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.

Small Business CIO – Manager of Constraints

I received quite a few positive responses to my Small Business CIO post last week so I thought I’d continue the topic this week.

Over the last few days I’ve been reading ReWork (affiliate link) by Jason Fried and David Heinemeier Hansson from 37Signals. Great book BTW…go pick it up now. In that book, the authors wrote something to the effect of (I’m paraphrasing here):

Constraints are advantages. Limited resources will always exist and force you to make do with what you have. There’s no room for wasted effort and/or resources. These resources force you to be creative.

Great concept.

Constraints exist everywhere in the world, but can readily be found in the world of the Small Business IT Group. CIO’s in small business have always had to worry about money and resources but the latest recession has forced even more constraints on them.

So…small business IT groups can complain about the constrains or try to work around them by looking at creative methods to address their issues with the resources at hand.  Constraints require a bit of Creative Thinking.

I have an example that shows this type of creativity. Read on.

Creative Approaches to Constraints

Last year, I spoke with the CIO of a small company who has a team of 3 full-time IT folks working for him. All were fully loaded and were putting in many hours of overtime to maintain the current IT systems. Quite a few projects had to be postponed because his staff was just too busy and there was no money to hire the work out.

During our conversation, I asked him to outline his current system setup. It surprised me to hear that he has quite a large number of systems and platforms for a small IT shop. They had a SQL Server Cluster, an Exchange server and quite a few other servers handling various network and storage task. All these servers were housed in an impressive data center built and managed by his organization.

My first response to him was to ask why he felt he needed the data center…that’s a huge expense that could be offloaded. He explained the reasons behind the data center and, based on his description, it made sense to have this capacity in-house rather than outsourced (there were a lot of privacy issues plus other reasons).

We dove into reasons for each platform and I quickly realized that the Exchange Server and Support was taking cycle time from his team. One of his team members spent an inordinate amount of time managing (and fixing) that one platform. I dug into the specifics and realized he was running Exchange 2003 on an antiquated server.

The CIO knew the Exchange server needed to be replaced but just hadn’t really looked into the economics of keeping it versus replacing it (or outsourcing it). We ran some quick calculations and he realized just how much that system was costing him.

I offered to put together a few options for him to replace the Exchange Server. The options were:

  1. Replace with Exchange 2007 w/ Outlook 2007 + new hardware + backups + higher availability + install services – cost ~$27K
  2. Outsource Email to a hosted Exchange company – cost ~$3K to $6K per year
  3. Outsource and Migrate to Gmail – cost ~$2500 per year + ~$2K for migration

Needless to say, Options 2 & 3 were preferred based on initial outlay of capital.

They chose to move to a MS Exchange hosted solution for roughly $5K per year after realizing just how much time the Exchange admin was spending supporting and managing Exchange.   After doing a time study, we found this person was spending roughly 50% of their time working on Exchange and email issues.

By moving to the Hosted Exchange, this small business was able to realize a savings of ~$20K in the first year by going with an outsourced solution….not bad.  In addition, this business can use the Hosted Exchange for 5 years and still come out ahead.

But…that isn’t the end of the story. That simple act of outsourcing Exchange freed up one of his team members to pick up other projects….not only did he save money but he gained a resource. A badly needed resource that he wouldn’t have been able to hire from the outside.

An additional advantage: this CIO was able to take that $20K per year savings and put it toward three new projects that were desperately needed for growing the business.

Rethinking Constraints

While the big constraint for the above CIO was money (he didn’t have enough to hire more people ore outsource projects), the money constraint isn’t the easiest to solve.

So what did we do to solve his problem?  We did what any consultant would suggest you do…spend money!   BTW – before you get up in arms about the consulting barb…remember…I’m the consultant in this story 🙂

We had to look at the problem differently.  Many people might just complain about lack of money or resources but this CIO had the brainpower and nerve to make the decision to do what needed to be made.

We spent money to overcome the constraint of not having enough money. The reason this made sense was because the old Exchange Server was taking up half of an IT staff members time, which was equivalent to ~$25K per year. The CIO spent $5K to get a return of $25K in freed up time.

By outsourcing something that wasn’t a core competency, the CIO was able to overcome his constraint (money), even though it actually required him to spend money (his major constraint).

Constraints will always exist in business.  Especially in the small business.

The Small Business CIO must be able to understand the constraints imposed on their business and find ways to overcome them. This will require innovative and creative approaches to running IT shops.

Just another reason why the CIO of tomorrow must move away from a pure technical role and into a role that requires strategic & creative thinking.  In addition, you’ve got a to have a bit of courage too to be able to make the decisions necessary to address your constraints.

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