When selecting providers of outsourced services, is size an advantage?
The short answer is yes, but… What is the right size? For who? And when?
Over the past 10 years, I’ve run a business that has been through many stages as it’s grown organically from a micro business to a medium business over time. I have been able to observe who the right clients are, and so I have a very good sense of who is the right provider for each business. It’s similar to looking at the supplier from the client’s eyes.
My first client, other than my uncle’s business run from home, was a small not-for-profit where my sister worked. I was new to the idea of running a business, and wanted to gain experience. I had spent the previous five years working as an IT manager with Accenture so my technical skills were a bit rusty. I set my rate at $40 per hour as I knew they didn’t have a lot of money but needed help. They were horrified, and quickly moved back to voluntary labour, accusing me of being ruthless.
So, for small organisations with no funds, the best solution is to do it yourself, or use volunteers. This isn’t a great use of anyone’s time but it won’t use up any of the organisation’s cash reserves. (In this case, the organisation was in the drug rehab space and an employee had allegedly embezzled the cash to fund their own habit).
We then took on the local real estate agent, who was a loyal client for many years, and to their credit, increased what they paid for our services as our business grew. There was a prompt change in fees when I started hiring staff, and had to pay them a wage out of company earnings. So commercial reality got underway, and we sought larger organisations who could afford to pay for our services.
As any of us who have grown a business know, larger businesses have higher overheads. While working from home with a couple of staff at the office, rent can be absorbed by the household (even if our tax advisors would suggest otherwise), but running an office changes that. So, as the support business grows, fees must also increase to cover overheads.
Larger overheads demand larger and more affluent clients but larger clients demand more complex IT systems, which requires more capable (and expensive) staff. Again, the fees must go up to cover the additional salaries to provide a higher level of technical service to the client.
So from the client’s perspective, the small relatively cheap provider might seem ideal. If it’s a very smart one or two person provider, it may be very cost effective. However, if the technical people are good, they will attract more clients. At some point they must either offer slow response times, rushed solutions, or hire more staff. Thus, as your business grows and needs increase, you’re almost forced to find a larger and more responsive service provider.
You will also require breadth and depth within your solution provider. Technical services are typically split into level one, two, and three support, and then strategic consultancy and project management/delivery. To find individuals who can work across this range of levels with multiple technologies is simply impossible. The technical field is too diverse to attempt this, even for a genius.
Typically throughout their careers, technical people progress through different levels and stages, and move through different jobs to achieve this. Sometimes people retain their technical skills as they become competent project managers, but it’s only a matter of a few years before they fall behind the latest technologies and become pure project managers – and somewhat dangerous in a hands-on tactical task.
My other observation is on the quality of people attracted to a business. We all know that it’s hard to find good technical staff today – unemployment is running at under 1% in the IT industry. So attracting good staff is important, and this comes down to company profile and size. A larger company with a better reputation will attract a higher quality of staff. At least until the company gets too big and the personal connection is lost. So assessing the culture of your support organisation is an important step towards selecting the right team too.
Clearly it’s important that as the complexity of your business systems grow you have access to a larger team to deliver the solutions. At some point, the larger support companies will also establish productivity tools and automation within their company which will lead to a plateau in escalating costs, and a flattening out of the increasing fees. When you find a company that has good systems in place, you’ll get a higher value return on the dollars you invest. You may even get the opportunity to pay a fixed rate for an unlimited service as efficiencies of scale lead to predictable costs from the supplier.
How do you know when you have the right team? It will come down to the quality of advice, quality of service, responsiveness and price.
If you need more of any of these factors, it may be time to seek a more capable support arrangement, but perhaps at a higher price.
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David Markus is the founder of Combo – the IT services company that ensures IT is never an impediment to growth.