For many businesses, the question of IT outsourcing vs. managed services can be confusing. This is because these terms are often used interchangeably. However, they are not the same — IT outsourcing and managed services fill two different roles for an organization looking to improve its overall IT management.
As technology becomes an integral part of all business operations, many organizations can require additional outside help to keep up. A notoriously tight labor market around IT has also made finding the right talent extremely difficult and costly. To remedy this, businesses are turning to IT outsourcing and managed service providers (MSPs).
A study commissioned by Cisco showed that while IT spending rose 3.5% in 2023, spending on managed services rose 12.7%. This data shows that many companies see a significant ROI with managed services and IT outsourcing.
But are IT outsourcing or managed services right for your business? Let's first review the basics.
With IT outsourcing, businesses hire an outside firm to handle a specific IT task or solve a specific problem. This is sometimes a one-time task, or it can be ongoing — such as with help-desk support.
Managed services offer something similar, but managed services focus on ongoing operational support for their contracted services. This makes them more comparable to an in-house team but without the overhead costs and other expenses that come with hiring and other employee-related expenses.
Below, we'll take a deep dive into the question of IT outsourcing Vs managed services so you can decide which is right for your technology needs.
What Is IT Outsourcing?
IT outsourcing has been around for decades, and during that time, it has become an efficient and cost-saving tool for businesses worldwide.
With IT outsourcing, a business contracts with a company to provide a specific technology service or deliverable. This shift of responsibility allows your in-house staff to breathe easy and focus on other crucial areas of your IT infrastructure.
A key element of IT sourcing is that the services provided are highly contained and clearly defined. This specificity results in a tight scope of duties and responsibilities and minimal overlap with your in-house IT departments other than communications when needed.
IT outsourcing is generally broken down into three main categories, which we’ll explain below.
Onshore IT Outsourcing
Onshore IT outsourcing is when you hire a provider within your operating country, typically near your location. This type of outsourcing offers you the most control over your IT outsourcing solution but is also generally the most expensive.
If cost savings are the main priority, onshore IT outsourcing may not always be the best fit. However, if control and the ability to oversee operations are paramount, this is usually the first choice.
Offshore IT Outsourcing
With offshore IT outsourcing, projects and tasks are often moved to teams in Asia, Western Europe, or Eastern Europe. The goal is to experience the most significant cost savings while maintaining proficiency.
Rates and proficiency vary quite a bit when using offshore IT sourcing providers. So, while the cost savings may be great, managing output and quality can become an issue if your organization lacks experience in outsourcing.
Nearshore IT Outsourcing
Neashoring is a form of IT outsourcing that involves finding service providers in nearby countries. This method is considered a middle ground between onshoring and offshoring options. However, leveraging cost savings through this model can be challenging.
Benefits of IT Outsourcing
The main benefit of IT outsourcing is cost savings. By accessing a larger talent pool, businesses can find the right specialized talent at the lowest cost while maintaining the required technical proficiency and output quality. This allows your in-house teams to maximize productivity and ROI by focusing on key areas of IT.
Achieving the advantages of IT outsourcing is dependent on striking the right balance between the project requirements, the defined scope, and the proficiency of the outsourced talent. Any mismatch in these areas can lead to issues that can pose a threat to the expected efficiencies and projected cost savings.
Drawbacks of IT Outsourcing
One of the main drawbacks of IT outsourcing is the potential lack of control and communication, specifically with offshore or nearshore services.
IT outsourcing for projects generally means you hand off the project to a dedicated team. From there, your project oversight is minimal, and potential problems or issues are typically not noticed until certain milestones or deliverables come online.
Another drawback is security. With the reduced oversight, it isn’t easy to know exactly how your outsourced teams handle data and who has access to it. This can create a security risk and be a dealbreaker for those considering IT outsourcing.
What Are Managed Services?
Managed services are sometimes confused with IT outsourcing, but it’s quite different in many ways.
Managed services provide ongoing operational support that is integrated with the rest of your IT team and infrastructure. Unlike IT outsourced teams that are somewhat siloed, managed services are a holistic part of your overall IT and business strategy.
Because of this integration, managed services can provide proactive support and recommend changes as your IT landscape or needs evolve.
Another significant aspect of managed services is that they are designed to align with your business goals, not just your IT goals.
For example, managed services for CAD software and systems will understand your design workflow and your industry. They’ll work closely with you to optimize these workflows as your business and industry evolve.
It’s this type of optimization and ongoing operational support and consultation that separates managed services from IT outsourcing.
Benefits of Managed Services
Managed services, in comparison to IT outsourcing, offer a superior level of communication. This not only enhances reliability, optimization, and uptime across your entire IT infrastructure but also provides unique benefits that are not found in traditional outsourcing.
While managed services may entail a higher initial cost than outsourcing, they often come with the advantage of a monthly subscription rate. This financial model allows for more accurate forecasting and budgeting, eliminating the risk of unexpected expenses and ensuring your initiatives stay within budget.
Managed services truly shine in their proactive support capabilities. In a cybersecurity context, for example, they continuously monitor your risk profile and emerging threats — both within your company and your industry. This proactive approach empowers you to stay ahead of potential issues, rather than simply reacting to them.
Drawbacks of Managed Services
Managed services are generally more costly than outsourcing solutions. However, the ability to budget for the services more accurately negates this drawback in some ways.
Another drawback is due to the broader scope of managed services. While this is a major benefit, you need to fully understand your service level agreement (SLA) with your provider to have the support you need in a given situation.
Finally, there is the issue of handing off support to an outside vendor, which gives you less control than in-house solutions.
Outsourcing vs Managed Services: X Factors to Consider
Choosing between IT outsourcing and managed services may seem like a simple decision between ultimate cost savings or more in-depth support and integration — but there are X factors to consider depending on your specific situation and goals.
Below, we'll go over the most common X factors in depth.
Your Ability To Manage The Project or Initiative
Outsourcing will yield the best results if your in-house teams are already experienced and knowledgeable in the tasks they are handing off to the outsourcing provider.
If your in-house team lacks expertise or knowledge in a specific area, it becomes difficult to manage and communicate issues if they arise. In this case, a managed solution is generally the better option.
With managed services, your teams can slowly be brought up to speed as your MSP provides the majority of the implementation and support.
Your Scaling & Growth Plans
Scaling and growth are two different paths and require different strategies when it comes to IT outsourcing vs managed services.
Outsourcing works better for many scaling strategies. With outsourcing, you're focusing on handing off tasks so that your teams can focus on core competencies. This means as you scale, nonessential functions can be outsourced without draining internal resources.
On the other hand, business growth strategies will generally align with managed services. As your business grows, you'll require greater strategic cooperation and new expertise from your technology partners to meet your evolving IT needs.
However, this is mostly regarding core business scaling and growth concerns. With IT-specific scaling, both IT outsourcing and managed services can be beneficial and cost-effective.
Budgeting Forecasts Vs Cost Savings
Another X factor is whether budgeting or bottom-line cost savings are most important to you.
For maximum cost savings, outsourcing will align best with your goals. But costs can quickly balloon if you are unable to manage outsourced IT projects due to a lack of internal expertise.
Managed services provide a solid compromise between cost savings and stable cost forecasting.
Contractual Compliance and Certification
One area that isn't often addressed is the issue of specific contracts your business has with either vendors or clients. It's not uncommon for these contracts to have clauses regarding how data is handled or requirements for specific certifications.
With IT outsourcing, staying compliant with these requests can be challenging since you have little control over who is interacting with certain systems.
Managed services provide a much more transparent way of dealing with compliance issues. This is especially true if you have government contracts or security-related contracts.
Industry-Specific Factors To Consider When Choosing IT Outsourcing vs Managed Services
Your industry can also factor into which IT solutions will provide you the most benefit. Below, we’ll cover several common industries and explain which solution offers the best service.
Factors to Consider for Banks & Credit Unions
Due to the complex regulatory and compliance environment for financial services, banks and credit unions should consider managed services.
IT outsourcing is still an option, but generally only for non-core business and technology functions.
Factors to Consider for Healthcare
These days, healthcare businesses are under extreme pressure to reduce their operating costs and boost profitability. The market is also changing as new agile competitors with more consumer-driven business models enter. This creates a need for new technology to meet customer expectations for convenience and lower costs.
This requires a strategic technology partner, which an MSP can provide. IT outsourcing is simply not a good fit for the rapidly evolving environment within the healthcare industry.
Factors to Consider for Attorneys & Legal Services
Law firms generally already have experience using managed service providers outside of technology. Many legal MSPs provide specific managed legal services to lawyers and law firms.
Because of this, it’s an easy transition for law firms to adopt an MSP for their technology needs.
Security is also a primary concern for law firms as clients frequently request remote consultations these days, and in-office work has declined as remote work continues to accelerate.
This distributed work and client communication environment create new security risks for law firms, and that’s an area where MSPs can specialize and offer unique advantages over outsourcing.
Factors to Consider for Private Equity
Private equity firms need to prioritize agility and collaboration among their teams and clients. MSPs can help these firms develop a technology strategy that gives them the flexibility and collaborative advantages to always be ahead of the curve.
Because private equity can encompass many different areas of technology and finance, IT offshoring can quickly become too difficult to manage. IT offshoring is best left for non-core areas of the firm, while an MSP provides the bulk of the operational technology services and ongoing support.
Factors to Consider for Govcon
Government contracts require intense contractual and regulatory compliance. There are often strict guidelines for contractors regarding outsourcing and what vendors they can work with. IT outsourcing can complicate compliance and, in some cases, make it impossible.
For government contracts, an MSP provides streamlined compliance, certification, and easier budgeting and forecasting. Accurate forecasting allows you to make more accurate bids so you can maximize profitability once you land a contract.
Outsourcing Your IT vs Managed Services: Key Takeaways
The trend of organizations leveraging IT outsourcing and managed services will continue well beyond 2024. As technology changes and becomes central to every business function, providing these services entirely in-house is simply out of reach for most businesses.
The companies that best leverage these options will implement the right solution to fit both their business goals and technology needs.
For project-specific initiatives where your in-house teams have expertise but need to focus on more core issues, IT outsourcing can provide a fast and cost-effective solution.
For teams that need ongoing support that provides proactive solutions and optimizations at a predictable and fixed cost, an MSP should be considered first.
If your business needs IT support and you’re unsure where to turn, Hypershift Technologies is here to help.
We take the guesswork out of strategic IT planning and implementation through our comprehensive managed services.
Whether you need cloud migration services or complete cybersecurity protection, our engineers have the industry experience and expertise to deliver the results you need to stay competitive.
Contact Hypershift Technologies today to learn more about our managed services and how they can help your business reduce your overall IT budget while improving efficiency and boosting performance.
