The San Francisco Chronicle recently published an article called “Wise outsourcing has more benefits than just saving money”. The article appeared in their Small Business section (http://allbusiness.sfgate.com), an excellent resource for business owners and CEOs.

The article lays down some of the obvious advantages of outsourcing for SMBs. The main points are:

• A better control on capital costs. True, outsourcing means transforming fixed costs into variable ones, and that’s paramount for small businesses.

• A reduction of labor costs. If you are a business owner, employees mean tax liabilities. As long as cash is a scarce resource, you do not want to run the risk of falling behind with the IRS, EDD and other government agencies. And any entrepreneur would definitely prefer to renegotiate payment terms with an outsourcing provider than with the EDD or IRS, even if the IRS can be accommodating.

• An increase in efficiency. When subcontracting, you can set your expectations by the contract (Service Level Agreement), something you cannot do with employees. Employees are a great resource when employers have already secured a revenue stream that enables proper HR management, not just merely meeting payroll expectations. Managing employees include training, quality work furniture, travel expenses, proper office space, employee events, parking allowance if you are located in a city like San Francisco, and much more, not to mention recruitment fees. When you add up those costs, you realize that securing a regular revenue stream must come first.

• The ability to start projects quickly. With limited resources, you can merely reassign people to new projects, unless slowing down or putting on hold ongoing in-house projects. Working with a third party enables to put your dollars at work almost immediately; and once again with a better control on the deliverables.

• A better risk management. We live in a fast changing world, but when it comes to technology, the speed is even higher. A large enough outsourcing company has the expertise required to help make the right decisions. For instance, starting with the wrong development environment is likely to cost dear, to say the least.

The list lacks one point though, which I find critical, equity control. However, this subject deserves a detailed explanation, and I will elaborate on it in my next post.

But that said, this very good article should help managers that are contemplating outsourcing their IT make the decision to go ahead.

Posted by Remi on Sunday, January 6th, 2008 at 4:46 PM.