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December 9, 2005 • Vol.27 Issue 49
Page(s) 28 in print issue

Cost Considerations For Outsourcing vs. In-House
Breaking Down The Specifics Of Common Tasks SMEs Outsource
Small to midsized enterprise data center services can be a balancing act of what to handle with your in-house staff and what services your SME can outsource to a third-party provider. Outsourcing vs. keeping technology infrastructure tasks in-house is a balancing act of costs and staffing. The budget for maintaining infrastructure in-house must factor in staff salaries, security, and maintenance services such as operating system and software patching. Under an outsourcing arrangement, you are paying for services managed by staff with costs spread out across a hosting provider’s customer base, contributing to cost savings for customers.

Beyond the economics of outsourcing the common tasks in this article, it’s important that you analyze the management and control you would give up by outsourcing key technology infrastructure to third parties.

Web Hosting

Web hosting is perhaps the most outsourced technology service in the SME market sector. As complex Web applications and interactivity balanced with sufficient online security become the norm, outsourcing your corporate Web hosting to a third-party provider could be an option.

Hosting a Web site with in-house resources requires skilled staff to manage the connectivity and security of your server. There is also an investment in hardware, software, and operating system for the site. Both popular Web server operating systems have their costs. SMEs standardized on Microsoft Windows launching a Windows-based Web server must brace themselves for server licensing, which means that every installed copy of the server software requires the purchase of a Windows server license. Additionally, a Windows CAL (Windows Server 2003 Client Access License) is required to access or use the server software. However, a Windows CAL is not a requirement for unauthenticated access over the Internet.

Even Linux/Apache-based Web servers have their costs, especially in maintaining technical expertise in-house. According to the Gartner Group, internal limitations, such as skill sets and availability of related external vendor support, continue to hinder expansion of Linux servers in SMEs.

Outsourcing your corporate Web site hosting requires a gut check for your comfort level for enabling a third party to have so much control over a visible corporate asset. When a third party is hosting your Web site, you are making a financial investment entering, maintaining, and exiting the business arrangement. With the high-profile nature of a corporate Web site, it’s best to have your attorney review the SLA from the vendor prior to entering the outsourcing agreement.

Email Server

Managing Microsoft Exchange Server 2003 in-house requires a financial investment in server and client licensing. Depending on any existing licensing agreements with Microsoft, financial costs for the server and client licensing may vary. There is no getting around the staff attention required for hosting a Microsoft Exchange Server in-house with the necessity of having to stay on top of service packs and patches to secure the email server.

Hosting Microsoft Exchange Server in-house does remain a popular option for many SMEs, as found in a May 2004 joint Yankee Group/Sunbelt Software survey of 500 SMEs, indicating support is gaining for the Microsoft bundled server package. Over 86% of SME survey respondents were planning to deploy or already using Windows Small Business Server 2000 or Windows Small Business Server 2003.

Outsourcing email hosting is due in part to the complexity of Microsoft Exchange Server 2003, according to the Radicati Group. Recent virus outbreaks also play into the desire to outsource email. These drastic counterpoints about email server management speak of the need for having the requisite expertise in-house to manage Microsoft Exchange.

Managed Security

While network security is a critical task, affording in-house security expertise is often out of reach to most SMEs because of market demand and the ever-changing nature of today’s network security threats.

Outsourcing network security tasks to a Managed Security Provider enables you to tap into security expertise you could never afford to keep in-house. While keeping certified and skilled security staff on the payroll can be cost prohibitive, an MSP has the revenue from multiple clients to support security specialist salaries.

The Yankee Group decision note “How SMBs Can Take Advantage of MSP’s Offerings” reports, “An MSP far exceeds the response time that an IT staff with limited expertise or an offsite VAR can provide.” The same report also points to the potential cons in an SME/security provider relationship, including a strong service level agreement, responsiveness, and availability.

Customer Relationship Management Software

Customer Relationship Management software is a tacit business requirement in sales-driven organizations. However, CRM vendors are just turning their sights on the SME market. According to the Aberdeen Group, “The biggest market dynamic in the CRM SMB market is the entry of several large business application providers, notably Microsoft Business Solutions, Siebel Systems, SAP, and PeopleSoft.”

A professional services engagement is typical of most CRM implementations because of the customization CRM products require. Such engagements are a significant upfront financial investment that often place traditional CRM applications out of financial reach of many SMEs.

In-house CRM applications often serve limited audiences (sales, marketing, and accounts receivable) but require a specially trained administrator to manage the system. Such training and administration add to in-house costs.

Outsourcing vs. In-House

Cost often drives the outsourcing of key technology applications and services, but your analysis shouldn’t stop there. Factoring in employee salaries, employee workloads, and the core expertise of your IT department also needs to come into play when making the decision to outsource or keep the application/system under the management of your in-house staff.

by Will Kelly

View the chart that accompanies this article.
(NOTE: These pages are PDF (Portable Document Format) files. You will need Adobe Acrobat to view these pages. Download Adobe Acrobat Reader)
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