Conventional wisdom would have us believe that SMBs don’t spend much in outsourcing compared to enterprises, so IT service providers will get a better ROI if they chase the big boys.
As with most statements that get slotted under the category of conventional wisdom, this statement is both true and false.
- A single SMB (1-1,000 employees) can’t afford to spend tens or hundreds of millions of dollars on outsourcing projects. But SMBs do spend a significant amount on outsourcing. An SMB Group market study in 2012 found that SMB spend accounts for more than 50 percent of total IT spend, of which a large percentage is allotted to IT services like consulting and outsourcing.
- The growth rate in IT spend for SMBs is six to eight percent compared to three to four percent for large enterprises.
Collectively, these numbers indicate that the SMB outsourcing market is very lucrative for IT service providers. But even with this kind of buying power small and medium businesses still struggle to get reliable, quality IT services from vendors.
Outsourcing challenges for SMBs
This is due to a bunch of reasons, some of them having to do with the very nature of outsourcing while others are related to the specific case of SMBs.
- Limited budgets and low profits: SMBs don’t spend a great deal per project, especially in the application development and maintenance space. Because they are budget conscious, vendors are also wary of committing resources that can otherwise be diverted to profitable projects.
- High customer acquisition costs: For an IT service provider the average customer acquisition cost for an SMB or an enterprise works out to be almost the same. These high costs don’t make economic sense to the service provider as sometimes they might be even more than the total transaction value for an SMB deal.
- Lack of in-house project management skills: Managing a software outsourcing project requires a completely different set of skills that many startups and small businesses might not possess. Absence of skills like creating detailed spec documents, change management, setting up and monitoring KPIs, etc. put additional burden on service providers.
SMBs and outsourcing service providers both need each other. The opportunities are immense. But most outsourcing models leave too much to chance.
Curated IT exchanges/marketplace as a bridge between SMBs and outsourcing vendors
Using a curated IT marketplace is an option that SMBs can use to access quality outsourcing services without breaking the bank.
Such a marketplace has a number of features that appeal to budget-conscious SMBs and IT service providers.
Think of this marketplace as something like TripAdvisor or Yelp. It is curated by unbiased third parties based on a set of easily understandable criteria. Customers can browse the listings to find the service provider that would be the best fit for their requirements and budget.
All this can be done at one convenient location instead of conducting Google searches that can throw up dodgy information.
Last but not the least, this marketplace can provide advisory and escrow services so that the project is completed without any issues and there are no disputes over payments.
More choice is always good for the customer. An IT exchange does just that for SMBs looking to outsource.
Sanjeev Kapoor is founder and CEO of IT Exchange, a value-added IT services marketplace that is redefining the way IT is sourced globally. He is a seasoned IT veteran with 20+ years of domestic and international experience across a broad range of industries. Prior to starting his entrepreneurial venture, Sanjeev was with Infosys for 20 years in a variety of business leadership roles across the United States, Europe and Asia. Contact Sanjeev via www.itxchg.com/about.