Recognizing Opportunities and Avoiding Risks

In your opinion, what stage are SMBs currently at with IT outsourcing?

The majority of small and midsize businesses are only at the stage of recognizing outsourcing as an opportunity. And in this respect, there’s still a great deal of explanation needed. I believe the best way of describing the current situation is with the word ‘awareness’. And by that I mean that we have to create awareness of the opportunities and risks that come with outsourcing.

SMBs often find it difficult to hand over control of areas of their IT to external service providers. What are their main reservations and where do the problems lie?

Generally speaking, German managers in particular fear losing control of the outsourced functions. And overestimated cost expectations are often a factor which goes against outsourcing. However, I believe an important factor is the argument that, the larger the company-specific knowledge of the outsourced functions or processes is, the less interesting outsourcing becomes as an option. A company has to recognize and manage its core processes itself and only support processes should be considered as candidates for outsourcing.

When it comes to outsourcing, what factors should SMBs definitely take into account?

Let me highlight two aspects by way of example. Firstly, companies should look for a professional outsourcing service provider as their partner. And references for the potential outsourcing service provider will always help companies when choosing between several different offers. Secondly, the outsourcing process should be carried out as part of a time-limited project and should be monitored throughout.

What are the major problems when implementing IT outsourcing measures in small to midsize companies?

The major problem worth mentioning is managers’ anxiety over losing control and therefore power. Though this can be resolved by turning those who are seemingly ‘affected’ by the measures into ‘participants’ and communicating the benefits of a possible reduction in work.

Are there areas of IT where it’s easier and/or quicker than others for SMBs to let go of the reins?

Yes, I’d say the provision and maintenance of hardware by service providers, and the trend toward leasing systems with full-service contracts most likely has a hand in this. However, I’d say that even creating and maintaining a website is another such area. And the trend toward outsourcing application software, such as ERP (Enterprise Resource Planning) systems, is unmistakable. SMBs are moving away from tailor-made company solutions for cost reasons and are opting instead for standard software solutions where the providers generally offer maintenance contracts with software updates, which are also affordable for small businesses. A good example of this is SAP’s SMB software, SAP Business One.

The comparably low level of outsourcing when it comes to telecommunications/networks can, in my opinion, be traced back to the status of these newer technologies within SMBs, which essentially ties in with the size of the companies. The costs for telecommunications and networks generally rise disproportionately in firms with large administration departments and several production and sales locations.

Do SMBs give specific reasons for their, shall we say varying, willingness to outsource?

In general, though particularly with IT outsourcing, there is still great fear that losing control of sensitive data which is critical to a company could mean that it leaks out or even that it is manipulated or destroyed. You need only think of the hacker and virus problems associated with remote maintenance and installation via remote data transfer (RDT). Particularly in terms of IT security, there are still a great many reservations among SMBs about outsourcing IT. Though these are often unfounded, since the security measures in data centers are generally better than in the actual company itself.

The BF/M has studied the outsourcing behavior of German and US SMBs. What main differences did you discover between SMBs in the two countries?

First of all, I have to set the background a bit. Our study compared German and US SMBs from the mechanical engineering and finance industries. And we focused on comparing in-house provision with outsourcing of tasks relating to designing and maintaining application software. I’d like to take just three key results by way of example.

The SMBs we surveyed in the US take many more strategic aspects into account when making a decision about outsourcing, e.g. the issue of long-term success, than is the case in Germany. On the other hand, the question of control over the functions to be outsourced and their effects on company success seems to be more important for managers in Germany. But we were extremely surprised to discover that, in the areas surveyed, the level of outsourcing was higher in the German than in the US companies.
This result is diametrically opposed to widespread opinion and shows that perhaps we might have to revise some common thoughts or even preconceptions relating to outsourcing behavior. Though of course, studies continuing this work could come up with different results.

Dr. Andreas Schaffry
Dr. Andreas Schaffry