Business Forecasts
CEO
The first thing to keep in mind is that what happens internally is a different matter from the outsourcing decision. A decision on maintaining an internal IT department is something that can be made at any time. Thus, most of this memo will focus on outsourcing.
Just about any corporate function can be outsourced, and IT is one of those. There are a few key advantages of IT outsourcing. The first is that it frees up organizational resources that could be deployed elsewhere. The cost issue will be looked at separately, but even the talent that it takes to run the department, and the line staff that support it, can be used elsewhere if they are not needed to run the IT department. This can be a significant benefit, but further input would be needed from other department heads with respect to that, because they will have a better sense of how much such a move would free up their resources.
Outsourcing IT often allows for the third party vendor to take on some of the risk, but also some of the investment cost. One of the most costly, burdensome aspects of IT is the need to update technology frequently. The third party vendor will often be able to buy or develop solutions in bulk, so the cost of development is lower than it would be if we kept that function in house. Whether this translate to the overall numbers is less certain -- the third party vendor's margin might eat into that -- but ultimately there is an opportunity with a third party vendor to maintain more modern technology than we could on our own, because they will always work with the latest, and the cost of upgrading is likely to be lower, and maybe even built into the contract price.
Nowhere will this be more noticeable than in the realm of security. It can be very difficult to stay on top of security trends, but the third party vendor has the size and scope to be able to have a large full-time security department (Overby, 2015). They develop solutions, and patches, and then roll these out to all their clients. That lowers the cost of security significantly, but more important they have the capacity to address all potential security risks, whereas to do this in-house might be substantially more difficult to do that. Even if the rest of IT is not outsourced, there is a good case to be made that security should be.
One of the interesting aspects of this is in recruiting. It can be difficult to recruit top IT talent. This talent can be expensive, and is not always easy to recruit to some locations. If there is a shortage of IT talent in Indianapolis, then it might make sense to work with a third party rather than to continually run a shorthanded department for lack of quality workers in the sector locally. One recent survey showed that Indiana has a surplus of tech workers, graduating 1000 more people in the field than there are positions annually. Thus, this potential advantage is less of one for Triad because of its location in Indiana (Wright, 2012).
IT outsourcing can be much simpler as well, because of the third party vendor's team. They can bring in more people as needed to solve problems, whereas an in-house team can be overwhelmed by major issues. It is much more difficult to build in crisis capacity in-house, whereas third party vendors can do that. The reduced complexity is one of the main advantages of outsourcing, because they manage that complexity for the company (Barker, 2013).
It is also possible that IT outsourcing will be cheaper. Third party vendors tend to have scale that allows them to do most things at a lower cost than an in-house team would be able, and they should be able to pass some of that lower cost base along to their clients. There is the risk that their margins will eat into this, and it will not be as affordable as the company might like. However, the company would not sign a contract that was coming in at a higher price than what can be done in-house for equivalent services.
There are some significant disadvantages in IT outsourcing as well. The first is that the more people have access to our data, the greater the risk of breach is. The third party vendor should have a strength with respect to security, but the third party is also another point of weakness where a hacker or cybercriminal can gain access to our data. Consider a bank...
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