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The number of mid-market companies outsourcing various IT functions is growing. As is the number of services outsourced by them. Among the most popular areas in IT for mid-market outsourcing include:
Telecommunications
One of the first areas midsize companies were comfortable sending out, outsourcing voice and data lines continues to be a relatively easy sell to these firms since it's clearly not a core competency and not an area of strategic advantage, unless you're a telemarketing company for example. In addition, in most cases, it's a cost-effective way for medium-sized businesses to provide telecom services without adding staff, according to Balentine.
Connectivity
Along with telecommunications, connectivity was one of the first areas mid-market companies started farming out. Anecdotal evidence shows these companies have had high levels of satisfaction outsourcing the networks (LAN and WAN) so this continues to be a popular outsourced function. Today those companies who may not be able to afford to invest in new equipment can take advantage of technological advances like virtual private networks (VPNs) and wireless local area networks (WLANs) by outsourcing.
Security
As focus on the importance of IT security has increased, many mid-market companies have found that the only way to meet this new demand (often for non-stop monitoring) is to send out the work. This new area includes services like intrusion detection and firewalls and staff to keep an eye on things.
Servers
This is one of the rare areas in which outsourcing is more accepted within the mid-market community than among Fortune 500 clientele. As companies grow larger and more sophisticated, server outsourcing drops off, according to Krammer.
Application development and maintenance
Over the past few years, there's been a marked increase in outsourced application development and maintenance in the mid-market, Krammer says. Many mid-market companies have found that application service providers enable them to afford to implement and run the kinds of enterprise applications that were once only available to large corporations.
E-commerce/Web hosting
As the dot-com bomb proved, creating an e-commerce infrastructure and developing Web-based services can be an expensive and tricky proposition. That's particularly true for mid-market companies that can't afford to have all the necessary skills (from web strategy design to QA testing and traffic analysis) on staff. The Yankee Group estimates that mid-market businesses have become the largest users of outsourced Web hosting (accounting for 59 percent of the total $14.4 billion market in 2003).
Business continuity and disaster recovery
The importance of IT business continuity and disaster recovery was brought into sharp focus after the events of Sept. 11. And many midsize companies see this as a good activity to outsource not only for cost savings but for the reliability and much quicker deployment that a dedicated outsourcer in this area can provide.
Desktop Management
Increased productivity in the IT department and 24x7 availability are the two big reasons mid-market companies are increasingly outsourcing the relatively non-strategic task of desktop deployment and management.
Special Needs
Though midsize companies may outsource some of the same IT activities as their billion dollar-plus brethren, they're definitely looking for different types of relationships with their vendors. Whereas Fortune 500 companies tend to focus on service levels and delivery, midsized companies value flexibility.
It's important for mid-market companies and their service providers to be culturally compatible. That's the reason why Highlights for Children ultimately selected Verizon Information Technologies to handle its data center. "Those outsourcers that met our requirements were interviewed extensively but in the final analysis, compatibility of cultures, trust and a feeling that we could work together were key determinants," Meider explains.
Contrary to popular belief, outsourcing should be viewed less as a supplier-customer relationship and more as a collaboration, particularly at the mid-market level. "The key to being middle market and having success with your vendor is to develop a working partnership with them," says David Womeldorf, chief technology officer of IMI Bevcore, a $35 million provider of beverage and foodservice parts and services based in Osseo, Mn. Wormeldorf chose to outsource the implementation and maintenance of 34 PeopleSoft application via PeopleSoft's ASP model.
"You have to think of them as an extension of your company and your department--not as a vendor but as a coworker--and your employees have to act that way and think that way," Womeldorf adds. "A partnership is the most difficult of the types of relationships a company can have but it can pay off."
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