IT management – outsourcing vs in-house

By Patrick Kershaw, business partner, Horizon Pacific

When is a business large enough to employ its own in-house technology team? Or is outsourcing a better option? Is it viable? And, what are the upsides and downsides?

These are some important questions SME business owners ask themselves when considering the pros and cons of having in-house IT as opposed to outsourcing.

First, we need to evaluate small businesses and medium businesses slightly differently. For the sake of this article, small enterprise is up to 50 employees, medium enterprise 51+.

Small business operators tend to fall into two categories. There are those that prefer to build their own infrastructure with help from a ‘friend who knows a bit about computers’. These businesses either fail or reach a stage where they need external help. Problems include licensing issues, incompatible hardware/software issues, and generally no security or border protection. This creates negativity in trying to get such a site up to a reasonable business standard and can be hugely costly to the business owner. It almost always adds monthly bottom-line expenses that have not been budgeted for.

Short cuts taken now in IT will cost you more down the line, whether that be in productivity, efficiency, staff retention, or a plethora of other ways. And it’s not always directly measurable in dollars.

The second category comprises businesses which plan their IT infrastructure in the same manner that they plan their business. They do what they are good at and leverage off other people’s skills in specialised fields such as accounting or IT to put in place reasonable stages for development. This means costs are budgeted for, project windows planned, and growth managed effectively – a huge concern for growing businesses.

I meet daily with successful businesspeople and see how they do business. Many are owners of SMEs across multiple industries, and by far the most successful fit into the second category.

Medium-sized enterprises are, however, a different case altogether. Growing pains have usually been ironed out and outsourcing has been leaned on extensively in growth and planning. The question then becomes: “When do we consider bringing this all in-house?” This poses an interesting paradox. It would make sense to bring in a highly skilled, forward-thinking technician to run the IT infrastructure, be at the beck and call of staff, and keep a network running smoothly and the business IT hassle-free.

The paradox, however, is first that technicians like toys and challenges, and this urge only seems to increase with experience. Second, there always comes a time when it becomes more about job justification than about what is the correct solution. Only medium enterprises with multi-office requirements, complicated servers, challenging core program issues, and a high user count will keep a good in-house technician happy. Otherwise, we have found the churn to be extremely high, generally zero to two years.

This creates a huge issue in strategic direction and stability, potentially meaning technically the business may end up out of kilter with its IT requirements as it grows. This is usually because of shareholders relying on the forward-thinking of one or two individuals who tend to think more about what they themselves are capable of doing, obviously justifying their position, as much as what is right for the business. I have seen this countless times, and to get a medium enterprise back on track afterwards is a mammoth and sometimes thankless task!

Interestingly, if the outsourcing you are using is reliant on the knowledge or advice of one person, you will also strike exactly the same issue!

So then, what is the solution? I believe the following standards should be adhered to:
•     Best done in-house are the general day-to-day identification and logging of issues, the running of tape backup systems, all first-level Microsoft/Desktop issues, basic application updates, and troubleshooting.
•     Use an outsourced IT specialist for:
-     Strategic technology planning
-     Server operating system migrations
-     Groupware (Exchange) upgrades, conversions, and migrations
-     Internet security and access (firewalls, routing, security audits, and monitoring)
-     IT staff training
-     Remote access solutions
-     Level-2 network support (backup for internal IT staff)
-     Service pack upgrades
-     Wide area networking
-     SPAM and email control
-     Backup system architecture and policies
-     Disaster prevention and recovery
-     Network and infrastructure monitoring

In general, try to work with a supplier who is prepared to challenge your way of thinking and will propose various options and solutions. Leverage the knowledge of those that specialise in the IT field and work with a team that can offer a full range of the solutions to avoid numerous points of contact.

Horizon Pacific is a nationwide IT provider specialising in SME technology support, supply, and consultation. For more information, contact patrick.kershaw@horizonpacific.com or visit www.horizonpacific.co.nz.

NZLawyer, issue 91, 27 June 2008