Adapting an outsourcer's IT solution or asking a provider to create a custom service is a pivotal decision that forces small and midsize businesses to weigh cost savings against revenue potential. While cost typically drives smaller companies toward ready-made solutions, businesses cannot afford to ignore the potential competitive advantage of custom solutions.
Despite turmoil in the housing market, these are boom times for Ralph Barone's real estate company. Unlike a typical realty office, his 20-person firm specializes in moving foreclosed properties on behalf of banks and other bruised investors.
That leaves Barone, a broker and co-owner of NJ REO Asset Management and Realty, with little time to manage technology and services. So he's outsourced support for IT and networking in his Bloomfield, N.J.-based office to Compunite, a regional service provider. But that doesn't mean Barone has resorted to vanilla tech solutions. "Unfortunately, none of the off-the-shelf products, even those tailor-made for Realtors, are able to satisfy our needs," he says. That's why he asked Compunite to help build or support a range of custom solutions, even though he could save money by going with off-the-shelf products instead.
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Adapting an outsourcer's IT solution or asking a provider to create a custom service is a pivotal decision that forces small and midsize businesses to weigh cost savings against revenue potential.
From a pure cost standpoint, off-the-shelf IT solutions almost always are less expensive and that's why most small and midsize businesses choose them. "Clients certainly stand to accrue more significant cost savings by moving to an off-the-shelf solution," says Paul Roehrig, an analyst at Forrester Research. "This allows providers to offer a lower price point based on common tools, replicability, and scalability."
From a competitive standpoint, however, cost savings may take a backseat during the decision-making process. In those, albeit less common, instances, taking the custom route represents a way small and midsize businesses stand out from their rivals.
Under Pressure
The choice between off-the-shelf and custom solutions is often front-and-center in outsourcing negotiations. That's when SMB buyers feel the heat from service providers to go with standardized solutions. "For the supplier, this isn't really a question -- they would all highly prefer to be low customization and quick sale, or they will not be able to make money," says Ross Tisnovsky, VP of ITO research for Dallas-based Everest Research Institute.
The lack of in-house expertise at most small and midsize businesses only compounds this pressure. Tisnovsky says that most of their IT operations lack "maturity, discipline, and asset management" capabilities found in outsourcing firms. "It's a great incentive to let somebody do it who actually knows how," he says. "Then you have to accept standardized processes and discipline."
Moreover, few small and midsize companies are prepared to tackle custom solutions because they lack the time to initiate a request for proposal (RFP) that spells out their unique requirements. "SMBs don't have the time or experience to pull one together," says Kevin Hart, CEO of Managed Systems, a New York City-based IT service provider. "We have seen a loose framework of requirements from SMBs, but we also have exasperated calls for help because they have been through a recent pain point."
Outsourcing companies also argue that custom IT solutions carry business risks that off-the-shelf solutions do not. Shwetank Upadhyaya, a consultant at Tampa, Fla.-based Uniken Systems, says that, in his experience, custom solutions take a long time to develop, and by the time they're ready for deployment a customer's requirements might change -- a particular problem for fast-growing companies. So, while custom-built solutions are intended to mesh with existing processes, customers remain unexposed to best practices or other alternatives available in their vertical industry, Upadhyaya adds.
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