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In-House or Outsourced IT: Which Is Right for Your Business?

By March 15, 2024IT Insight
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When it comes to managing IT for your business, two main options emerge – building an in-house IT department or outsourcing IT needs to a managed services provider (MSP). The core difference lies in whether your IT staff are fully employed by your company or contracted externally. 

With in-house IT, you hire, manage and pay the salaries of IT professionals working solely for your company. Outsourced IT involves partnering with an MSP that handles some or all of your technology needs based on a service contract. The MSP provides staff with expertise across various IT areas to support your business. 

Both models have their own advantages and disadvantages depending on factors like business size, budgets, growth plans and needs. Evaluating these pros and cons helps determine whether in-house or outsourced IT is the better fit.

Pros of In-House IT

One of the biggest advantages of keeping IT in-house is having more control over technology decisions and the ability to customize IT to align closely with your business needs. An internal IT team focuses solely on your company and is not juggling multiple clients. They will develop a deep institutional knowledge of your systems and processes over time. In-house IT leads to quicker support response times since issues can be handled on-site. Internal IT staff are fully dedicated employees who get to know your business inside and out.

Cons of In-House IT

While having an in-house IT team has its benefits, there are also some drawbacks to consider:

Higher overhead costs – Maintaining an in-house IT staff requires significant overhead costs including salaries, benefits, training, and other administrative expenses. These costs are fixed and continue even during times when IT needs may be lower.

Difficult to scale up or down – It can be challenging to scale an in-house IT team up or down as business needs change. Adding additional full-time IT staff takes significant lead time for recruiting and on-boarding. Similarly, reducing IT headcount usually involves layoffs or attrition.

Can be distracted from core business – In-house IT teams can sometimes become distracted by maintaining internal systems rather than focusing on strategic projects that drive business goals. They may lack perspective on innovations occurring externally as well.

In-house IT staff take annual leave which can leave the business without support during those times. In-house teams are also focused solely on one company rather than gaining experience across multiple businesses and industries.

Pros of Outsourced IT

Outsourcing IT services allows businesses to quickly access specialized skills and talent beyond what may exist in-house. Rather than recruiting, hiring and training IT staff to address certain needs, organizations can contract specialized providers to deliver expertise as needed. This agility enables companies to scale their IT resources and capabilities up or down as requirements change. For example, an ecommerce site could outsource developers skilled in optimizing conversions during peak sales seasons, then contract a smaller team for maintenance the rest of the year.

Another benefit of an outsourced IT model is that companies only pay for the services and support actually used. There is no need to budget salaries, benefits, training and other overhead for in-house IT employees. Outsourcing converts fixed costs into variable costs, linking IT expenses more directly to usage and business activities. This on-demand model allows greater cost efficiency and flexibility. For smaller companies or those with fluctuating IT needs, outsourcing can significantly reduce overall technology costs.

Finally, outsourced IT offers easier scalability to grow or shrink services as a company’s needs evolve. Adding in-house IT staff requires significant time for recruiting and onboarding. With outsourced services, additional resources can be deployed almost immediately. This on-demand scalability allows aligning IT costs and capacity much closer to actual business requirements.

Cons of Outsourced IT

One significant downside of outsourcing IT is having less control over the IT staff and services. With outsourced IT, you have to rely on an external company to manage your systems and technology. This can make it difficult to get projects and tasks completed on your desired timelines.

Additionally, there is a risk of high turnover at IT services firms, which can disrupt services. If key staff members managing your account leave the outsourcing provider, it can take time to build relationships and ramp up new team members. According to one source, lack of control over process and management is a key con of outsourcing.

To mitigate these risks, it’s important to find an outsourced IT provider who communicates well and allows you an appropriate level of visibility into and input on how your systems are managed. Contract terms should also ensure access to knowledgeable staff and protections against sudden service disruptions.

Key Factors to Consider

There are several key factors that businesses should take into account when deciding between in-house and outsourced IT:

Current business size – Smaller businesses may benefit more from outsourcing to provide enterprise-level IT support. Larger businesses may need the customization of an in-house team.

Projected growth – If rapid growth is expected, the flexibility of outsourced IT may be preferable to scale up services as needed.

IT complexity – Companies with complex IT needs and infrastructure may lean towards in-house teams with specialized expertise.

Available capital and operating budgets – The ongoing costs of an in-house team may be prohibitive for some budgets, making outsourcing more affordable.

Whether IT is a core competency – Businesses who rely heavily on technology may benefit from in-house staff more aligned to company goals.

Evaluating Costs

When comparing the costs of in-house versus outsourced IT, it’s important to look beyond just the surface-level salaries and fees. A complete cost analysis should factor in expenses like benefits, training, recruitment, hardware, software, maintenance, upgrades, and more. According to research, the total cost of an in-house IT employee can be as high as 1.5 to 2 times their salary when you account for these additional overheads. Outsourcing providers can offer significant cost savings by consolidating these expenses across many clients.

Outsourcing tends to become more affordable once a company grows to around 25-50 employees. At this point, the systems and IT needs become complex enough to justify a dedicated IT staff or team. Hiring this in-house requires substantial investment. Outsourced IT allows you to get the expertise you need at a fraction of the cost. As your business scales, outsourcing also provides the flexibility to easily add or reduce IT services based on your changing needs and budgets.

To maximize value, look for outsourcing providers that offer transparent pricing and customized solutions scaled precisely to your business. Seek month-to-month contracts without rigid long-term commitments. Finally, use cost-benefit analysis to quantify the ROI of any IT expenses against goals like improved efficiency, revenue growth, risk reduction, and gaining competitive advantages.

Signs Your Business is Better Suited for In-House IT

Certain characteristics and needs may make a business better suited for developing an in-house IT department rather than outsourcing. Here are some signs that in-house IT may be the preferable option for your company:

If you are a large established business with extensive IT needs, it often makes strategic and financial sense to handle core IT functions internally. Larger companies have the resources to hire specialized IT staff and invest in IT infrastructure while benefiting from the institutional knowledge kept in-house.

Businesses with critical systems and proprietary data may prefer in-house IT to exercise greater control over sensitive information and mission-critical services. Internal IT staff with a deep understanding of your systems and priorities can provide highly customized solutions catered to your unique IT environment and security concerns.

Companies that view IT as a core competency essential to operations and strategy often build robust in-house IT departments to maintain tight integration between IT and other business units. If technology provides your competitive edge, you may want direct oversight of IT staff and systems.

Signs Your Business Should Choose Outsourced IT

Certain characteristics tend to indicate a business is better suited for outsourced IT services rather than an in-house team. Here are some signs your company should opt for outsourcing:

Smaller businesses that lack the budgets to hire full-time IT staff and maintain infrastructure often find outsourcing more cost-effective. The pay-as-you-go model allows scaling services and costs in line with your business needs.

Companies that experience fluctuations or rapid growth appreciate the flexibility of outsourced IT. It’s easier to ramp services up or down as demands change without the long-term overhead of permanent IT employees.

Businesses focused on core competencies besides IT view technology as more of a distraction. Outsourcing allows them to hand off day-to-day IT operations and focus internal resources on revenue-generating activities.

Other signs you should outsource IT include frequent systems failures disrupting operations, lack of expertise in emerging technologies, and senior management spending too much time resolving IT issues.

Ensuring Success

The key to success when transitioning between in-house and outsourced IT is setting clear objectives, managing the implementation smoothly, and establishing an effective partnership with providers. Aligning your IT strategy with overall business goals is crucial.

When transitioning to an outsourced model, develop a plan for gradually transferring responsibilities to avoid disruptions. Keep communication open on objectives, metrics, and timelines. Conduct due diligence in evaluating providers to ensure they suit your needs and can deliver reliably.

Structure contracts to incentivize performance, allowing you to scale services up or down flexibly. Formalize procedures for security, access, and knowledge transfer. Clarify expectations upfront and set regular checkpoints. Treat the provider as an extension of your team.

When bringing IT back in-house, retain documentation and knowledge. Seek advice from the provider on optimizing the transition. Ramp up new hires and infrastructure gradually. Set goals and metrics focused on benefiting the business.

Evaluate both options in the context of your company’s overall objectives. Choose the model that best supports your strategy and culture while providing adaptability for the future. With careful planning, either model can successfully meet business needs.