The recession has left companies decidedly mixed when it comes to outsourcing IT operations.
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For many, there is still a clear aversion to outsourcing, stemming from concerns over data security, quality of service, and fear of giving up control over data and applications.
One IT director with a New Brunswick, Canada-based health insurance company said some of his company's IT functions are outsourced, but management is careful with what it lets outside the four walls of the data center.
For this company, IT outsourcing only makes sense for commodity operations where economies of scale are necessary but turn around time is not a factor, he said. This company outsources the data center facilities -- space, security, power, and cooling -- but keeps control of data center operations, including server, network, and software management."Our organization requires quick and flexible response to market opportunities or software development projects, and we are leery of providing control to an outsourcer along the critical delivery path," the IT director said. "We are very selective in what we choose to outsource. There is always a hesitation that an outsourcer will not provide quality services, will lack flexibility, and the long-term cost will be greater once they have you 'hooked,'" he added. Some companies would rather hire more IT staff before outsourcing to keep sensitive data in-house, said a lead systems software engineer at a major U.S. hospital. "Other than in-house long term contractors [who augment IT staff], we do not do any outsourcing and are not planning to. For us, the cost is greater, and there's really no benefit that we couldn't get by adding real staff," he said. Hosting providers often have to overcome fears surrounding security and quality of service, and a few bad apples make it all that more difficult for IT pros to trust their data to hosting providers, explained Aaron Sawchuk, CTO and co-founder of ColoSpace Inc., which operates six data centers in New England. "We speak to many customers who have been burned by outsourcing vendors and end up being hypersensitive as a result," he said. "The only way to overcome this challenge is, one, through striving to deliver the best service, and, two, backing it up with a strong service-level agreement." He added, "In my experience, we often are only able to truly alleviate the giving-up-control and quality-of-service concerns over time, after a customer has come on board. We can address them to the point where they no longer become hurdles, but it can take years of working with a client until they are completely comfortable with the outsourced relationship," Sawchuk said. Recession forces some IT shops to put outsourcing fears aside
Despite outsourcing concerns, the economic downturn sparked growth for some colocation and managed hosting companies, including ColoSpace. The fourth quarter of 2008 was the company's best quarter in terms of new revenue and the first quarter of 2009 is looking strong as well, Sawchuk said. Overall, the IT outsourcing market will see only moderate growth in 2009 and 2010, with about 2.1% growth this year and up to 6.8% in 2010, according to Forrester Research data released March 31 data released March 31. Another colocation and hosting company, Opus Interactive Inc. saw a 15% jump in business since the economic downturn began, and continues to grow, said Jeremy Sherwood, an engineer and account manager at Opus Interactive. "More and more people are starting to see IT as a hosting utility -- business lifeblood, just like they have, for years, with power, water, sewer and telecom," Sherwood said. He said most applications and IT infrastructure can be hosted outside an organization better and cheaper than when run internally. The biggest area of growth for the Portland, Ore.-based company is hosting company applications, such as websites, email, disaster recovery services, file storage, SharePoint, and customer relationship management and Software as a Service-based applications, Sherwood said. Many of the companies outsourcing their IT operations have either downsized IT staff or need to grow their infrastructure but don't want to build a facility or pay for ongoing operating and staffing expenses, Sawchuk said. Build-versus-buy decisions drive most colocation decisions. "Customers are severely restrained with their capital budgets for 2009 and 2010, so rather than build out new data centers in their offices they can rent space in a facility and shift the expense to an operating basis," Sawchuk said. The cost of building a new data center space ranges from $1,000 to $1,400 per square foot, and ongoing operating expense runs between $15 to $20 per square foot per month, mostly due to energy costs, Sawchuk said. Equipment maintenance and underlying office rent are other major contributors, he said. Sherwood said many of Opus Interactive's clients outsource to keep from buying hardware. "Renting servers is a heck of a lot less costly short term and long term than acquiring equipment," especially companies using virtualization to maximize server capacity. "[With virtualization], you'll be renting less equipment for significance savings without hurting performance." Plus, many companies have downsized and need to outsource IT, so managed hosting helps them keep their IT head count low, Sawchuk said. "This is especially true for the small to medium-sized businesses. If a customer has fewer than 50 machines they rarely need a full-time server administration or network staff. Similarly, for a firm with fewer than 500 employees it rarely makes sense to hire a full time Exchange administrator," Sawchuk said. Sherwood concurred. "A hosting provider is up to speed on the latest technologies, trained and certified to keep your business connectivity up and running at all times, which really means you don't have to worry about it and instead can focus on what you do best."
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