Untrustworthy to Scale? by Charles H. Green on Trust Matters

Preach it Brother Edelman by Robbin Phillips on Brains On Fire Blog

Marketing Can’t Be Controlled By a Dashboard by Jonathan Baskin on Baskin Dim Bulb

The Key to Strategic Agility by Samuel B. Bacharach on The Bacharach Blog

Winning through agility by Don Sull

The Missing Link In Building The Perfect Team by Terry Starbucker

Perspective matters when considering IT investment budgets by Mark McDonald on The Gartner Blog Network

Did You Grease the Squeaky Wheel? Or Change the Tire? by Vincent Ferrari on KnowHR Blog

What Good Cop Bad Cop Can Teach You About Social Media Strategy by Shannon Paul on Shannon Paul’s Very Official Blog

What should LittleCo’s do? by Dave Winer on Scripting News

Why Alignment Matters by Ed Brenegar on Leading Questions

Outsourcing Bill of Rights

When I saw the InformationWeek story titled “Outsourcing Bill of Rights Proposed” I had to do a double take.   The words ‘outsourcing’ and ‘bill of rights’ haven’t historically fit together.

The story is interesting. Apparently, Alliance Global Services has created a Bill of Rights for their outsourcing clients, or IT Partners as Alliance likes to call their clients.  AGS lists the bill of rights on their website (see more here) and I’ve taken the liberty of reproducing it here:

  1. The right to demand transparency throughout every step of an engagement — from sales to contracting to delivery and termination
  2. The right to fully understand the nature and character of an IT partner and the service that it provides to them
  3. The right to fully understand the financial viability of an IT partner
  4. The right to be made aware of any impending legal charges against an IT partner, should they arise, as soon as they occur
  5. The right to arrive at a mutually agreed upon definition of the term “trusted partner”
  6. The right to expect a clear contract that defines fees and expenses up front before any agreement is signed
  7. The right to terminate a relationship with no financial penalty in the event of any admitted fraudulent activity
  8. The right to demand the existence of a truly independent board of advisers
  9. The right to expect the presence of an independent financial auditor accompanied by a set of checks and balances
  10. The right to demand accountability for any actions taken within the scope of a technology project or as part of a firm’s broader business practices

Alliance is trying to get 100,000 signatures on the Bill of Rights and they are trying to get other vendors to sign off and adopt these rights.

I have to say I’m a bit surprised that this was created by an outsourcer but I applaud the effort.  The ‘rights’ listed in the Bill of Rights should be something that any organization includes in their outsourcing agreements.  Outsourcing has always been frought with dangers and unclear contract language…these ‘rights’ might just help with that.

It will be interesting to see where this goes. Regardless of where this bill of rights goes, I think its in the interest of outsourcing companies and organizations looking to outsource to seriously consider implementing these clauses in their contracts.

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Innovation and Outsourcing – Do they go together?

According to a research report released by The Hackett Group, and reported by Financial Week, they don’t.

The Financial Week article, titled “Customers say innovation not part of outsourcers’ services“, describes The Hackett Group’s research.  A few excerpts:

In a new study, the Hackett Group, a consulting and advisory firm, found that businesses that have already begun to move their general and administrative functions offshore will likely pick up the pace over the next three years.

Indeed, by 2010, these companies will have outsourced or transferred off-shore an average of 16% of these back-office operations—an increase of more than 50% from the current level.

Not really much of a surprise…many companies have been outsourcing these functions for a while and the trend is to continue to do so.

The article continues:

Not surprisingly, cost savings drives most companies to shift back-office work overseas. Whether businesses outsource the work to specialist firms located in cheaper locations or set up their own captive offices abroad, the Hackett Group found that most companies save 25% to 50% on back-office work that’s shipped outside the United States.

The catch? Less than half the companies who had begun moving general and administrative work to offshore offices said they were satisfied with the new unit’s ability to innovate. In fact, only about one in six of the companies in the Hackett Group’s study were satisfied with so-called business process outsourcers’ innovation ability.

Emphasis mine.

After reading the article, I jumped over to The Hackett Group’s research report for more information.

The research report dives into more detail.  Specifically, a discussion around innovation, which says:

Only 17% of all responding companies using BPOs said they were satisfied truly satisfied with their BPO’s ability to innovate. While a much larger percentage – 46% — of all companies using captives made the same claim, this is clearly an area that both types of organizations can target for investment.

Emphasis mine.

Looks to me like an opportunity for BPO’s to improve their offerings…but also a hurdle for organizations who are considering outsourcing.

So…back to the original question at hand.  Do innovation and outsourcing go together?  I don’t think they do currently, but I think they can…at least in the realm of BPO or IT outsourcing. However, to make innovation and outsourcing go together, you’ve got to know what you want from the outsourcing company…and you will have to specifically ask for it.  And…you wil get exactly what you pay for and nothing else.

For me, the question that rises to the top of my brain is: Do you really expect an outsourcing companies to innovate for you?  I’m not talking about consulting companies who’s sole business is innovation, consulting, etc.  I’m talking about outsourcing companies who focus on processes.  Finance, HR, IT, etc.  Does anyone really expect these folks to come up with new and innovative ways to handle your business to save money, be more efficient or create more value for you (the outsourcer)?

I don’t. I’ve done some work for large IT outsourcing companies.  They can be quite innovative….but, for the most part, they use their innovative ideas to get more money from their clients.

I’d love to hear your ideas on innovation and outsourcing.

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