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Managing Web Development: Insourcing vs. Outsourcing

Outsourcing isn’t as simple as dumping off work and hoping for the best. Preparation is key in making it a positive step for your business.

The pros and cons of outsourcing have been debated for years and managers are frequently faced with build versus buy decisions. Sometimes these decisions are simple, as in the case of cleaning services or payroll, but in most instances outsourcing determinations are based on an organization’s unique circumstances and culture. We find this is generally the case with Web development. Managers across all industry segments are grappling with how to most effectively pursue their Internet strategies. This article provides a framework for evaluating whether to partner with a Web development firm or go it alone.

Establish Goals First

As with any project, establish goals before you begin. While these may change during the course of the project, it’s important to have a foundation. Ask yourself what you want from your Internet strategy. The Internet forum presents many business opportunities; which are important for your organization? Do you want to increase revenues? Improve marketing? Enhance competitiveness? Streamline operations? All of the above?

The Internet means dramatically different things depending on your specific business needs and the competitive landscape. For example, banks need significant Web presences to be competitive, whereas most construction companies don’t. Figure out what the Internet means to your organization and set realistic goals. If you have no idea where to begin, task an internal person (a smart generalist, preferably with an MBA) to figure it out or hire an Internet strategy firm to do your thinking. Either way, make sure to involve the IT, marketing, and sales groups–they will all be directly affected by your decisions.

Evaluation Criteria

The main criteria involved in evaluating outsourcers are straightforward: cost, time, and expertise. If someone else can do it faster, better, and cheaper, you almost always outsource. Consulting firms generally sell their services around these three mantra: we’ve done it before (expertise), we can do it more cost effectively (cheaper), or we can do it more efficiently (faster).

However, as with any medium, the Internet has its idiosyncrasies. The following should be primary considerations during your Web development resource evaluation.

* Cost: An effective internal Web development team will cost an organization at least $250,000 per year. This includes a dedicated and capable designer, developer, and marketer–the ingredients necessary to manage a robust and effective Internet strategy. For small- and mid-sized businesses, maintaining such a staff is usually cost-prohibitive, which is why they often ask their in-house designers, developers and marketers (offline experts) to pull double-duty. If you follow this strategy, prepare to incur the costs of ascending a steep learning curve, and understand that the cost of doing something only once is high. Also remember that it’s unrealistic to expect best-in-breed solutions from an internal team that is doing something for the first time. Many small companies outsource big Internet projects (e.g., site overhauls) and have internal teams work in partnership with their Web consultants over time to optimize returns on Internet investments.

* Capability/Expertise: Web development firms that build and maintain sites over time offer deep, targeted expertise in the Internet medium. They know the tricks of the trade, share best practices across clients in different industry segments, and readily recognize potential pitfalls. As a result, using an outside firm minimizes risk and gets better results. At bigger companies, sophisticated internal Internet groups often support several business units and acquire expertise by addressing new requests from their internal clients. Small and medium-sized businesses don’t typically have that luxury..

* Speed: Sometimes outsourcing is attractive simply because internal groups are stretched to the limit. Or because the opportunity cost associated with taking them off an ongoing project is too great. An external firm can guarantee you will meet aggressive deadlines without getting caught up in thorny internal issues, a promise that is exceedingly difficult for internal groups to make..

* Ownership/Security: One benefit of keeping Web development in-house is total control over all systems and applications. Security issues are paramount these days, and many organizations are uncomfortable making sensitive data available to external firms..

* New Thinking & Knowledge Transfer: The right kind of Web development firm–one with strategic consulting skills–will help you look at your business in new ways, and understand how it can fit into the "new economy." It is also a good way to acquire the Cliff’s Notes version of successfully doing business on the Internet. A Web development partner can school you on how you should be integrating the Internet into your business and get you up and running with an effective site in short order. Some companies even consider their relationships with Internet firms as a training investment.

Perform the Analysis

Look before you leap. Take some time thinking about how you want to approach your Internet strategy, in both the short-term and long-term. Do the analysis. Look at the quantitative factors–cost, speed, risk management–and perform the cost-benefit analysis. Then look at the qualitative factors – ownership, skills transfer, quality of deliverable – and determine their levels of importance to your organization. Talk to peers, internal staff, and people who have "been there, done that." Don’t jump into the project without doing the necessary legwork.

Consider the Internet Medium

The urgency driving Internet investments today has waned somewhat due to the dotcom implosion, but few doubt the impact of the Web in business, both today and in the future. The venerable Jack Welch, former chairman of General Electric recently commented, "The point to remember is that e-business is not new business. It’s a new technology that will forever change business." Given the considerable effect of the Internet, it’s no wonder that the medium requires a unique skill set to use it effectively.

Internet projects have distinct resource needs. "Modern sales and marketing programs require a very different set of skills and technical resources, and most of these have to come from outside partners. Finding and sourcing the wide variety of skills needed to execute sophisticated E-business programs will prove more complicated than hiring an ad agency. Those that know what they are buying and who get good at buying it will have an advantage over those who make bad choices or hire unqualified agencies," comments Stephen Diorio, author of Beyond e: 12 Ways Technology Is Transforming Sales & Marketing Strategy.

Take the Long View

The role of the Internet in your business in going to increase as a growing percentage of the population moves online, becomes more comfortable using the Web, and begins conducting research and buying products and services. As a result, your organization will have to make continued investments to maintain its Web-savvy. While many small and mid-sized companies tinkered with their Web strategies in the late 1990s, there is now a definite urgency for companies to conduct business professionally on the Internet. Today’s Internet users are sophisticated and amateurish strategies will have a negative affect on your business. Partner with an expert to get it done right–as you probably do with legal, accounting, and advertising–or make the necessary internal investments to build a capable staff.

Tim Bourgeois is the CEO at Pixel Bridge Inc, a consulting firm specializing in helping small and mid-sized businesses use the Internet to improve marketing, sales, and operations. He can be reached at [email protected]

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