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Small Business Magazine

To outsource your IT, or not? It comes down to value

Special to The Globe and Mail

This summer, Natarajan Chandrasekaran, the CEO of India-based Tata Consultancy Services (part of the massive Tata group that sells everything from insurance to cars), took a trip to Toronto to check up on his company's Canadian operations.

TCS is in the outsourcing business, taking care of IT services for a variety of customers, both big and small. Mostly, TCS does traditional IT work such as tech troubleshooting and software management, but these days customers are even looking to outsource their social networking - contracting TCS to set up their internal communications tools, as well as their social presence on the Web.

Over the past year, TCS has hired a mind-blowing 69,685 people, and profit is up more than 31% over the same period. The success of TCS - and the varied array of services it is now willing to do on behalf of your company - raises an important question for small and medium-sized business owners: Do you even need an IT department?

In-house IT support used to make sense for just about every business, once it reached a certain size. After all, calling in an outside expert each time something went wrong could quickly become expensive and time-consuming. But over the past decade, remote support - the ability to repair or even run a company's entire technology infrastructure from a distance - has become fairly straightforward, thanks to high-speed Internet connections and cloud computing.

The key advantage of outsourcing is obvious: You save money on staff, servers and software. Additionally, renting those services for a monthly fee is usually less of an immediate financial burden for small companies than spending a relatively large sum up-front on software and hardware. In recent years, companies such as Microsoft, Amazon and Google have poured billions into services that let businesses rent everything from server space to software, while a host of consultancy firms such as TCS offer to take care of your help-desk calls and troubleshooting, among other tasks.

The major downside of outsourcing is that you lose some control. Corporate data that is outsourced to a server in another country will likely fall under that jurisdiction's data interception laws - for example, the Patriot Act in the U.S. - fuelling concerns as to where sensitive company data might end up. There's also the broader concern about the quality and reliability of outside IT personnel, who likely are dealing with multiple clients and may not be very familiar with your unique business situation.

That's why a growing number of companies are opting for a hybrid approach. The strategy is simple: Outsource anything that doesn't add much value to the business - such as tech troubleshooting, software installation and computer maintenance. And leave your in-house IT staff to work on things that actually improve the business, such as custom-building new hardware and software systems. The approach, if done right, offers the perfect combination of cost savings and control.

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The cloud's silver lining

In Canada, small, medium and massive companies are all increasingly relying on outsourcing. A big part of that trend is the rise of cloud computing, which offers a wealth of new services for firms looking to outsource IT functions. Here are some key numbers from a recent report by the Centre for Outsourcing Research & Education.

$40 million: Average value of a multiyear outsourcing contract in Canada

4.5: Length, in years, of the average outsourcing contract in Canada, down from more than seven years in 2004

40%: Canadian companies surveyed that believe cloud computing will contribute to increased spending on outsourcing