While mid-size companies came later to the IT outsourcing party than their big company counterparts, recent research shows that they may get more out of their IT services deals.
According to a survey of 277 outsourcing buyers conducted by outsourcing analyst firm HfS Research and the London School of Economics, 63% of mid-market buyers said their outsourcing initiatives had been very successful at reducing costs compared to 44% of large companies. Consider these other stats:
- 42% of mid-market buyers said their deals were very effective in meeting compliance and regulatory requirements, compared to 30% of large companies.
- 33% of mid-market buyers said outsourcing had given them more effective global operations, compared to 18% of large companies.
- 30% of mid-market buyers said their deals were very effective in providing access to new business process acumen compared to 17% of large companies.
Why are the smaller companies seeing more gains from outsourcing? They take what HfS Research founder Phil Fersht describes as a "ripping off the band-aid" approach to outsourcing. "Quite simply, mid-market organisations have to bundle more processes together into one broader deal to make it large enough to warrant the attention of the leading services vendors," Fersht said. "They rarely will have the luxury of outsourcing step-by-step."
Larger enterprises, with $3 billion (£1.86 billion) or more in annual revenue, tend to outsource in increments over a period of years - perhaps help desk support first, followed by application testing, application development, and finally infrastructure.
"Large firms have rarely gone for a 'big bang' approach to outsourcing," Fersht said. "They are large enough to be able to dictate to vendors their preferred pace of outsourcing."
But large companies' slow and steady approach is not winning the race, said Fersht. Such measured outsourcing can discourage necessary transformation. "By and large, organisations outsource processes that probably aren't very well run in the first place," Fersht said. "Their 'softly, softly' approach to outsourcing is prolonging the disruptive change a buyer needs to go through to reach its desired global operations end-state."
Mid-market outsourcing customers have their own set of problems - chief among them, ancient legacy systems and lack of IT talent. But by outsourcing a broader set of IT processes and people from the start, they have a better chance of remedying both.
"Having skilled service vendors take on their operations has been, by and large, a positive experience for them," said Fersht. "While a mid-market organisation may not achieve the same level of aggressive cost reduction through large-scale labour arbitrage as larger enterprises, they clearly enjoy the benefits of accessing improved technology and process expertise."
Fersht said that outsourcing providers, who have traditionally focused on their big bread-and-butter clients, should take note. The mid-market is a potential testing ground for creating quickly deployable, standardised outsourcing models.
"Vendors need to attack the middle market, in addition to the easy dollars at the larger enterprise level, in order to develop a balanced portfolio of clients," Fersht said. "Enterprise engagements will serve up profit and deliver scale that can be invested in middle-market clients, which are road-testing these industrialised solutions of the future."