Friday, August 17, 2007

Cost keeps firms from outsourcing IT

A potential plan B for IT contractors has arrived in the form of new research showing there is no dominant supplier of IT services to small and medium-sized firms in the UK.

When asked by Datamonitor to name their preferred supplier for network services, 500 small or mid-sized firms with a technology focus listed over 100 different vendors.

Although BT led the pack, satisfaction for the provider’s dominant business – mobile and telecoms services – was low enough to suggest some providers have become ‘complacent.’

The analyst firm added this has come about because the market for small firms’ mobile and telecoms solutions is populated by a narrow band of players, feeling on top of their game.

These findings were part of the analyst house’s wider study into IT outsourcing, which despite the hype, emerged as a business process that only one in four firms had taken up.

If they do opt for external management of their ICT needs, firms are most likely to select e-mail or security – a trend the analyst attributed to owners’ fear of internet-borne threats.

And when shopping around for an IT vendor, firms are most likely to choose a big name brand or ISP, at the expense of local or specialist providers.

Datamonitor said: “This is because they may have less time to research the different options and feel they can trust these national providers to be reliable.”

But 60% of small or mid-sized firms running ICT might not ever take these decisions: they said they can never envisage a day when they will fully outsource their IT function.

When asked why, the two overriding factors were cost, the biggest deterrent, and loss of control over a core business function.

The analyst said that when combined, these two factors explain why the “the majority of SMBs in the UK are reluctant to become reliant on someone else managing their IT issues.”

The opportunity for IT suppliers or solution providers appears, therefore, to be “limited,” Datamonitor said.

But it did add that a “highly targeted marketing” campaign that includes “tailored solutions” for prospective clients may induce a higher uptake of outsourcing IT in the future.

In the study, 17% of small and medium-sized businesses emerged as not knowing that outsourcing the management of their servers is an option.

Study author Aphrodite Brinsmead said it is understandable that the cost of outsourcing their servers deters smaller businesses. Loss of control was the other off-putting factor.

Not only are their budgets finite, Brinsmead said, but they are less aware of how outsourcing can make them more profitable, such as by freeing them up to focus on their core business.

ICT vendors that have previously overlooked the SMB market may be to blame for firms not knowing the outsourcing options available today, the analyst said.