IT outsourcing remains extremely popular

In the IT sector in particular, the market for external service providers is booming. Because IT outsourcing is still extremely popular.

This applies both to individual work steps and tasks as well as to a complete managed service, so that analysts are predicting brilliant growth figures for the industry in the coming years as well.

Here, we address the framework conditions for successful outsourcing. Because the Cooperation with external service providers has advantages as well as disadvantages.

Has the pandemic affected the issue of IT outsourcing? Yes, both digitization in general and IT outsourcing became more important as a result of the pandemic. However, the usual arguments such as cost savings or increased efficiency took a back seat. Rather, it was about setting up a powerful IT infrastructure that is up to every conceivable challenge. And that both in terms of working from home and in the context of cyber security.

The IT landscape over time

In fact, there are various factors that affect Boom in external providers, video telephony and CRM systems have triggered. This includes, in addition to the globalization and globally branched supply chains, including the pandemic.

After all, companies that need to compete globally need a powerful IT department and capable customer management solutions that automate work processes and boost sales. At the same time, however, cloud applications experienced just during Pandemic a real boom. Because suddenly it was Home office is no longer just an option, but in many places duty.

However, weaknesses in the company's own IT were mercilessly revealed. After all, many companies were by no means prepared to outsource their employees and data to the home office and had to prepare many networks and home computers for their new role first.

How is the digital revolution influencing our everyday lives?

It is not for nothing that scientists and economic historians have long been talking about a digital revolution after the industrial one. With many products, such as the Deutschlandticket, Are paper solutions no longer even envisaged. Everything runs via a chip card or even apps on the smartphone.

Digital sick reports or even online consultations also require an efficient and well-protected IT department, so that external service providers and implementation partners come into play more and more frequently.

A first conclusion

In fact, many companies, including SMEs, have now completely outsourced their IT departments. The considerations mentioned above, such as cost savings and automated processes that make work processes easier, are then the focus of the considerations.

In addition, many companies promise to Access to expert knowledge that is not available in internal teams in this form. After all, many software applications are becoming increasingly complex, so that even the selection and implementation of a new CRM solution requires a high level of know-how.

Outsourcing certain tasks, such as cybersecurity or as part of the new installation of software, is also popular with many board members.

Companies from the following industries particularly frequently outsource all or part of their IT:

• Financial service providers and credit institutions
• Companies from the healthcare sector
• Mechanical and plant engineering companies

App developers, who are in a sense at home in the software scene themselves, also tend to entrust external providers with certain tasks and development steps.

Computer Week was therefore already headlined with the slogan “IT systems out — know-how in”.

How does the shortage of skilled workers affect IT outsourcing?

The shortage of skilled workers is also contributing to outsourcing. Loud statistic The shortage of skilled workers is now increasing again following the collapse caused by the corona crisis.

According to the Ministry of Economic Affairs, 44 percent of all sectors are affected. However, specialists are particularly frequently sought in the following industries:

• Medicine and care
• Mechanical and automotive engineering
• electrical engineering
• IT, software development and programming

Outsourcing IT therefore appears to be a logical step. After all, the large number of well-trained IT and software experts, especially on the Indian subcontinent, is generally known.

External hardware providers also generally have excellent equipment here. Nevertheless, outsourcing IT tasks to service providers on other continents (so-called offshore outsourcing) needs to be well thought-out.

Denn language barriers, socio-cultural hurdles As well as a difficult collaboration due to different time zones must be counted among the disadvantages of offshore outsourcing. But at least they represent a challenge for everyone involved.

Outsourcing to Eastern Europe as an alternative?

Outsourcing to Eastern Europe is therefore often considered, particularly in the context of German companies. Because time zones and mentality are the same here.

However, is Also a such IT nearshoring linked to risks. Because whenever companies make use of external service providers, they become dependent in a certain sense and lose their own sovereignty.

Some decision makers in corporations and companies therefore remain loyal to the in-house solution. At the very least, outsourcing should be carefully considered. Because just now external providers in the accounting or IT department get deep insights into your own business strategy and Could Misuse trade secrets.

Mutual trust and precise arrangements Will with it indispensable.

IT outsourcing: weighing up the pros and cons

We would therefore like to discuss the advantages and disadvantages of outsourcing in detail below. Because this may be necessary, but it is also associated with risks.

As a result, board members and managing directors from outside the industry often find it difficult to assess the actual expertise of their IT consultants and implementation partners in advance. On the other hand, the shortage of skilled workers within Germany leaves many companies with no other choice.

Even if your own employees lack the necessary expertise, it makes perfect sense to outsource certain tasks, such as cybersecurity. This is because cyber attacks are increasing and can paralyze entire companies.

Cyber attacks are increasing

Many different industries are affected. Hospitals as well as SMEs, with hackers often encrypting data sets and only releasing them again after payment of a certain sum.

Renowned energy suppliers or mechanical engineering companies were also hacked in 2023. External IT consultants such as MDSYSTEC therefore rely on robust security concepts. Using the latest technologies, security gaps within the clients' IT department are identified and proactively closed.

After all, almost all industries that use IT systems are threatened by hackers. Not even medical services or community colleges are spared cyber attacks.

What are the benefits of IT outsourcing?

Those who outsource specific areas of responsibility, such as cybersecurity or even their entire IT infrastructure:

• close security gaps in your IT department
• avoid the shortage of skilled workers
• benefit from expert knowledge and stay up-to-date with your software

In addition, load peaks can be absorbed without hiring your own IT experts. This in turn leads to greater flexibility.

Cost savings and increased efficiency through automated processes have already been mentioned. In addition, no capital is tied up for proprietary hardware, which will then become obsolete again in just a few years.

As a result, many decision makers in companies are even considering a complete outsourcing of the IT infrastructure. However, particular attention should also be paid to the challenges and risks of such solutions.

What are the disadvantages of IT outsourcing?

Because regardless of whether companies set up individual tasks or outsource their entire IT, there is always the risk that Defects and errors at the external service provider burden your own business. This could be an IT failure, but also mistakes that the external partner makes when it comes to the perception of cyber security become a threat.

In addition, every outsourcing is associated with a job cuts linked within your own company. This in turn leads to anxiety among the workforce and can slow down internal processes. In addition, with the dismissed employees, the company is also losing some of its expertise.

Should problems arise as a result of employing the external company and the desire for a separate IT division arise, the lost expertise must first be laboriously rebuilt.

In addition to a number of advantages associated with outsourcing certain projects or the entire IT infrastructure, decision makers in companies should therefore also be aware of the risks.

The disadvantages of IT outsourcing in detail

In fact, quality control from an external provider is one of the biggest challenges in IT outsourcing. This becomes all the more difficult the further away the strategic partner is.

But even if the contracted IT service provider is based in the same country as your own company, the following risks must be considered:

• Dependence and loss of control: Regardless of whether companies outsource production steps or even services, every outsourcing results in dependency on other partners. The quality of the service to be provided remains uncertain for now.
• spatial distance: Anyone who outsources services or work steps inevitably creates a spatial distance. The distances are getting longer and misunderstandings can no longer be resolved by short official channels. Telephone calls or video meetings are usually necessary. Depending on the location of the external IT partners, different time zones or language barriers can make successful cooperation even more difficult.
• increased need for communication: Regular video meetings become an indispensable ritual, not only as part of the actual outsourcing, but also as part of subsequent collaboration. After all, the external IT consultant serves many different customers and is probably barely familiar with the core business of the contracting company.

Some of these hurdles, such as language barriers, socio-cultural hurdles or different time zones, but can be limited as soon as companies are looking for external experts.

Who is eligible for IT outsourcing?

Because anyone who wants to outsource their IT department is spoilt for choice. And that from Freelancer about a System house up to agency. In fact, IT suppliers and software providers also often take on simple training activities as well as installation. These are, of course, out of the question for a permanent outsourcing of the IT infrastructure.

However, there are many in the IT sector in particular Freelancers who offer their services on a project-specific basis, on the market. These are sometimes cheaper than agencies that offer IT consulting or implementation services. The problem is that companies are dealing with a typical lone wolf here.

If the freelancer is ill or tied to another customer, their own problem has been idle for so long. Despite often having a high level of expertise, hiring freelancers therefore needs to be well thought out.

In the case of classic agencies, on the other hand, there are Generalists as well as specialists. Some have specialized in individual software applications, including CRM solutions. Yet other IT agencies offer their services as part of app development or even when setting up online shops or websites.

The decision therefore depends not least on where your own needs lie.

It all starts with a piece of paper

In this respect, a small checklist, whether in paper form or as a digital note, is absolutely useful. This includes questions such as:

• Is an external provider employed once or should it be permanently outsourced?
• Where should the IT consultant be based?
• What is the budget available for the measure?
• Are references from the shortlisted providers known?

In fact, all strategic decisions relating to outsourcing take time. Decision-makers in companies should also take advantage of them. Especially when long-term cooperation is planned.

Saving costs isn't everything

The cost savings that may be associated with IT outsourcing represent an important, but not the all-important argument. Equally important are Morale and corporate culture at the contracted service provider. 

In addition, the sensitivities of employees as well as customers must be considered. As already described, outsourcing and the associated job cuts lead to uncertainty within one's own team. The outsourcing of activities to countries with low wage levels is also not appreciated by all customers.

In this respect, a Nearshore outsourcing within the EU or even German implementation partners definitely worth considering. Because in this way, language as well as socio-cultural hurdles can be avoided.

Our conclusion:

Each company must decide for itself whether — and if so where — IT outsourcing makes sense. The fact is that once an IT department is installed, it functions smoothly for a certain period of time. This is both a curse and a blessing.

Denn Especially in small and medium-sized companies, permanent IT experts rarely have to work on a permanent basis. Freelancers and external implementation partners, on the other hand, can optimally absorb performance peaks.

In addition, IT agencies in particular offer bundled expertise from many different IT areas. This in turn is the advantage over freelancers who may have specialized in one subject area alone.

So there are good reasons against having an IT in-house, because With external service providers at their side, companies remain flexible, but still benefit from extensive know-how. On the other hand, safety concerns and a certain degree of dependency cannot be denied.

Decisions for or against IT outsourcing are therefore very personal or are influenced by one's own industry.

Welcome to MDSYSTEC experts

As an external IT consultant and implementation partner, MDSYSTEC believes that cooperation on equal footing is extremely important. Strategic advice on IT outsourcing is offered. The experts from MDSYSTEC take a close look at the entire IT infrastructure and suggest improvements.

Individual solutions, including and especially in the cloud sector, are typical of the team. Experience has shown that many entrepreneurs are now disappointed by major providers with their standardized solutions.

Customer orientation and individual adjustment to business processes and the needs of the contracting company are therefore a matter of course for MDSYSTEC.

The team itself consists of generalists, specialists, technicians and strategists. Because cyber security in particular is becoming increasingly important in view of the increasing number of hacker attacks. With the IT infrastructure, these can paralyze entire companies.

MDSYSTEC therefore takes the cyber security of its customers extremely seriously. Security gaps are identified using the latest technology and closed as quickly as possible. Cost-effective safety systems, which can nevertheless be constantly optimized, are a matter of course. Lower costs due to outsourcing therefore certainly do not have to be bought at the price of a higher risk.

The team will be happy to advise you and work with you to find individual solutions for cloud-based applications, managed services and the important topic of cyber security. And should problems arise after the implementation of new software, the employees of MDSYSTEC based in Germany will quickly be on site with their partners.

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