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August 16, 2007

Cost of outsourcing IT services remains too high for UK SMBs

Despite the hype over managed services becoming essential in the small- to medium-sized business, or SMB, space, the majority of SMBs in the UK are still reluctant to become reliant on someone else managing their IT issues. This is partly due to loss of control of a key component of their business functionality, but the main reason stems from the belief that the cost of outsourcing is too high.

By CBR Staff Writer

A new Datamonitor report analyses the results of a survey of 500 UK SMBs to uncover their opinions on outsourcing, procurement and security risks. It reveals that while there are many advantages to outsourcing, such as freeing up employees to work on core business issues, the propensity of SMBs to outsource is still relatively low, at around 25%. The key areas for outsourcing are security and email issues, with only a small minority of SMBs that can envisage a time when their IT function is fully managed.

UK SMBs have traditional attitudes to selecting IT vendors

Datamonitor’s survey reveals that customer service and service performance are the top priorities for SMBs when selecting an IT vendor or partner. The respondents also indicated that they are more likely to do business with a national internet service provider (ISP) or telecoms provider for managed services, with local or specialist providers being their last choice.

SMBs adopt a traditional approach when looking for services, selecting well-known vendors. This is because they may have less time to research the different options and feel they can trust these national providers to be reliable.

There is no dominant vendor/supplier for IT solutions to SMBs

When asked to name their current supplier for IT solutions or components, SMBs cite a wide variety of different vendors. For example, for network services alone, over 100 different vendors were stated. The two categories that are exceptions are telephone and mobile telephone solutions. Over 70% of the SMBs purchase their telephone services from BT and, interestingly, BT also appears to be the most popular supplier for network services and managed server hosting.

However, when it comes to satisfaction with services, SMBs indicate that they are least satisfied with their telephone and mobile vendors. The fact that there are fewer players in these markets may have led to vendors becoming complacent. Vendors should look at making improvements to services for SMBs and try to regain their trust to improve perception.

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Cost and loss of control prevent SMBs from outsourcing

Outsourcing is not a high priority for smaller enterprises as they believe the cost to be too high and are unwilling to lose control of core IT functions. Of those that do outsource their IT services (around 25% in the UK), security and email management are favorite target areas. These are deemed to be the most pressing technical issues due to an increased awareness of internet-borne threats.

Almost 60% of the surveyed SMBs can never imagine their IT function being fully outsourced. A high proportion of those that are unsure say that it would depend on cost. The opportunity appears to be limited, although highly targeted marketing by vendors and tailored solutions may allow a higher uptake of outsourcing services in the future.

The two key reasons for not having servers managed in a secure data center are cost and loss of control. The issue of cost is understandable for smaller businesses as they have tight budgets and may be less aware of how outsourcing can help improve their profitability. 17% of SMBs claim to not know that outsourcing the management of their servers is an option, which although low, is still a significant proportion. The fact that some SMBs are unaware of the outsourcing options available to them may stem from vendors having previously overlooked the SMB space.

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