No doubt, businesses are outsourcing more and more technology services to MSPs. And those MSPs, in turn, are outsourcing some of their own technology needs to third-party providers.
Outsourcing portions of your business that are not part of your core competencies can really help your bottom line and customer satisfaction. But businesses -- regardless of whether you're the end-customer or the MSP -- should be careful about what they choose to outsource, and what they choose to keep in-house.
A new study from Computer Economics called IT Outsourcing Statistics 2017/2018 finds that while organizations aren’t broadly increasing the number of functions they choose to outsource, they are increasing the amount of work they send to outside service providers. Currently, the organizations that do outsource are typically doing so for help desk and web operations -- both of which can help MSPs to grow their revenues.
Cybersecurity, Disaster Recovery Gain Outsourcing Momentum
However, the study shows that the functions with the greatest potential for improving service through outsourcing are IT security, disaster recovery, application maintenance, and database administration.
In the cases of IT security and disaster recovery the motivation to outsource is typically not about saving money, and more about the skills of the internal staff. Security risks are changing and growing at an alarming rate, and being up to date with the latest know-how can be a full-time job on its own. Outsourcing these tasks makes sense for a company that is having a hard time keeping up with these trends, as can be the case with many smaller firms where technicians are expected to perform multiple functions.
Application development is the most-frequently outsourced function in the study. According to the report, 37% of organizations that outsource this function are planning to increase the amount of work they outsource. Application development continues to take larger parts of the IT budget, and many IT organizations are looking to optimize internal staffing through the use of outside development firms, that can specialize in creating or improving these applications.
The report shows that not only smaller firms with limited skills are outsourcing, but large organizations have increased the percentage of their IT budgets spent on outsourcing from 6.3% to 8.7%. Small organizations are now spending 7.8% of their IT budget on outsourcing at the median this year, compared to 6.7% last year. Midsize companies have increased their spending at the median from 4.7% to 6.5%.
Outsourcing: Potential Risks for MSPs?
Amid outsourcing's ability to improve margins and profits for MSPs, sometimes the industry hype overlooks the potential downsides and risks. While so many MSPs are in competition with each other, the unique selling point of an MSP is the personality of the company. When a business owner puts the trust of their network into the hands of an MSP, they really want to trust that it will be in the right hands. Aside from high-level projects, the majority of the interactions between a company and their MSP will be through the day to day help desk operations.
While I can certainly see the benefit of outsourcing many of the non-client facing tasks like maintenance and backups and specialized skills like development and security, I think anything that still has client interaction should be done in-house. You want to have your clients get to know your staff, and vice versa. If all of the day to day issues are offloaded to another company it can be difficult to create a high-level project, since you are unfamiliar with the issues that happen at the client on a regular basis.
Another key risk: If you outsource too heavily, your pool of higher level technicians could become reduced over time. IT management is a very hands-on profession. Techs coming right out of school usually have no idea how to manage technology in the real world. Help desk tasks and mundane, menial tasks can be a great training ground for these technicians. As they get to know the client networks, without having to perform the client facing tasks, they become more confident in their skills and increase their skill set. If these tasks continue to be outsourced, and the in-house technicians are reserved for higher-level technical planning and tasks, the middle ground disappears and the pool of higher-level techs reduces over time since no one is being trained to move up.
In the short run, I can see the cost benefit for MSPs to outsource more and more services. It would appear from the report that many firms are also seeing the benefits, but we do not yet have data on the long term impact this business model could present.