IT outsourcing is the practice of using external resources by subcontracting some or all of the information technology (IT) functions required by a business. These functions can include infrastructure, software development, directing strategy, maintenance, running the service desk, and other functions.
IT outsourcing vendors can provide either a fully managed service, meaning they take full responsibility for all IT maintenance and support, or they can provide additional support for an internal IT team when needed, which is also known as co-sourced IT support.
A company using IT outsourcing can choose to use one provider for all its IT functions or split the work among multiple providers. IT services typically outsourced include:
- Application development
- Web hosting
- Application support
- Database development
- Disaster recovery
- Data storage
During the COVID-19 pandemic, enterprises needed to transform their workplaces to a remote model, but for some businesses, this required more IT capabilities than they possessed in house. IT outsourcing, or technology services, allowed businesses to hire already-remote teams to prepare their organization to function remotely.
Because IT outsourcing includes services like networking and application management, it’s one of the most time-efficient solutions for businesses that need to rapidly grow their digital operations.
- Types of outsourcing
- IT outsourcing benefits
- IT outsourcing disadvantages
- IT outsourcing models
- Top IT outsourcing providers
Types of outsourcing
There are several types of IT outsourcing:
- Offshore outsourcing: IT-related work is sent to a company in a foreign country, meaning costs are lower and the economy is stable.
- Nearshore outsourcing: IT-related work is sent to a company that shares a border of your own, meaning travel and communication between the outsourcee and outsourcer is easier.
- Onshore outsourcing: IT-related work is sourced within the same country, whether remote or on-site.
- Cloud computing: Cloud service providers manage IT infrastructure, so businesses can store data and run applications in the cloud without needing hardware to run it on their company’s premises.
Learn how offshoring, onshoring, and nearshoring bring peril and promise to IT projects | CIO Insight
IT outsourcing benefits
Companies choose to outsource their IT functions for varying reasons. A few are listed below.
Reduced IT costs
Outsourcing IT functions turns fixed costs into variable costs, meaning enterprises pay only for the resources and time they use. The costs associated with hiring a full-time IT employee, such as training, insurance, employment taxes, and retirement plans, are eliminated.
Resources and skills that may not be available to hire locally can be found in abundance elsewhere. Outsourcing allows for a global outreach of IT professionals, and it provides more possibilities for businesses that want to outsource talent that have very niche or specific skill sets.
For example, if a company based in Charleston, South Carolina, is unable to hire any local experts in container security, they’ll be more likely to find someone to meet their needs if they contract an outsourcing provider.
In addition, there may not be anyone internally who can manage all of the company’s IT needs. Many smaller enterprises need support engineers and technicians more quickly than they can hire internal personnel, and small businesses may also be hard pressed to afford an in-house IT team. In situations like these, outsourcing is a feasible alternative.
An IT outsourcing provider has the resources and expertise to start new projects immediately. If a business doesn’t have a large IT team or software developers to manage technology, they’ll be able to start implementing programs more quickly if they outsource, rather than spending months or even years hiring skilled employees and developing internal platforms.
Businesses may choose to outsource their cybersecurity to a third party. For teams that don’t have security personnel, outsourcing provides tools to quickly get threat intelligence, detection, and response running.
However, outsourcing security has risks, especially if your partner is in a different time zone and can’t respond immediately to alerts. And typically, outsourcing any IT function is an overall security risk; giving partial or full management of company resources to a third party typically compromises security of data and networks.
Is your small business considering managed services? Read Top Benefits of Outsourcing.
IT outsourcing disadvantages
Disadvantages to IT outsourcing include:
- Language barriers: Often, IT outsourcing companies operate in a variety of countries. Language barriers can make a working relationship difficult; when a clear explanation of a problem or solution is required, both the employee and vendor are affected by unclear communication.
- Time zone differences: Different time zones add another barrier to communication and coordination, but they could also affect how quickly the IT outsourcing partner is able to respond to outages or potential cyberattacks if team members are not constantly available to mitigate threats.
- Decreased quality: Unless a business invests a lot of time in screening potential IT outsourcing vendors, IT service quality may actually go down. Not all outsourcing parties offer high-quality services, and being trapped in a cycle of paying for insufficient work wastes time and money.
- Compliance threats: A business’s compliance stance depends on its third parties as well; every single vendor it works with can make a business noncompliant if it breaks any part of the GDPR or other regulations.
- Security: Exposing any internal systems or data to third parties poses a threat. If any of their networks or devices are misconfigured or unsecured, the business working with them is endangered as well.
To decrease the chances of finding their business in a bad outsourcing situation, enterprises should carefully vet potential IT vendors, including researching their history with other customers and giving them third-party risk and compliance assessments.
This is what can happen when IT outsourcing deals go bad | CIO Insight
IT outsourcing models
IT outsourcing is structured differently depending on type of work, length of time, and level of autonomy the outsourced team has.
Workforce augmentation model
The workforce or staff augmentation model is a form of contract hiring; businesses recruit talent to fill skill gaps within their organization. These employees are often remote and may work in other countries. Hiring temporary employees also means that businesses aren’t required to pay the additional cost of their benefits.
Project outsourcing model
Outsourced IT projects typically include projects with a clear beginning and finish. These projects are marked by tasks that must be completed.
Some outsourced projects are more collaborative and flexible; the hiring business and the outsourcing vendor work together to develop an end product, and the project might change throughout the process. However, others are more fixed; compensation is determined at the very beginning, and the end product doesn’t change throughout.
Dedicated team model
A dedicated team model provides a group of contract employees who collaborate with the paying organization, often on a project. Comparatively, an outsourced team might work with the business long-term, helping with multiple projects. Outsourced dedicated teams are good choices for major software development. Because they can both be project-focused, dedicated team and project outsourcing models sometimes overlap.
Dedicated development center
A dedicated development center (DDC) is a third-party organized group of IT professionals who manage all aspects of a client’s company IT infrastructure. A DDC differs from a dedicated team model in that it can be responsible for all client IT infrastructure and processes and does not need to be integrated with the client’s existing IT staff, according to Forbes. Often, members of a dedicated development center maintain control over the work processes.
Top IT outsourcing providers
Accenture is a managed service provider that offers outsourced information technology services in five different categories, including ERP (enterprise resource planning) and architecture. Accenture helps enterprises implement SAP ERP solutions, and its cloud services are vendor- and system-agnostic. Moreover, the program, project, and service integration management module helps businesses connect their program delivery with their IT plans.
Clarion is a software development service partner for enterprises that need to outsource their web application and mobile app development as well as agile project management outsourcing, analytics, and BI services.
Deloitte offers enterprise technology and performance managed services (a form of outsourcing) with a focus on ERP and digital transformation. Through Deloitte’s partnership with SAP, businesses can migrate from legacy databases, develop hybrid cloud systems, and deploy robotic process automation solutions. Deloitte also has a partnership with Oracle, one of the world’s major cloud and database providers, to design customers’ cloud-focused business strategies.
Fujitsu IT outsourced services include multicloud creation with other partners like VMware and Microsoft Azure; application services for app development, integration, and management; and network and communication services. The enterprise and cybersecurity service includes protective solutions like IAM (identity and access management) and threat and vulnerability management, as well as security operations center teams and consulting.
Netguru is an agile software development outsourcing provider that features machine learning and product design services. Its machine learning outsourcing includes digital transformation and data annotation. Netguru also offers evaluation and ideation services, helping enterprises plan their products and evaluate their user experience.
Considering an IT service provider? Read Best Managed IT Service Providers.
This article was updated March 2022 by Jenna Phipps.