IT Outsourcing vs Insourcing Pros and Cons

Thinking of outsourcing IT services? Or, should you insource IT services? It is an important decision. The right choice can simplify your operations, streamline costs, increase flexibility, and strengthen your team. The wrong decision could cost you mightily. When considering insourcing vs outsourcing, here are some things you should consider. 

It is important to make a careful analysis of the insourcing vs outsourcing pros and cons before making a decision.

1. Cost

In broad strokes, outsourcing is actually the cheaper option for organizations with under 100 staff members. You will save money on all recruiting and training efforts. The IT environment is constantly changing and being updated. That is a lot of ongoing training costs. Outsourcing also reduces payroll costs related to benefits and employer contributions. When you outsource IT services, you pay for what you actually need.

There is a sweet spot below 50 staff where it only makes sense to outsource. With 50 to 100 staff, organizations need to very seriously begin to think about outsourcing. Organizations that have 70 employees are in the death zone where they really need a lot of IT resources. It is very easy for an organization of 70 people to spend $250,000 year on IT services. Depending on how you slice it, you could get 4 full-time people for that amount of money.

Here are some of the factors that you need to take into consideration when looking at the cost of insourcing vs outsourcing. 

A. Cost of Benefits

To companies that offers benefits to employees: did you know that a $60,000 salary amounts to to $80,000 after you cost in benefits? The fully loaded cost of insourcing IT is 30% to 50% higher once you factor in the indirect costs, including the management costs. The average cost of group benefits in terms of employees is roughly 30% of base salary in benefits. $60,000 a year with the cost of benefits would be $80,000. This makes it clear why some organizations prefer to outsource IT services.

B. IT Management

With outsourcing, the IT management role is massively reduced. IT services firms like CITI specialize in providing managed services and take care of the IT management. The first activity we perform is providing a rich communication and liaison role with your senior management.

C. Cost Savings

In a recent Deloitte Global Outsourcing Survey, almost 60% of those surveyed saw outsourcing IT services as a cost savings tool.

D. Juniors Are Not Sufficient

If you hire a junior, it could be up to 75% more. A junior may cost $40,000 a year. However, they will not have all the technical knowledge required and they certainly will not have the experience needed. Even with a junior IT services person on staff, you would still need to outsource an IT manager to handle deeper technical issues. Hiring this position in-house would be $100,000 at minimum. Reliable IT security requires a broader range of technical skills. Every organization needs the following services and they are rarely found in a single person: 

• A network engineer
• A support person
• A consultant

In a recent Deloitte Global Outsourcing Survey, almost 60% of those surveyed saw outsourcing IT services as a cost savings tool.

2. Expertise

Insourcing vs outsourcing pros and cons become very evident where expertise is concerned. When it comes to IT insourcing, disadvantages are very clear. Organizations outsource IT because it provides a broader range of technical skills and it provides access to a larger talent pool. It is not good enough to know how to help users with day-to-day office problems. Your IT services provider, whether insourced or outsourced, must have access to the newest resources and knowledge of the most recent threats and areas of vulnerability. Outsourcing IT services allows access to the newest IT innovation.

3. Team Building

There can be resistance to outsourcing IT because it is seen as an impediment to team building. This kind of thinking is prevalent but is a rather old school way of thinking and it is not as common as it once was. With some thought, there are ways to integrate outsourced IT services into your team. Insource vs outsource pros and cons break even when it comes to team building.

4. Control and Immediate Access

Having insourced IT services comes with a sense of having greater control over the process and the systems used. Outsourced IT service providers have a number of different clients and they will want to use a similar methodology in setting up networks. Losing some control over some of the decision making is not necessarily a bad thing because you are getting the benefit of years of experience. With respect to access, there is a comfort in having the ability to walk down the hall to get IT answers but as more organizations are working in the Cloud, organizations have fewer and fewer halls! A competent consultant providing outsourced IT services will have a procedure by which you get immediate IT support.

5. Continuity

Organizations are often challenged with retaining IT personnel. Typically, it is not within a budget or it is not an operational requirement to maintain a broad range of IT employees. It is possible that your in-house IT employee is just going to move on after a few years. People drawn to IT are motivated by change and innovation. As a personality type, in-house IT employees sometimes do not deal well with the routinized nature of basic corporate operations. An in-house IT manager is really only as good as their currency working with the latest technology, but often, in-house IT staff spend all of their time keeping a corporate network running. It is not that they will not innovate but their job is to operationalize rather than to transform. Outsourcing provides great IT expertise continuity.

6. Innovation

What does your organization need? Does it just need help or do you need to innovate?Technological change and change management can be extremely confusing and overwhelming. With an insourced IT employee, the battle to stay in sync with technological change winds up being fought on a computer-by-computer basis. That is the only way to achieve the highest degree of success with insourcing. Even when in-sourced staff attempt to do that, it is just one more job that they need to add to a queue rather than an ongoing practice. 

When you cease having an internal IT department, you immediately have less responsibility. It is like getting your vegetables in a grocery store versus a backyard vegetable patch. If you buy vegetables in a grocery store, you have a lot of choice and it is easy. Alternatively, you may only have 1 or 2 vegetables in your backyard and you have to put a lot of effort into tending the garden. Some seasons you might save money but some seasons you might pay more. That is the sub-optimal way of managing anything. Outsourced IT allows for many more options and much more flexibility. Lack of innovation is a big source of insourcing disadvantages.

Conclusion

IT service providers have a broad range of skills. You are unlikely to find that skillset in only 1 or 2 people, but an organization of 250 or fewer people cannot justify having more than 2 IT people on the payroll. 

There are pros and cons with having outsourced IT services but at the end of the day, the pros greatly outweigh the cons. Outsourced IT will result in greater expertise at a lower cost. 

If you are interested in outsourcing your IT, get in touch with CITI. Our bespoke managed IT services will provide you with advanced technological expertise and save you money at the same time.