In the era of technology acceleration, enterprises are heavily investing in their digital transformation of their process. This holds not only for large organizations, but for Small Medium Businesses (SMBs) as well. In most cases, the use of digital tools is more important for SMBs than it is for large enterprises, as these tools enable SMBs to remain agile and cost-efficient, and in several cases to complete globally without a need for significant capital investments. As a prominent example, on-line marketing platforms and tools (such as social media) help SMBs to disseminate their products and services to millions of potential customers, without any need to organize and staff expensive marketing departments. Likewise, cloud based storage services facilitate SMBs to manage information and critical assets regardless of time and location.
SMBs have to operate a number of IT services as means of supporting all of their business functions such as sales, marketing, finance, accounting, production, human resources and more. The deployment and operation of such services can incur significant costs when provided in-house, which is the reason why many SMBs opt to outsource their IT services. This is very common especially in the case of smaller companies (i.e. the so called micro SMBs), which lack the financial resources and equity capital needed to establish and maintain in-house IT departments.
Outsourcing for SMBs: Pros and Cons
While there are many different ways for outsourcing IT operations, nowadays IT outsourcing for SMBs is almost synonymous to cloud computing. Indeed, most SMBs leverage a range of cloud services in order to support their business processes. Likewise, the cloud computing services market is growing, as giant vendors are offering their services in the cloud, while most of the niche and innovative business services are cloud based as well. Cloud based outsourcing comes with a host of significant benefits for SMBs:
- Cost Cutting and Cost Efficiency. Cloud computing services obviate the need for establishing internal IT infrastructures and teams. In most cases this leads to cost efficient operations.
- Conversion of CAPEX (Capital Expenses) to OPEX (Operational Expenses). Even in cases where the outsourcing costs are comparable or even higher than hosting these service in-house, the costs of cloud services are spread over longer timescales, as no upfront capital investments are required. In other words, cloud costs are OPEX and do not include CAPEX. This can greatly boost the financial liquidity of SMBs, while reducing the risks of failing capital investments.
- Flexibility. Cloud services are elastic and automatically provisioned. This can enable SMBs to provision and use resources as needed, without a need for predicting their growth rates. Hence, SMBs can benefit from the pay-as-you and pay-as-you-grow properties of cloud computing. The latter are very appealing to start up enterprises, which grow at varying and usually hard to predict rates.
- Diversity and Freedom of Choice. Nowadays, there is a wide range of cloud services for all sorts of functionalities and business areas of an enterprises. Such services are usually provided by multiple vendors, which provides freedom of choice to SMBs and enables them to select the vendor that best matches their needs.
These benefits explain why the majority of SMBs deploy some sort of cloud based services. Nevertheless, there is also a downside to IT outsourcing in general and cloud computing in particular:
- Trust Issues. When outsourcing IT operations, enterprise data are placed to the provider’s infrastructure. This raises trust issues, as data assets and other sensitive Intellectual Property of the SMBs go out of their boundaries and become part of an infrastructure that is controlled by other parties.
- Dependence on Internet Connectivity: IT outsourcing and cloud based services make SMBs fully dependent on high speed internet connectivity. Even though internet connectivity is gradually becoming ubiquitous, it is still not available at all times and places. Furthermore, some industries (e.g., manufacturing) cannot afford to depend on internet connectivity as even slight downtimes can cause significant brand damage and financial loss.
- Lack of Control. With IT outsourcing enterprises lose also control over the configuration and management of their IT operations, which have to be aligned to the offerings of the cloud service provider. This limits the degree of customization of the IT operations to the peculiar needs of the enterprise.
- Limited Innovation Capital. Many SMBs leverage IT infrastructures and tools as a vehicle for innovating and building strategic advantage over their competitors. IT outsourcing limits this innovation potential as SMBs are constrained by the capabilities and features of the offered cloud services.
The downside of the IT outsourcing leads several SMBs, notably the bigger ones, to maintain IT departments in-house, even though the trend is clearly towards leveraging cloud services as much as possible.
Infrastructures and Applications in the Cloud
The most common cloud applications used by SMBs nowadays, include:
- Office Applications. SMBs are nowadays accessing office applications like word processing and spreadsheets in the cloud. This facilitates them to manage their documents in a collaborative way regardless of time and their user’s location.
- Enterprise Applications. Every SMBs uses a set of enterprise applications in support of their day to day business processes. The most commonly used applications are Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and Human Resources Management (HRM) systems. Once upon a time, SMBs used to deploy and maintain these applications in-house. This is no longer the case as they are currently provided with a wide range of high quality cloud options.
- Cloud Storage and Database Management: SMBs are increasingly leveraging cloud storage services as means of managing their data in a secure and reliable way, while synchronizing them across accounts and devices. Similarly, SMBs leverage on-line cloud databases, which are managed and backed up in a frequent and cost effective manner.
Note however that the use of the above cloud applications by SMBs, does not always mean that they fully outsource their IT operations. In several cases, SMBs dispose with hybrid scenarios, where some IT functions are hosted in-house and some other accessed in the cloud.
One way or the other, recent surveys report that more than 60% of companies outsource some of their IT functions, while more are planning to so in the next few years. In the future, the vast majority of SMBs will be cloud based. In the medium term we will see SMBs running most of their IT functions on the cloud. In the long term it’s likely to see a tighter integration of different cloud services towards the concept of “SMB in the cloud”. Cloud based IT outsourcing is coming soon to a theatre near you and you ‘d better be prepared to get the most out of it.