The Trend Toward Outsourcing

The Trend Toward Outsourcing

Eva Marer writes for – a Ms.Money partner.

As technology continues to drive business, companies must use limited internal resources to gain competitive advantage. Many corporate IT departments are now outsourcing their non-core competencies, freeing them to focus on business goals. “There’s a big trend now toward using independent contractors and consultants for things like Web site development, telecom and software,” says Jay Hemmady, chief information officer of Renaissance Holdings, a financial services firm in Portland, Ore.

Today, no company is immune from the pressure to get with the cyber-program. “A big obvious change is the heavy emphasis on e-commerce and the use of the Internet to further business objectives,” says Stephen Kukoy of Kukoy Associates, an IT recruiting firm based in Evergreen, Colorado. In certain industries such as manufacturing or retail, technical skills in those areas may be weak, and hiring outside experts makes good business sense.

For one thing, experienced independent consultants can help companies improve efficiency and cut costs. Tasks like PC maintenance, help-desk support and even software development can often be provided more cheaply through outside agents. Good independent contractors command higher rates than do in-house technicians, says Hemmady, but can frequently save the company money in overhead costs.

Also, the labor crunch has intensified to such an extent than there simply aren’t enough able technicians to go around. “The whole technical marketplace has exploded and shortages for technicians carry through the ranks,” says Kukoy. “As the NASDAQ has gone up, so have the opportunities to attract people.” The average tenure for technical positions is two to three years, he says, and the labor shortage is unlikely to improve for at least five to ten years.

In this environment, many skilled technicians simply opt to strike out on their own, hoping to earn higher wages and enjoy freedom from corporate restraints. Some are lured away by the prospect of stock options or the excitement of working for dot-coms, says Alvin Borenstine, president of Synergistics, a Chicago-based IT recruiting firm.

Borenstine points out that today’s younger generation of technician brings unique advantages and liabilities to an organization. On the one hand, he says, they are often willing to work 80-hour weeks and thrive on challenges. On the other hand, they are not particularly loyal. That makes security an especially important issue, notes Kukoy.

Companies that outsource their entire IT department probably do not know much about computing, says Borenstine. “Outsourcing runs in a cycle,” he says. “It saves expenses in one cycle and then becomes more expensive in another.” Borenstine notes that three or four years ago, “the big thing was to be a change agent and then get fired.”

Today, as technology leaders gain status among the company brass, senior managers are realizing that a balance of change and continuity, to the extent it can be achieved, probably works best.

IT managers need to develop better skills at recruiting the right consultants, says Alex Abuyuan, a headhunter with Cincinnati-based Executive Search Ltd. “Often IT managers rely on HR people to recruit, yet these hired guns are typically only résumé recruiters. If companies can help their IT managers learn some of the skills of recruiting, they would be so much further ahead, because these guys are out there at trade shows and conferences, mixing it up with the public.” IT managers are also more likely to recognize a good candidate on the Internet. Learning to recruit the right talent will become even more important as the labor shortage continues and turnover costs skyrocket, Abuyuan predicts.

In-house technology managers say that basic functions should be outsourced, or set up internally on a cost basis competitive with an outside firm. They warn, however, that strategy should come from within. Holding the strategic reins in-house provides flexibility and responsiveness, even as the horse of innovation gallops outside the stable.