With the pressures of the global financial crisis and increasing business competition, enterprises need to find ways of lowering their production costs while delivering returns to their shareholders. Organizations in Canada have taken prudent approaches with a new strategy: "IT outsourcing – the new way small and medium businesses are staying competitive in Canada."
With this approach, companies will be able to effectively cope up with new and increasing competition. Some IT functions that can be outsourced include website developments, network management, system administration, application development, help desk support, database administration, and data conversion, among others.
Outsourcing is basically the strategic use of outside resources to perform activities or job functions that were traditionally done internally within the organization. Through outsourcing, an enterprise will contract out an experienced third party provider, on either a short to long term basis. The third party contractor will be legally mandated to perform certain job functions on behalf of the organization.
Many Canadian small and medium size enterprises are shifting towards IT outsourcing as a cost cutting strategy. These companies have realized that there are savings and efficiency benefits to non-core in-house activities are outsourced to third party providers. Some of the key benefits of outsourcing IT functions include:
Controlling capital cost: Cost cutting is a key factor to consider when outsourcing IT services. When these services are outsourced to third party contractors, the fixed costs are immediately converted into variable costs in the company's balance sheet, and capital is released for re-investment in other promising areas of the business. Such a strategy will also allow the business to avoid high expenditures in the initial stages when it is being started. This will make the company very attractive to potential investors because the extra capital can be channelled to other revenue producing activities.
Reduced labour cost: Hiring a certified IT expert is very expensive, and temporary employees tend not to live according to the company's expectations. When services are outsourced, third party providers normally bill their clients at a fraction cost of what the service would cost the company if it was done internally. When key IT services are outsourced, the company can focus on its core business without necessarily worrying about who is going to accomplish a certain task.
Expedient delivery of projects: It can be very difficult to find the right people when embarking on a new project, and training may take weeks or even months. When IT related tasks are outsourced, it is possible to find an outsourcing provider who will start the project immediately. This is because third party providers are usually equipped with the required calibre of staff.
Enhanced efficiency: When non-core activities like IT have are outsourced to a third party provider, the company can concentrate on other income generating strategies such as research and development, marketing, and logistics. Savings can therefore be passed on to the consumers as discounts. In the long run, this will make Canadian companies more competitive.
Reduced risk: Technology tends to change rapidly and when non critical functions are outsourced, the third party provider will manage such perceived risk on behalf of the company.
For these reasons, enterprises with the desire to grow their balance sheets can embrace IT outsourcing as a cost cutting strategy.