What do you do when off-the-shelf software just isn’t what you need, or if you want to integrate a couple of different systems – say QuickBooks with your shipping application or your customer database with a new Web-based system? Unless you happen to be a programmer, or have one on the payroll, the chances are you’ll outsource the project.
“I didn’t do it myself because I didn’t know how – I am not a programmer,” said Oscar Camarena, finance director of Mission: Renaissance, Inc., a fine art instruction organization with over 100 staff. “The primary factor in deciding to outsource – we couldn’t do it in house.”
That, in a nutshell, is the reason why most SMBs look outside their companies for help – they just don’t have the internal expertise. While Mission: Renaissance found a local-area programmer ‑ Barram Software ‑ a few adventurous SMBs are being tempted overseas for technical assistance.
“In the end, Photon was not the least expensive, but it was the one I felt could do the job,” said Matt Ryan, president of Five Star Memories, a firm with 15 employees that allows people to create memory books online. “My decision to use an overseas company was a great experience for me.”
IT outsourcing used to be the province of the corporate giants. And indeed, the likes of Dell, GE, Intel and Microsoft have massive development centers in locations such as Indian, Russia and China.
As a result, the IT services segment as a whole (with outsourcing being its major component) dwarfed software and hardware spending last year. According to analyst firm Gartner, services accounted for $748 billion compared to $382 billion for hardware and $178 billion for software worldwide. Gartner predicts that services will pull further ahead over the next two years, with demand from small business outsourcing helping to fuel the fire.
“IT spending is dominated by services rather than products,” said Kathryn Hale, an analyst at Gartner. “Businesses are investing in improvements to internal processes aimed at reducing costs.”
Small business owners tend to look locally first. Barram Software, for example, used to be based in Los Angeles before its recent move to Florida – hence its clientele are mainly drawn from both states. It develops business applications, Windows desktop applications and Web applications, typically with databases on the back end. In addition, it often integrates this custom software with existing system.
“Small businesses typically do not have the technical expertise or in-house employees to build such software,” said Elan Barram, president of Barram Software. “They generally have IT staff who are busy with managing and maintaining existing systems, thus they often seek outsourcing.”
At Mission: Renaissance, for instance, he worked on a project of making a virtual administrative system. This consisted of harnessing third-party software that made its accounting system and its existing Web-based administrative system communicate with one another.
“Barram Software made it so that the information was synchronized between the two systems,” said Camarena. “Someone we know recommended the company.”
Personal recommendation and local representation, it turns out, are very much at the center of most SMB outsourcing engagements. Five Star Memories, for example, initially looked to firms in the Denver area. Although Ryan met with four nearby programming outfits, in every case he was dissatisfied in their responses to his inquiries. In most cases, he said, the responses were very incomplete, without detailing any functionality, yet quoting a price associated with the product.
“How could they price it, without functionality I asked myself,” said Ryan. “In some cases, they recommended off-the-shelf code without modifications, and all quotes arrived much later than they promised and without the level of detail I needed to see.”
He expanded the search to include overseas firms. Their responses surprised him – they were on time and clearly laid out the functionality with precision. “That made me more comfortable considering overseas firms,” said Ryan. “From that point, I narrowed my list down based upon references and my comfort level with each of the companies.”
Though Photon wasn’t the lowest bid, he felt it could best do the job of programming more than 100,000 lines of code for an application that could be accessed from anywhere and that would allow the collaborative creation of unique photo albums.
And Five Star Memories is not an isolated case. More and more small shops, it seems, are looking offshore. According to Photon’s CEO Srinivas Balasubramanian, the company has more than 500 small business clients.
“There is very little opposition to the concept of outsourcing today,” he said. “For some parts of the development process, the work could be done on-site in the U.S., while other parts could be done anywhere in the world ‑ India or Russia or China.”
He estimates that the combination of overseas outsourcing and open-source software can reduce the cost of building a new software app by as much as 50 to 75 percent.
“Small businesses are more likely to outsource applications that are specific to their business process, particularly in those areas that are much less likely to have a packaged or SaaS alternative,” said Balasubramanian. “The economics of building something from the ground up ‑ outsourced or otherwise ‑ makes a lot more sense when a comparable alternative is not available off the shelf.”
As an example, a company Web site (showing the company’s brand and design) with an associated e-commerce application is more likely to be built afresh than a financial system or accounting package for which inexpensive off-the-shelf or SaaS alternatives abound.
But it isn’t just software development that small companies are outsourcing. It’s also quite common for them to hand over hardware maintenance or general system administration to an outsider. This boils down to economics and resources.
ACLSA of Los Angeles, Calif. is one example of a growing legion of service providers that serve small businesses. They bring expertise and on-call service to take care of such tasks as virus issues, software updates or general maintenance.
“A skilled IT manager in Southern California would cost $70,000 to $90,000 per year,” said Sabine Waterkamp, president of ACSLA. “We can do it for a fraction of the cost with better performance and higher skill level.”
Drew Robb is a Los Angeles-based freelancer specializing in technology and engineering. Originally from Scotland, he graduated with a degree in geology from Glasgow’s Strathclyde University. In recent years he has authored hundreds of articles as well as the book, Server Disk Management by CRC Press.
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