Small businesses moving to the midsized outsourcing providers

* Three reasons small businesses are making the move to midsized outsourcing providers

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The Outsourcing stories that most often make the news are the big company, big outsourcer mega-deals. Even as the mega-deals have given way to mega-multisourced deals, these are the stories we hear the most about. And when these go bad, they get even more attention.

However, the everyday heroes of the outsourcing world are the small and midsized managed services providers (MSP) who support the infrastructure, hosting and integration needs of the thousands of small businesses that are the cornerstone of the economy. Small businesses generally cannot justify the cost of dedicated internal IT resources. Some will have a network administrator to handle the basics, some will just get by as they overwhelm the one person who knows something about desktop configuration or the e-mail server setup. Many need some outside help.

EMA recently conducted a survey of 188 small businesses for a report that will be available in January titled “SME (Small and Medium Enterprises) – Strategies and Priorities.” About 50% were outsourcing some of the their infrastructure or software needs. 41% of those outsourcing were using multiple types of outsourcing including MSPs, Software as a Service, or network services. The most often outsourced function is the Web Services and eCommerce infrastructure. On the rise is outsourcing of accounting and financial software; e-mail hosting; and data backup and recovery services.

I recently spoke to Eddie Spears, a partner at 3T Systems, an MSP with data centers in Denver and Fort Collins, Co. Mr. Spears has seen a trend where small businesses are moving to the midsized outsourcing providers, either moving up from the small three and four person IT support services providers or moving down from the very big MSPs.

The smaller providers provide great customer intimacy and local support, but they lack deep expertise on a variety of disciplines and have little or no infrastructure. The big providers have a sophisticated, multiple location infrastructure and lots of staff to provide expertise across many disciplines. However, they do not provide the same customer intimacy, often being inflexible and distant.

Spears identified three reasons that he sees small businesses making this move:

1. Need for customer intimacy – a desire to have a provider who knows your company, your needs, and is watching out for you.

2. Need for professionalism – solid processes and procedures and experts available in many disciplines. Smaller providers have mid-level people attempting problem resolution and they use the wrong people for trouble shooting. This can result in treating the symptom and not the root cause and can add considerable time to fixing problems.

3. Need for integration – Software-as-a-Service is good, but data from hosted services needs to be integrated with other applications. Businesses of all sizes are finding value in having internal portals where they can combine data from multiple applications. This requires a level of attention and resource not available from smaller providers and is a custom service not available from larger providers.

Spear also sees small businesses growing more comfortable having their data stored and accessed remotely. More and more accounting and financial systems are being hosted rather than run in-house. The assurance that data is being backed up by professionals and access to hot backup sites for hosting is becoming more important than the perceived risks of having the data stored outside of your own infrastructure. Too many times backups are needed and they are lost, corrupted, or did not get made in a timely fashion.

Spear says that clients are trying to move to a more holistic model to concentrate more services from a single vendor who can see and handle the entire IT picture for a business. While this might seem to fly in the face of the recent trend for multisourcing, it makes sense for SMBs. Large enterprises can gain price advantages by multisourcing. The offset is that it takes more management effort to handle multiple vendors. Large enterprises can afford this extra management effort. Small business need to focus on their business and buying from one vendor simplifies the vendor management issues and provides extra value as the vendor can see and handle the whole picture for your business.


Copyright © 2006 IDG Communications, Inc.

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