IT Outsourcing Reasons For SMBs

· What drives SMBs to IT outsourcing?

· What holds them back?

· Specific benefits for SMBs

· Outsourcing myths among SMBs

· Challenges SMBs face in Outsourcing

· Conclusion


Small businesses have always confronted with addressing their IT necessities. The lack of resources – be it staff, budgets or managing resources – have determined SMBs to start exploring the offshore outsourcing option. But start ups and small enterprises have specific needs that few outsourcers can address correctly. Affordable IT solutions that are easily to install and configure, service/support requirements and, most of all, integrated ready-to-use methodologies and tools are the most critical demands of an SMB willing to outsource its IT department.

What drives SMBs to IT outsourcing?

The SMB market is to eager to find affordable IT solutions that are easy to use. Just as important, however, is are the requirement that address SMB deployment issues, operational challenges and service/support requirements. SMBs want IT solutions that are easy to install and configure, and require minimal customization and integration. More importantly, they demand responsive and reliable after-sales service and support. SMBs don’t take customer service and technical support for granted. For many small companies, a solution provider’s technical support isn’t merely a convenience; it’s a business-critical IT service, because of their resourceconstrained IT staffs.

SMB business specific challenges and “pain points” determine specific needs for small enterprises. Most outsourcing providers are specialized on the early adopters of outsourced software services – large companies multinationals. Therefore there are few specialized providers for SMBs and able to adapt to their business model and needs. Yet small-sized, SMBs are still technology-intensive businesses that require great attention from outsourcing providers. Small businesses should choose outsourcing their IT to those providers with

experience in managing SMB projects.

What holds them back?

At first glance, this key issue can seem redundant with the ones in the previous paragraph. However, we often see a contradiction between SMB IT requirements and how SMBs buy technology. For example, SMBs cite tight IT budgets as an inhibitor for adopting technology, but yet they choose not to use vehicles such as “leasing” to work around limited IT budgets. Creating the right IT solution for SMBs requires a clear understanding of their technology and business needs.



· Cost Reduction

· Access to better skill sets, depth of experience

· Access to the best / most current technologies

· Minimizing downtown

· Increasing user productivity

· Reallocating personnel to more strategic activities

· Convenience

SMBs prefer IT solutions that have simple and straightforward pricing (the requirement), but they need the flexibility to consume technology in modular components that can be extended when required (the behavior).

It is also important to understand SMB preferences including, but not limited to, brand loyalty, bundling and packaging, and service delivery options, such as outsourcing and software as a service, as SMBs upgrade and expand their IT environments. Yet, there are still issues that have prevented SMBs to start outsourcing their IT department until recently. And these are:

Affordability: Recent market figures point out that still 40% of SMBs state cost as still the strongest reason preventing them from outsourcing. But offshoring proved that in most cases the outsourcing option will be significantly cheaper than hiring in-house staff – since manpower or infrastructure costs are lower at the vendor’s location.

Trust: Lack of clearly defined methodologies and contracts, quality certifications, security assurance and even cultural issues can contribute to low trust levels among SMBs when engaging in an outsourcing relationship. The vendor must be able to place confidence, expect with assurance, agree to the contract, and act predictably and fairly in order to obtain trust from their clients.

Intellectual Property and Data Security: One of the major drawbacks for outsourcing adoption among SMBs is related to protection of intellectual property and information in general. Especially for technology-intensive start ups that rely on innovation, these are business-critical issues, and not all providers have yet in place the procedures for ensuring all these.


· Network Connectivity:

Monitoring and Management of WAN, Routers,

Internet Connections, VPN

· Security:

Monitoring and Management of Firewall, Virus

Protection, Spam Prevention, IDS / IPS

· Data Backup / Archiving:

Offsite Storage, Shared SAN, Data Centers,

Archiving Services

· Messaging and Collaboration:

Email, Web Conferencing

· Software Applications:

Licensing Management, ASP

· Desktop Management:

Helpdesk, Break/Fix

· Server Management:

Monitoring Health and Performance Thresholds,

Break/Fix, Administration

· Web Development / E-Commerce

· Database Administration

Understanding: A clear understanding about the outsourcing process and benefits is minimal among small companies. Offshore software services vendors are more interested in adding Fortune 500 names to their client lists and hence have failed to educate small businesses about the benefits of outsourcing.

Volume of work: Large service providers would rather work with large corporations that can outsource large volumes of work. The volume of work outsourced by SMBs may not be feasible for large vendors. This trend seems to be reversing, but slowly.

Management experience: Small and medium businesses do not have the “management experience” required to work with an outsourcing project. Large corporations, for instance, have dedicated specialized resources to manage vendors.

Benefits of IT Outsourcing for SMBs

Process Maturity

Perhaps the main reason companies want to outsource is to engage a mature team for its development tasks.

Types of processes, the investments being made in services, the infrastructure and the level of communication, trust and understanding that exists between the vendor and client’s company all influence the quality, results and outcomes of the process. The maturity process should be adapted and flexible not static, developing in scale, scope and framework as the relationship evolves and business results need to be maximized. Process maturity is effective when it improves costs, efficiency and productivity in a total quality control approach.

Cost Savings

Lower cost is one of the primary reasons for outsourcing. The cost savings are commonly based on the wage difference between the Western world and offshore destinations. Other factors such as economies of scale and specialization could also have a considerable impact.

Knowledge & Expertise

Outsourcing gives you access to knowledge pools that you might not have inside your own company. Outsourcing also enables you to focus on your company’s core business and competences.

Risk & Quality Control

Outsourcing agreements can be structured in a way that the responsibility to produce a certain quantity/quality of output is placed at the outsourcing provider, thereby giving you a better way of managing risk. The responsibility of the provider can be defined in so-called Service Level Agreements


Capacity Management

Outsourcing gives you a tool to manage your output or production capacity in a flexible way.


By using external resources, you can overcome possible shortages on the job market. This is especially the case for highly specialized roles in, such as the information technology industry.

Despite the proven benefits of outsourcing – shown below – SMB managers still seem to be reluctant when it comes to IT outsourcing. Many of them share so-called “myth” beliefs which we would like to address as follows.

Outsourcing Myths among SMBs

Some of the deterrents mentioned before are only misconceptions. Some of the most common things an SMB manager will say when approached for offering offshore software services are:


The real thing: It is very difficult to define the size of an organization that is ready to outsource. There are “virtual companies” that outsource all their development requirements and handle only marketing and branding.

In short, if you can see a need for software development, you can outsource.


The real thing: Core product development can be outsourced and there are several success stories. However, it is absolutely essential to do a thorough background check on the vendor and ensure that the vendor has a good track record in protecting IP before outsourcing core product development.


The real thing: The underlying meaning of this statement again reflects the perceived difference in outsourcing core and non-core areas. You don’t have to outsource for the sake of outsourcing! Engaging an offshore partner is usually cheaper by 30 to 40%, as manpower, infrastructure costs are far lower at the vendor’s location.


The real thing: On the contrary, the ROI component of outsourcing has been shown time and time again. In fact, the greatest arbiter, the marketplace, seems to give outsourcing a resounding thumbs up. Beyond reducing head count and employee overhead, additional benefits such as faster time to market and improved quality of the finished product can achieve an ROI of over 400% in some cases. Today, the question is not if you will outsource, but when and how.



Like most services related to IT, choosing the right provider can make all the difference. In addition to SLAs, SMBs considering outsourcing IT tasks should look for providers with specific and proven experience in

appropriate industries. Outside providers can also offer solutions that are vertically aligned.

Challenges SMBs face in outsourcing

SMBs that have identified vendors for outsourcing development / maintenance or looking for a vendor, should consider certain aspects that can easily ground the outsourcing initiative. Some of the factors that SMBs should consider before signing on the dotted line are as follows.

Alignment of focus: Vendors too come in different sizes with different priorities! Some of them are large

operators and some of them are small. SMBs should choose a vendor most aligned to the company’s needs.

Some of the vendors have of late spread too thin by getting into non-development outsourcing services resulting in lack of focus. In determining the ideal fit, alignment of focus is a key parameter apart from several other factors like culture, competence etc.

Lack of well-defined processes: In most of the small companies, a bunch of motivated tech team manages software development. Small companies and start-ups do not always have defined processes for managing outsourced software development. Many of the vendors find it difficult to deal with such a setup. Vendors are more comfortable dealing with companies with clearly defined processes. Companies looking to outsource should spend time in defining the roles and responsibilities of their internal team and the vendors’ team. Most of the vendors have mature development processes in place and companies can adopt them.

Commitment to a relationship: All major vendors work with multinational companies and a small client may not be considered as important as a fortune 500 client. In other words, a large vendor would most likely focus on serving large clients with large business volumes rather than serving small clients. Small companies should choose a vendor who values the relationship and hence has a stake in the success of the engagement.

Track record and experience: Companies should look at the vendor’s track record and experience in working with small companies. Vendors are comfortable working with large companies may not understand the nuances of working with smaller companies. Small companies may not have proper documentation or hardware/software infrastructure for testing, version control etc. A vendor with a track record of dealing with small companies should be in a position to expect such situations.

Risk Management: SMBs should seriously evaluate risk management processes adopted by the vendor. The recent trend among offshore software services vendors is the adoption of a business continuity plan (BCP). Vendors with a clear BCP stand a better chance of providing uninterrupted services in the face of contingencies.


Offshore outsourcing has been discovered for quite some time by large corporations but has barely attracted the attention of SMBs. Still, there are many proven benefits that should encourage SMBs to outs

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Outsourcing: A Recipe for Success


There is a body of research that suggests many outsourcing deals are not delivering the benefits expected by client organisations.

Common themes centre on a mixture of unexpected costs and issues surrounding the relationship. Yet despite these well publicised challenges there remains a significant client investment in outsourcing. In fact, the move towards outsourcing more core or strategic elements of the business coupled with the growing importance of greater collaboration with outsourcers is viewed as a way to achieve greater flexibility and agility.

These challenges and developments suggest that outsourcing continues to be viewed overall as significant in the realisation of business goals and strategies although there are many who are currently in existing outsourcing arrangements that are failing to deliver the benefits expected.

It is our belief that outsourcing can be an effective strategy however there are a number of aspects that have to be understood and actively managed both from the outset and throughout the life of the contract to realise the expected benefit for the clients’ business.

The right blend of ingredients

Having the right ingredients alone is not enough to form the basis of a successful recipe

Any memorable gastronomic experience has behind it an exact blend of quality ingredients and other elements including skills, experience, preparation, timing, tools and monitoring to ensure the delivery of a successful outcome for the customer. At Aurora Partners we believe the same can be said of outsourcing.

The objective of this article is not to describe an end to end process for outsourcing; after all there are plenty of articles about that. It is looking to explore, from a client perspective, those aspects of the “outsourcing recipe” that we know from experience are often overlooked or undervalued and yet we believe are critical in terms of delivering the required value throughout the term of the contract.

Looking at these aspects in more detail will help those involved in the procurement and management of outsourcing to better understand their existing outsource challenges and provide some insight into how to improve the successful prospects of future outsourcing ventures.

Having said this is not an end to end guide to outsourcing it is important however to provide some context. The outsourcing process can be broken down into 3 key stages; Business Case Development, Tendering & Selection and Managing the Contract.

Creating the right conditions

At the outset it is important to ensure the right “conditions” are created so it’s worth recapping on a few basic outsourcing principles

Understand what your organisation expects to achieve through outsourcing and what services it is planning to outsource:

Cost saving is one driver for outsourcing but many organisations also outsource to obtain access to skills, drive innovation and to manage complexity/scalability more effectively
Outsourcing is typically more attractive and less complex for routine/repeatable activities or commoditised services
Outsourcing those aspects of the business that are considered core, critical or strategic carries with it a high impact associated with any failure. This type of outsource requires a higher risk profile to be understood and managed and requires a more mature, collaborative based approach.
Ensure that the business requirements, and how systems and capabilities can be leveraged, are clearly understood as this is essential to defining the service, the appropriate service levels, contract clauses and ultimately the price of the contract.

Recognise that the business strategy and technological developments may change during the term of the contract and therefore there is a need to build in the appropriate level of flexibility and responsiveness into the contract to avoid excessive cost through subsequent changes.

Understand the benefits and drawbacks of different contract lengths:

Current trends are towards a business outcomes based approach with shorter deals that are more focused and managed more closely
Any outsource inevitably results in losing knowledge/experience to the outsourcer making it difficult and risky to move to another provider or back in-house later
If the business or service requirement is not sufficiently understood then the right conditions for success will not be created. A clear understanding of the requirement enables the development of an optimum balance between Quality, Cost and Control.

Client & Outsourcer Relationships

Why are good relationships a key ingredient for successful outsourcing?

It is a common misconception that if there is a contract in place then that takes care of everything. A contract does indeed document what service has been bought and to what level. But not all contingencies can be explicitly incorporated into the legal contract and it is therefore necessary for parties to also rely on more implicit agreements or the spirit of the contract. In reality, the everyday working of the contractual relationship is governed by the individual’s more subjective interpretation and therefore reliance on the legal contract alone is insufficient.

Ultimately, it is the individual’s beliefs and perceptions of these obligations, rather than the actual written contract, that drive behaviour encompassing the parties’ perceptions and beliefs of both the explicit written terms found in the legal contract and implicit unwritten terms.

The perception of outsourcing success or failure is often associated with the extent to which the non-contractual aspects (implicit beliefs & expectations) have been or are being delivered.

Have you experienced the often familiar situation where the SLAs have been achieved but it still does not feel as though you are receiving the service you thought you had signed up to?

Having established why relationships are so important to the success of an outsourced contract let us consider the factors that can influence the establishment of good relationships

It may seem a very simple question but what type of relationship do you want with your outsourced service provider?

We often hear the phrase “I don’t want a service provider I want a Partner” but what does this really mean and are all contracts suitable for this?

The starting point is to consider what type of service you are outsourcing.

For relatively simple and repeatable or commoditised services it is more usual to have a typical client/outsourcer relationship. If however you are looking for an outsourcer to support a more complex arrangement comprising core business functions then you will need to invest in a collaborative relationship often viewed as an extended enterprise that requires greater innovation and thought leadership.

Collaborative relationships often cost more as there is a greater investment required by the outsourcer. Therefore the type of relationship you have with your outsourcer is very much driven by the type of services you are buying and consequently contributes to the cost vs. value debate.

Contracts and relationships are complementary in that both need to be strong to produce positive outsourcing outcomes.


The management of outsourcing contracts requires interaction between client and outsourcer at different levels. The early development of both formal organisational roles in conjunction with successful interpersonal relationships is key to the efficiency, effectiveness and evolution of the contract.

The establishment of a good relationship takes a combination of the right people within the right organisational structure who are empowered and supported to make decisions. There must be a mutual understanding by both client and outsourcer regarding how they wish to conduct business together with behaviours that do not undermine the relationship even when under pressure.

On the client side it is beneficial to have a retained organisation that has the breadth and depth to understand and if necessary challenge what the outsourcer is saying and doing. Enlightened organisations recognise that the skills needed go beyond procurement, finance and legal and extend into other areas such as Service Management and Technical.

Skills & Experience

There must be sufficient skilled and experienced resources assigned to manage the contract from both the outsourcer and client organisations.

Identifying and securing key client and outsourcer resources within the contract will help mitigate for “bait and switch” soon after contract signature.

Both the client and the outsourcer need to recognise the importance in fielding people (especially at the points of interface between client and outsourcer) with strong interpersonal, problem solving and relationship management skills and capabilities. This is in addition to other skills such as technical or service management.

It is not uncommon for time consuming and costly issues to have arisen, drawing in many other more senior individuals within both organisations, as a direct result of deficiencies in these areas. If allowed to persist the damage to the efficiency and effectiveness of the contract can be significant.

The transfer of undertakings (Protection of Employment) Regulations or TUPE between organisations needs to be understood and managed in terms of relationships. In the early stages of the contract the familiarity that transferred staff have with the client organisation can be of benefit in terms of establishing the service. As time progresses familiarity with the “old way of doing things” may stifle creativity and innovation and therefore consideration should be given to a blended team for the contract.

Cultural alignment

Similarities and differences between client and outsourcer organisations will affect the approach to the relationship. Individuals will typically more closely align with the people, functions, goals and culture within their respective organisations. A failure by both parties to recognise and manage these differences introduces the risk of contention, misperception and conflict that can over time become toxic to the relationship. The concept of mutuality highlights the importance of looking at perceived obligations from the perspectives of both parties involved. Understanding and working through differences while building on similarities is significant in optimising the relationships and facilitating knowledge sharing crucial to the success of outsourcing relationships.

The goals and objectives of both client and outsource organisations will change over time introducing the prospect of tension especially in lengthy outsource contracts. It is therefore advisable to review any such developments and cultural alignment as part of a joint periodic review. Both client and outsourcer need to recognise that they are a team and together they are responsible for delivering a successful service. Contracts convey obligations on both parties not just the service provider.

Client and Outsourcer Perspective

How you behave as a client can influence the type of relationship that you have with your outsourcer. When everything is going well this might seem like a moot point but when the service is compromised good behaviours are sometimes sacrificed resulting in both parties resorting to quoting their interpretation of the contract.

Recognise that your outsourcer has a reputation to maintain so wants to deliver the service that you have procured but also recognise that when things go wrong you need to maintain trust and work together to return the service to its optimum state.

Ultimately the outsourcer’s main priority is profit and this can drive behaviours that conflict with the client needs. The outsourcer’s perspective is typically that the client does not always appreciate the effort associated with responding to changing requirements.


What do we mean by governance for it is a much used and misappropriated term?

In this context, governance sets the framework for how the contract will be managed, decisions taken, disputes resolved and successes identified. It is the framework within which the relationship operates and it is supported by clearly defined processes and effective monitoring.

Now let us consider the factors that can influence the establishment of good end to end governance:

At the outset there needs to be clarity in terms of who is running the outsourcing project. The business drivers for outsourcing often result in the expectation that the outsourcer takes charge of the entire project. However the outsourcer’s expectation may be that they expect the client to fulfil their obligations in the area of project ownership.

A governance plan needs to be established at the initiation of the outsourcing project and aligned to measures of success that represent what the client expects to achieve through outsourcing.

It is important not to underestimate the resource and capability required to support the mobilisation, transition and on-going management of the service. Factors including the type, complexity, criticality and frequency of changes to the service will influence the model for governance with offshore arrangements usually requiring a relatively higher level of resource to administrate.

Target setting must not be confined to post “go live”. Work with the outsourcer to establish joint targets that will monitor and report progress eg. Achievements, Benefits, Concerns and Do next (ABCD) to all stakeholders.

Monitoring & Analysis

Governance is underpinned by effective monitoring and analysis. This typically takes the form of Service Level Agreements (SLAs), Operational Level Agreements (OLAs) and Key Performance Indicators (KPIs). When designing metrics ensure that you cover the full scope of the contract with sufficient detail, including metrics for both performance and compliance. In addition, always seek to establish why you are monitoring this aspect of the service and what you will do with the outcome? Taken together this should ensure that you avoid the unintended consequences of poorly designed metrics.

A governance model should be in situ throughout the outsourcing lifecycle from business case development through contract signature, early life support and into the operational lifecycle. The structure, focus and participants can be expected to change. Regular reviews should be undertaken to assess ongoing suitability with any changes to the terms of reference formally agreed by all parties.

The establishment of a clear terms of reference and RACI model will enable both parties to remove ambiguity concerning decision making and information flow thus improving process transparency.

Governance tends to focus on the formal side of the relationship but this should not discourage the informal communications that can be so valuable between client and outsourcer personnel. Encouraging such conversations can strengthen relationships and result in the resolution of concerns avoiding the need to pursue a more formal route.

In the virtual environment client and outsourcers need to exploit the many tools available to connect people with one another. Developing a healthy virtual network is critical to coordinating projects, sharing of knowledge and establishing levels of trust at the individual and organisational level.


What are the key ingredients for successful outsourcing?

Firstly it’s important to create the right conditions under which the outsourced service has the potential for success. Making sure you are clear about the business requirements and what you expect to achieve through outsourcing are critical foundations for success. Supporting this with an appropriate contract term that has the right level of flexibility & responsiveness built in will help cement that success.

Secondly the recipe requires inclusion of the three ingredients: relationships, governance and processes to be used in the right quantities. Whilst these three ingredient are all needed for a successful outsource the quantity used can vary depending on the nature of the outsource.

Finally it is vital that relationships are:

Appropriately sponsored from the outset by both client and outsourcer senior management especially up to and including the conclusion of early life support
The future client and outsourcer engagement requirement is understood during the early stages of negotiations and is appropriately reflected within the contract
That ongoing service management resources are engaged during contract development to contribute, build an understanding and establish relationships to facilitate the subsequent transition to a successful business as usual state
We have sought to provide details of those ingredients that we believe are often underrepresented and yet key to the successful evolution of the client outsourcer relationship and process through which value will be delivered for the service consumer.

Central to this success is the ongoing dialogue between client and outsourcer using an agreed approach to define and deliver against existing and emerging expectations in an effective and efficient manner.

At Aurora Partners we appreciate that the most fundamental sourcing decision is the “make or buy” decision. The reality however is often more complex with examples including Internal Inhouse provision (insourcing) & Shared Services, Hybrid: Staff augmentation (contract labour) & Consulting and External: Traditional Outsourcing & Cloud Services.

Aurora consultants have supplied Service Management expertise to support project teams throughout the outsourcing lifecycle ie. Architect, Engage, Operate (transition/manage) and regenerate phases. Examples include:
Service Requirements development
SLA, performance metrics and Service Credit frameworks
Service Management expertise to support bid Q&A and negotiations
Development of evaluation models for bids to ensure bidders can perform the services at the price and quality offered in their bids
Programme managing mobilisation of contract
Renegotiation, disengaging, transition to new provider & backsourcing
At Aurora Partners we work with Clients who expect greater contextual relevancy, supplementing the fact and commodity based “Know What” with our “Know How”, a product of accumulated experience and continual study.

We remain focused on the value that we can bring to a team, function or organisation. We work with the cumulative knowledge and experience that we take with us to every assignment. Our clients understand that the expertise we bring cannot be placed in a conveniently labelled box and sold at a volume discount

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