Financial pressures and intense business competition have made business organizations and their IT departments rethink operational, employee, and financial resources by outsourcing part or all of their business processes to third-party providers. The reasons for outsourcing may vary; although recently, the main rationale for working with third-party providers is to cut cost. Some outsource savvy organizations have managed to identify exactly which parts of their internal processes should be handled by service providers and to what extent the relationship must be put into service.

Choosing managed services means that you are handing control to your service provider with the hope that this provider will help you cut costs, unburden you of nearly all project or business process responsibilities, and be as reliable as is necessary. On the flipside, you can also maintain the overall processes while vendors maintain somewhat of a staff augmentation relationship with you.

Another point of the argument is whether to delegate all potential outsourced work in the hands of one service provider, or to simply pick out which tasks can be considered “safe” to be handled by outside staff. If your organization is heading towards managed services, the following reveals a few pros and cons of this type of situation:

Pros:

  1. A single managed services model frees up time and material resources of the buyer - including vendor management - allowing the company to focus on core business initiatives.
  2. A single managed service provider can simplify and implement a single or a unified project management process or methodology, and in turn also educate the client about its best practices.
  3. Jointly with buyers, the vendor assumes the risks involved in the project - including items that are related to security, continuity, and quality.
  4. Clients can make projections for long-term operating costs and plan resource allocation accordingly.
  5. Hardware and software maintenance and/or upgrade are minimized.

Cons:

  1. There is hardly a one-size-fits-all type of service provider. A vendor may have a number of core competencies, but utilizing a single provider for all outsourcing requirements may also mean that a company may miss out on gaining access to the best knowledge and service quality that other vendors may provide.
  2. The buyer is eventually put in a position where the business cannot negotiate for a better deal or contract.
  3. Risks are usually higher when dealing with just a single sourcing provider for all development and business process needs. If the vendor suddenly loses its business or the vendor is bought by another company, then the buyer may have to renegotiate old deals or lose the usual support - technical or knowledge - that comes with the project.
  4. The organization may be tied down to a single level of capability - that of the vendor’s. This type of situation may become problematic in the long run - as technical knowledge and market demands require constant updates.
  5. A single vendor’s efficiency in handling multiple projects or product development may suffer eventually, as it has to spread its focus and resources over several project types or verticals.