When and why is it more convenient for large companies to work with outsourcers

There is a common belief that IT outsourcing is for small companies. When they grow into large corporations, they prefer to have employees on staff. In practice, we often see a different picture: large companies outsource many processes. I will tell you why this happens, how teams in large corporations usually organize work with outsourcers, and what to look for when choosing an outsourcing company.

The department I manage at K2Tech deals with outsourcing of IT services, so my examples will be more from this area, including a 15-year history of developing relations with one of our customers. But the same is true about outsourcing of any other functions, practically without amendments.

From insourcing to outsourcing: why?

The reasons for moving from a full-time team (insourcing) to outsourcing are the same as when transferring infrastructure to the cloud. Only instead of computing resources — “labor masses”.

Let's refresh our memory on these reasons.

Access to the best experts without breaking the bank. Individual experts – architects, analysts, security specialists, industry experts, regulatory experts – are needed in a project for only a few dozen hours, but they are very expensive. And for many companies there is no other way to get access to them except through outsourcing using the fractional model (or, in Russian, on a part-time basis).

With the departure of global vendors from Russia, this trend has only intensified. The market is still dominated by specialists trained to work with the solutions of the departed vendors. Therefore, when you need to switch, for example, from Oracle to PostgreSQL, your available market of experts turns out to be quite narrow. Retraining for import-substituting technologies is slow, there is a shortage of personnel on the market, and the cost of hiring is growing. As a result, it is easier for companies to pay for outsourcing. And the search and retention of good personnel is handled by the outsourcing companies themselves, who are ready to load them with work 100%.

Fast scaling. If you have a temporary project, then you only need an extended team for a period of several months of intensive work. For example, after import substitution of the OS to Astra Linux, one of our clients urgently needed to expand technical support for internal users who needed to retrain themselves to use the new OS. At the same time, after a few months, the peak of requests subsided, and fewer people were needed for support. The standard hiring cycle does not allow for hiring and firing so quickly. Involving an outsourcer allows you to urgently attract additional hands and free them up when the task is completed.

Transferring the risks of unforeseen personnel costs to an outsourcerThe expenses that companies incur for employees other than salaries are:

• Sick leave, vacations, severance pay.

• Payment for advanced training.

• The need to constantly raise salaries. Salaries in the IT market continue to growthe salaries of full-time employees have to be indexed. With an outsourcer, companies sign a contract for a fixed period, and the amount of payments remains the same, regardless of inflation.

Access to outsourcer resources. Outsourcers often have a variety of partnerships that the client can quickly access. Some of them are:

• verified third-party subject matter experts and organizations;

• related services (the outsourcer’s own infrastructure, applications, platforms);

• suppliers and resellers (e.g. to obtain discounts on components, licenses).

Why Companies Outsource Entire Teams

When large companies outsource the operation of an application, the team that maintains the application often moves from insourcing to outsourcing as well. This practice does not seem familiar to everyone. It seems like companies should hold on to their employees, who were so expensive to hire. What's the point?

A significant portion of the operational costs of running a service is the maintenance of the team. Optimizing these costs involves refactoring the service so that it can be maintained by a smaller staff through automation. And although this sounds like a great plan, teams often do not have a focus on this. Firstly, in terms of composition, these are more likely to be operations teams than development teams, and they may simply not have the architectural expertise needed to refactor the service. Secondly, refactoring requires a one-time allocation of a lot of resources, and for this, an audit must be conducted and the feasibility of refactoring must be proven to the company's top management. More often than not, the management of the application operation service has a completely different focus.

This is why refactoring is often outsourced. The service is transferred to the outsourcer along with the operation and support team, which the outsourcer then processes. The outsourcer can leave part of the team on this project, and transfer the rest to other projects where they are more needed, and remove them from the customer's expenses. The outsourcer is interested in reworking the project in such a way as to minimize the participation of experts in it and free them up for other projects, and for the customer this is an opportunity to optimize the cost of the service. At the same time, the application architecture is optimized, which helps to reduce infrastructure costs, increase reliability and reduce downtime costs. In general, there are many associated benefits.

As a result, the mathematics of this story is such that, taking into account the agency overhead in favor of the outsourcer, it still turns out to be profitable for the customer: over a horizon of 1-2 years, the costs are recouped.

Why Companies Avoid Outsourcing

In my experience, the main reason for resistance is the loss of expertise. When a company outsources projects, it also outsources knowledge and competencies. After a year or two, the company realizes that there are no competencies left within the company — everything is with the outsourcer, and now there is no escape.

However, the customer can easily eliminate this risk: the contract with the outsourcer must require documentation of all services, describe the form of transfer of information and knowledge when transferring the service between teams, indicate the customer's copyright to the code, terms and scope of technical support. This simplifies both the future change of contractor and the return of the service to insourcing, to your own company, if for some reason this is necessary. If you do not take care of these details, you can get an undocumented service with undocumented processes that can only be serviced by one specific outsourcer. From experience, if the customer decides to change the contractor in whom he has lost trust, the lack of a knowledge base will no longer hold him back. But without documentation it will be difficult.

There is a similar danger of being tied to a specific contractor from the insourcing side. And I even think that this risk is higher, because it is thought about less often than being tied to an outsourcer. At the same time, when a key employee quits, unlike an outsourcer with a well-written contract, he is not at all obliged to transfer his knowledge, document the code and processes, train those who come after him.

Some companies do not work with outsourcers because they see information security risks in this. Usually, we are talking about the risks of information leaks to competitors, the risks of failure to comply with requirements for working with personal data and subsequent fantastic fines. In reality, these issues and much more are resolved by including requirements in the contract that reduce these risks and establish the contractor's liability. For example, the outsourcer's team that works for the client is required to be located separately from the teams working for competitors: different infrastructures, physical premises. Of course, the teams should not overlap in composition.

In recent years, it has become the norm for the outsourcer's team members to be checked by the client's own information security service (this is in addition to the fact that the outsourcer's information security also checks them).

And most importantly: in case of security incidents with the outsourcer, the client receives compensation from him according to the contract. And incidents in insourcing due to the fault of the employee do not imply any significant compensation, there is little that can be achieved from the person. In this sense, working with the outsourcer under a contract is “financial insurance”.

In general, the refusal to outsource is often just a matter of the management's principled position. And while some companies doubt and do not go for outsourcing, others widely use it even in the most regulated and sensitive industries. For example, among our major clients are:

• banks (regulatory requirements, personal data);

• manufacturing and energy enterprises (secrets of production, KI);

• transport (PDN, GIS);

• electronic medicine (personal data, including medical data);

• state enterprises and corporations (personal data, regulatory requirements).

How to build relationships between an outsourcer and a customer. A case with 15 years of experience

We will tell you how the relationship between the outsourcer and the customer usually develops if everything goes well.

Beginning and building trust. Usually, everything starts with one project, which is analogous to a probationary period. If during this time, trust is built between the two teams, the customer continues to work with the outsourcer.

Building trust between the customer and the outsourcer usually takes six months — the time during which the customer sees the results at the business level: cost reduction, SLA compliance, and so on. However, sometimes this happens in a couple of months. Nothing creates trust like helping the customer in a force majeure situation before formally agreeing on all the documents. One of our clients chose us for many years in this way.

Extension. If the first project goes smoothly, the customer's trust grows and he is ready to expand the list of outsourced works. “Internal word of mouth” (transfer of information between different departments within the organization) works. And, of course, no one signs contracts for 15 years, but they can be constantly extended and expanded. We had such a 15-year symbiosis with one of the large FMCG companies. It began with support for one business application for sales representatives. As a result, the customer wanted to outsource 10 service lines to us, including the main part of the infrastructure. The reason: after the first trial project, the customer saw how outsourcing allows him to flexibly manage the service, increase the SLA level, expand the business and at the same time not rack his brains over where to get personnel, additional places for employees, and so on.

As a result, over the course of 15 years, we have received the following support:

• service lines

• infrastructure

• Migration and support of business applications

• import substitution projects

• moving between clouds

• production systems

• corporate systems, CRM

Long term relationship. If the planning horizon of an outsourcing project is only 1-2 years, then the contractor only has time to “put out fires” and implement basic changes. The entire first year is spent on understanding the infrastructure and processes.

With a longer relationship, the outsourcer has many more opportunities:

• Proactivity. Fixing problems before they occur reduces the amount of work for the outsourcer and the cost of support for the client. In this vein, for example, we updated the APNS certificate in advance and saved 500 users from having their mail disconnected.

• Audit and deep refactoring. In the long term, the scope of work already includes tasks to improve processes and infrastructure, which are usually displaced by “firefighting”. For example, at our 15-year-old client, we reworked the mechanism and logic of document generation on the EDI server and reduced the number of incidents from 500 to 250 per month. Another task of this kind is the automated inventory of the equipment fleet, which allows standardizing its management, monitoring and development.

• Solving non-standard problems. In long-term relationships, the outsourcer is interested in investing fully and is ready to solve non-standard tasks for which it is difficult to find a contractor “from the street”. When the customer's CEO's rare device from a vendor that left Russia broke down, we had to find our own way to restore its functionality.

• Urgent problem solving. Life constantly throws up tasks that need to be solved right now. Sometimes we take on tasks that a regular contractor simply doesn't have time to tackle. When you need to prepare an audio and video broadcast of a business briefing throughout the Russian Federation with simultaneous translation in 4 days, and it will take more time just to sign documents with regular contractors, we do this work because we are ready to postpone all the paperwork until later. In addition, we know the customer's infrastructure very well and therefore do everything faster.

• Transparency and predictability of processes. Less bureaucracy. You can do the work right away and not wait 3 months for budgets to be approved. Launches become more predictable.

For example, in 2024, we relaunched the Helpdesk service in three weeks, which we took over from the previous contractor. It was easy for us to guarantee a quick deployment of the service: we knew the internal processes, infrastructure, stack, key people in the customer's team well. And we reached the target SLA and KPI in 3 weeks (on average, such projects take 3 months).

The result of long-term relationships between the contractor and the customer is a reduction in the number of incidents and problems, stabilization of service segments, and increased transparency and controllability of processes and infrastructure. If we were to put a common denominator for our 15-year history in the form of one number, then let it be the number of incidents per month: 7-8 thousand in 2017 → 3-3.5 thousand in 2024.

What details are important to consider when choosing an outsourcer

• Contact the clients of the outsourcer you are considering. Find out how the interaction with them was actually built.

• Make sure that the contract obliges the outsourcer to maintain documentation, transfer copyrights to you for the products developed within the outsourcing, and accompany and support the transfer of the service to the next team.

• SLA can include many parameters, not only uptime or response time to incidents. Moreover, the customer can tie payment to the outsourcer to achieving these parameters. The only difficulty is that all these indicators need to be measured, for this purpose the appropriate monitoring must be set up.

• If your organization has special information security requirements, make sure that the outsourcer has all the certifications required to perform the work.

• In general, pay attention to the presence of expertise in related fields in the outsourcer. This will insure you when solving problems at the intersection of technologies. Especially if the incident affects equipment not covered by the contract.