[White Paper] How to achieve the best value with outsourced IT support
June 20th, 2011
The objective of this brief paper is to give the owner, managing director or finance director of an SME (10 – 500 employees) some thoughts about how to maximise the value from their Information Technology (IT) investment. Many SMEs outsource IT because they do not have or want the expensive in-house resources required to support an ITC infrastructure. In many cases, this is done through local providers as the major players in the IT outsourcing market tend to focus on large corporate or governmental agencies. In principle, this is a good strategy i.e. do what you’re good at and let somebody else do what they are good at on your behalf.
However, in outsourcing their IT many companies do not really fully exploit the opportunities that this approach brings, rather it can be seen as a grudge purchase with the emphasis on cost. As an SME the authors can identify with this, however, for what is in real terms a small premium one can attract an outsourcer that not only supports your business but can make a positive contribution to it.
The Business Requirement
At the time of researching and writing this paper, the UK economy is in a delicate state. It depends on where you are as to whether or not the economy is in recession. However, the current environment does bring into sharp focus the need for:
- Cost Management – Absolute control of the cost base
- Easy to manage budgets – To support the point above the knowledge that your spend is fixed over a given period allows time to devote to wealth-generating activities
- Return on Investment – The best possible value return on any investment
- Cash Conservation – Invest only in items that really add long-term value, rent anything that devalues quickly
- Profit Protection – Cash is king, but companies are still measured by bottom-line performance
- Organisational Flexibility – The ability to flex the organisations business infrastructure at the best cost
- People Productivity – Remove distractions and productivity eaters
- Quality of Service – Focus on the customer
In addition to these fundamental requirements, organisations want their outsourcing partners to be proactive, innovative and flexible. They need their partners to understand the business, not just technology.
Selecting your IT Outsourcing Strategy
A number of businesses see outsourcing their IT as just a way to reduce costs. If you view IT as a necessary evil this is the way to go, and for some companies, it’s the right way to go. All you need to do is to find a company to sweat your assets, to provide cheap, adequate support. Do however keep an eye on the change control clause(s) in your agreement as this is where it can become expensive.
As stated in the introduction there can be more value to be had from outsourcing ITC than just cost reduction. However, this entails a different selection strategy and this means selecting potential partners on value-basis. The term value-based is not a euphemism for expensive. In essence, it means that the ITC Partnership, not a vendor and buyer relationship, delivers a broad range of tangible business benefits.
Many SMEs have little or no IT capability. The Manager Owner, Finance Director or just someone with a passion for the topic is the “IT Manager”. This can be seen as a problem in the selection process but it is not, in fact. Discussions with potential partners should rapidly highlight the fact that IT is not the issue, it is business that is the issue.
Why a value-based relationship?
Simply, it will deliver a better quality service to you as a customer. This is because:
- A Partner will be more responsive. They will be more aware of your value as a customer, the lifetime value of your business to them and the impacts of losing you than will a cost-based supplier.
- A partner will understand your business, not just the IT part, and as a result, will be better placed to provide you with solutions that help you grow and stay on an even keel. Or, if times get tough, they will help you manage the impacts of a downturn.
- A partner will provide you with impartial advice; create relationships to meet your requirements that they cannot fulfil and will manage those on your behalf. They will provide you with a central contact point for your business infrastructure, simplifying your external relationships and protecting your valuable management time.
- A true partner will always provide you with the best value for your investment with them.
Selecting your IT outsourcing partner
If you choose a relationship on the basis of cost, the selection process is covered in the strategy above. We use the term partner carefully as that is what many organisations say they want. Partnerships are about creating lasting relationships, sharing the benefits of success and stripping out risks from a business. They are not about using the word as a mechanism to extract discounts. Many suppliers become wary of potential clients who talk about long-term relationships and then act in the short term. If you want just cost savings then say so.
Your first meeting with a prospective partner is a major decision influencer. In this, you will be able to decide if they are a partner or a vendor. A potential partner’s questions should be about your business, your objectives and strategies and about your issues. Their opening question should be about how it supports the business and your strategies, is IT an enabler or restrictor? They should then carry out a discovery phase to understand your IT infrastructure and identify its strengths and weaknesses. Only then will they be able to make a proposition that supports what you want your IT to achieve. A vendor which focuses on the IT components will typically suggest changes, but just from an IT perspective, not operationally.
How to review and IT support proposal
When you review a proposal from a potential partner you should consider how they address the general business requirements identified above plus your own specific ones. In general terms:
- Do they use ‘IT speak’ or do they talk your language?
- Do they talk about quantifiable business benefits?
- Can they show you where they have made a positive impact on a company’s strategy and performance?
- Can they demonstrate an early, acceptable return on the investment they are asking you to make?
- Is their proposal innovative, and flexible?
- Will their proposal leave you to manage your business rather than worry about your IT
In specific terms and against the business requirements, does their proposal demonstrate the following requirements and solutions?
Cost Management and Easily Manageable Budgets
Recognition that customers require a flat monthly expenditure profile through a financial year with a single point of change control. An empathetic approach to business downsizing and a creative approach to supporting growth within the agreed profile.
Return on Investment
Companies are seeking early returns on investments. Creative financing can help this. Leasing and/renting of products and services rather than capital outlay is a way of companies achieving a faster return than an outright purchase.
IT equipment particularly has a short lifespan in terms of realizable value. In effect, a PC has no real cash value after 12 months. Typically it is far better to lease than buy and use valuable cash for other investments. As part of a partnership, a supplier might wish to provide a cash injection by buying back the ITC infrastructure at net book value and providing an enhanced infrastructure on a rental basis.
The classic way of managing capital outlay is to capitalise it on the balance sheet. You can capitalise computer hardware this way but should be depreciated over one year. Doing anything else incorrectly inflates the asset base. Business software is generally provided on a license to use basis, i.e. the asset remains with the supplier, and should not be a balance sheet item. To protect your profits a creative financial solution is what a partner should offer.
Organisational and Infrastructure Flexibility
Companies should be seeking a partner who will accommodate infrastructure growth in the agreed monthly payment up until an agreed breakpoint. This could be at the annual renewal point. Automatically reducing charges under their control when workforce reduction is necessary is, like growth, something a partner should offer.
ITC infrastructure is all about people productivity. A partner will, in the agreed monthly charge, include business continuity, data security, antivirus, antispam, controlled internet access etc to maintain and enhance productivity.
Quality of Service to Your Customers
The loss of a company’s ITC infrastructure or partial can have a damaging effect on the service you provide to your customers, and to your reputation and longer-term business prospects. Your partner should ensure that your ITC infrastructure is robust enough to prevent this from happening, or if it does that recovery is fast enough to minimize the impacts of such a failure.
Be clear about what you want from your IT support provider and be open and honest with them. For SMEs, cash preservation is a critical success factor. However, a cost-based provider is not the only way of preserving cash and reducing costs. This approach can be a false economy it really depends on the value you place on IT in your business.
If you believe IT is critical to your business success then go the partnership route. A good partner will always deliver the best value.
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