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Co-Sourcing Your IT Services


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Do more than keep the lights on for your business. Involve IT as a part of the innovation process without breaking the bank.

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Co-Sourcing Your IT Services

  1. 1. 1 Introduction What does IT do for your organization? Said a different way, what does it not do? Are the dollars and hours spent on technology at your organization moving the business forward? IT for businesses and organizations has dramatically changed in the past decade. But in this time, markets crashed, businesses closed, jobs were lost and those left intact just tried to hang on. Growing, much less innovating, was a dream deferred. Now, several years out of the recession, those dreams and goals are back for the business. While IT spend is on the rise, the IT department’s ability to meet the demands on the business is still struggling to get off the ground. So what is there to do? What solutions are there that leave the IT department intact but dramatically improve it’s capabilities to be strategic and meet the accelerating needs of the business? What Do We Spend on IT? ­Mid-way through 2013, Forrester Research released its annual look at global IT spend (excluding consumer numbers). The projection was $2.06 trillion invested in software, hardware and IT services in enterprises and governments.1 While $2.06 trillion seems like a lot, it is far less than Gartner’s—a technology industry research firm—projection of $3.7 trillion, released weeks before Foresters estimate. IT spend from small and mid-sized businesses (defined as organizations with revenues less than $1 billion), represents 44 percent of total IT spend. In late 2012, Gartner estimated that in 2013, SMBs will spend approximately $920 billion worldwide. By 2015 that number is expected to reach a trillion. Summary: A lot of money is being spent on IT in 2013. Even more will be spent in the future. IT Budget Effectiveness With numbers that start with a “t” and end with a “rillion,” it’s natural to jump right to what all those dollars are being spent on. How much is spent on virtualization vs. cloud-based services vs. mobile? There is ample data available to answer those questions in another paper. First we should take a step back and ask: What is the ultimate end goal for those dollars? 1 Do More Than Keep the Lights On: Why Co-Sourcing Your Technology Delivers Results What solutions actually improve the IT department's capabilities to be strategic?
  2. 2. 2 For SMBs with less than $500 million in revenue, the top business priorities for CIOs are increasing enterprise growth and reducing enterprise costs. Improving efficiency and profitability were also on the list, although further down.2 How likely are these CIOs to achieve their goals for 2013? When asked what their barriers or challenges were in achieving these goals, the top challenges were lack of staff and skills, as well as reducing and containing IT costs. Other reports confirm this reality. According to a 2013 Nemertes Research report, 70 percent of organizations surveyed reported flat or declining IT staff headcount.3 What’s more, when it comes to having input in how IT dollars will be spent, only 31 percent of IT professionals responding to a late 2012 SpiceWorks survey even create their own budgets.4 This seems to indicate the business may not see internal IT departments as strategic enough to build their own budgets. If many IT leaders are not building their own budgets and if the CIO’s goals don’t line up with the reality of staffing levels and capabilities, the result is clear. The vast majority of dollars spent in an internal IT department are just to keep things running. The vast majority of dollars are being spent just to keep the lights on. The Trap of Keeping the Lights On According to a 2012 Forester report, 70 percent of IT funds go to things other than innovation.5 In 2012, a Gartner analyst stated that only 14 percent of IT budgets go to “genuine transformational IT.” Approximately 67 percent of the IT budget is spent “keeping the lights on.”6 Anyone in IT understands how it happens. Almost two-thirds of IT organizations (regardless of size) are judged primarily on service goals.7 Adhering to these metrics is completely justifiable from a business perspective. The “trap” of keeping the lights on is that every year just hitting those service goals gets increasingly complicated, particularly for small to mid-sized organizations. User needs and expectations rise, but as previously noted, staffing stagnates or declines. Managing the same number of employees is more complex in today’s IT world than it was five or 10 years ago. Mobile devices, dramatic changes in the security landscape, remote employees, etc. add layers of complexity. To maintain the basics of accessibility, security and service levels more time and energy is required. 2 3 Nemertese Research 2013 “Increase Use of Managed, Hosted and Cloud Services to Boost Business Success” 4 Spiceworks Voice of IT Report, " SMB IT Spending: How IT Pros are Creating and Managing 2013 Budgets" 5 Forester Reports, 2012 “Converged infrastructure: attitudes and acceptance” 6 7 Nemertese Research 2013 “Increase Use of Managed, Hosted and Cloud Services to Boost Business Success”
  3. 3. 3 Hidden Effects of a "Keeping the Lights On" IT Department It’s clear that when an IT department spends 70 percent of its dollars and likely even a greater percentage of its time just keeping the business afloat, innovation suffers. New and exciting changes don’t happen, efficiency stalls and IT is not aligned with overall business goals. But there are other, more hidden effects. One such effect is unengaged employees and/or difficulty retaining qualified employees. When the job becomes just about staying afloat, there is little opportunity for a rising star to learn new skills, technologies or areas of the business. The IT industry is, as a whole, in an upswing and talented IT staff are in high demand. Demand for some roles, like web developers and database administrators, is growing by double digits through 2020. 8 A good employee, in any field, is not going to last long in an environment where innovation is an afterthought. Another effect is the concept of “shadow IT. ”9 That is, not all IT dollars are actually spent in the IT department. Forty-seven percent of surveyed IT professionals know that IT purchases are happening outside of the IT department.10 In order to meet goals that the IT department cannot get to, other departments take IT into their own hands and purchase equipment, applications and devices outside of the control of the IT department. As these applications require integration or customization they eventually find their way to the IT department, adding to the complexity of keeping the lights on. What Can Be Done? To this point, it seems hopeless. IT has goals of increasing profitability and efficiency but largely spends its time and money doing the basics to meet required service levels. Innovation is rare, and if it does happen it is often outside of the IT department. In the past decade, the IT managed service provider industry has grown tremendously, offering outsourced IT options that allow organizations to be free of their internal employees, should they choose. Many of these providers offer truly excellent alternatives to an internal IT staff. But the truth is, for many organizations, their internal IT staff is not negotiable, regardless of what makes bottom-line sense. Many organizations, particularly larger small or more mid-sized ones, like to have an internal IT team. This is especially true if their IT team offers specialized expertise about the business or a specific application. They like their familiar faces; people who know the organization and can tend to the needs of their end users and applications in a different way than an outsourced provider can. So an outside IT provider might be utilized for an implementation or 8 Robert Half Technology 2013 Salary Guide 9 Why IT Struggles to Innovate, Outsystems report 10 Spiceworks Voice of IT Report, " SMB IT Spending: How IT Pros are Creating and Managing 2013 Budgets" Impact of Shadow IT: Not all IT dollars are actually spent in the IT department.
  4. 4. 4 isolated projects but is not allowed into the daily operations of the IT department. This could be a missed opportunity to do more than just keep the lights on. Do More: Co-Sourcing IT Traditional managed service providers are often associated with outsourcing—a scary word to anyone earning their living in an IT department. While a traditional managed service arrangement is the right solution for many businesses, others should embrace a co-sourcing model for their IT. IT co-sourcing is a growing trend. The concept of IT co-sourcing is essentially to augment or layer in outside IT expertise to relieve the pressure on current IT staff.11 Co-sourcing is a more flexible and collaborative approach, with the goal to generally support and enhance the services of a current internal department. Co-sourcing or managed services relationships can be at the hardware, infrastructure or operating system level (or all three). Contracts are generally straight-forward and clearly outline the responsibilities of the internal staff vs. the outside provider. Depending on the competency of the internal staff, the outside firm may escalate issues internally or the internal staff may escalate issues to the outside firm. There is great flexibility and opportunity to design a co-sourcing relationship that fits the needs of the client. Co-sourcing allows current IT staff to do more interesting or valuable things, because the daily monitoring, management and maintenance can be automated by an outside company that generally has far superior tools and personnel to accomplish this. Often, once a co-sourcing arrangement has matured, internal IT staff can take on more strategic tasks and projects, resulting in both keeping the lights on and improved innovation. In a particularly successful co-sourcing arrangement, the outside company may even be able to provide additional insight or expertise in these strategic projects. Why Could Co-Sourcing Work? The remainder of this paper will address specific ways a co-sourcing relationship can benefit the growing small or mid-sized business. While there are numerous potential benefits, five stand out as particular motivators. 1. Breadth and depth of knowledge Even the most talented, certified, experienced IT professional has a limit to his or her knowledge. Most IT professionals are either generalists (know a little bit about everything) or specialists (know a lot about one, or a few, things). Some organizations may be large enough to warrant hiring a few generalists and specialists. But very few SMBs can justify a robust enough staff to have an expert in all their regularly used technologies, that is, if they could even hire them. When CIOs were asked if the IT labor market even had the ability to supply them with the skill sets they needed, only one 11 McGladrey Bulletin: “How IT co-sourcing and managed services can help your business succeed”
  5. 5. 5 in four said yes, Gartner reported.12 While some managed service providers may be using outsourced services of their own, many have large teams with a breadth and depth of knowledge few SMBs can match. When looking for a co-sourcing or managed services provider, ask what specialists are on staff, what certifications they have and what their programs are for continual learning. Make sure the provider has the right skill sets to complement your internal team. At the heart, that is what co-sourcing is all about—building upon and extending the strength of the corporate IT department. 2. Superior tools for maintenance and monitoring Tools cost money. As we have reviewed, most IT dollars are not spent on new tools that will make the business more efficient and effective. Managed services organizations have made incredible strides in the past few years. Remote monitoring and maintenance tools exist that can minimize the work required for daily operations. A co-sourcing partner could set up a remote agent to monitor and generate alerts when issues arise with things like: • Hard drives • Backups • Performance issues (such as slowness) • Disk space • Temperature/cooling for server rooms • Viruses • Connectivity • Etc. Many of the activities involved in “keeping the lights on” for your organization could possibly be automated, freeing up time for your internal team. Leverage the tools a third- party provider has invested in to add value to your IT operations. 3. Strategic planning support Although many organizations will utilize a co-sourcing arrangement to offload the day- to- day operations, some organizations may wish to include an outside provider in their strategic planning. This is completely up to the client organization. However, an outside perspective can bring real value to planning and budgeting discussions. Because of the breadth and depth of knowledge and experience a provider has, they often have a better and broader awareness of what technologies are new, what competitors or similar organizations might be doing, what technologies are now attainable, etc. 4. Avoid the IT knot As internal IT departments struggle to maintain service levels and support the technologies 12 Gartner CIO Agenda Insights, 2013
  6. 6. 6 “shadow IT” has adopted, often an IT knot emerges. This is when tools and technologies are put together and wrapped around each other so tightly that no one can figure out how to unravel them. Thus, it perpetuates itself. Bringing in outside eyes who look at other IT environments on a daily basis can provide a crucial function of accountability to the IT team – who internally might not answer to anyone (since few may understand their world). Creating an atmosphere of collaboration with internal and external resources can bring simplicity and order to the internal IT department. 5. Improved continuity of business services One of the major reasons to consider moving to a managed services model for your IT is to ensure that someone besides the “IT guy” knows what is required to keep the lights on. Particularly in organizations where an “IT knot” has formed, there is a significant reliance on one or few individuals. If this person or persons were to win the lottery, get sick, quit or give a reason to be terminated, the impact on the rest of the business could be catastrophic. Utilizing an outside provider to document things like network design, network passwords, etc. can save enormous headaches if your IT support is for some reason unavailable. Outside providers may also be able to automate and monitor crucial functions like backups, security patches and reporting that will make any internal transitions much less risky. Conclusion In today's world, the internal IT department has a tough job. Managing constant change, high expectations and ever growing security risks all add to the challenge. It's not a huge surprise that most IT departments never find the time, manpower or budget to innovate and improve the business. But accepting the keeping the lights on trap is a poor option to any business that sees IT as integral to its daily operations. For businesses that have rejected traditional managed services relationships that feel more like displacing or outsourcing, co-sourcing IT is a growing trend worth considering. About Sikich Sikich LLP, a leading accounting, advisory, investment banking, technology and managed services firm, has more than 450 employees throughout the country. Founded in 1982, Sikich now ranks as one of the country’s Top 40 Certified Public Accounting firms and is among the top 1% of all enterprise resource planning solution partners in the world. From corporations and non-profits to state and local governments, Sikich clients can use a broad spectrum of services and products that help them reach long-term, strategic goals. Visit to discover how you can elevate performance in your organization. Securities are offered through Sikich Corporate Finance LLC, a registered broker dealer with the Securities Exchange Commission and a member of FINRA/SIPC. At the heart, this is what co-sourcing your IT is all about: Building upon and extending the strength of the IT department.