What Is IT Outsourcing? Benefits, Implementation, and Operational Steps Explained

Corporate IT operations encompass a wide range of tasks, from system development to operations, security management, and user support. A chronic shortage of engineers, particularly in system development, poses a major challenge. A powerful solution to address these challenges and improve the overall efficiency of IT operations is IT outsourcing.

In particular, the use of highly specialized external resources in system development is rapidly expanding. However, for companies with no prior experience in outsourcing, it may be difficult to visualize the specific process and benefits.

"I want to understand the benefits of IT outsourcing."
"I want to know how to choose an outsourcing company."

For those with such concerns, this article explains the basics of IT outsourcing, as well as the concrete steps for its implementation and operation. We provide especially useful information for those struggling with an engineer shortage. We hope this will be helpful in enhancing your company's IT strategy and system development efficiency.

Akira Shimazoe

CEO of Solashi Japan LLC. Engaged in the development and operation of internal systems at Suntory. Founded Yper Inc., serving as CTO and CPO, contributing to product launch and growth.

What is IT Outsourcing?

IT outsourcing refers to the practice of companies delegating IT-related tasks to specialized external firms. This includes a wide range of services such as system development, infrastructure management, and security measures. Handling all of these operations in-house requires significant initial investment and operational costs. By utilizing outsourcing, companies can efficiently manage resources and costs.

In recent years, the IT outsourcing market has been expanding rapidly. According to a report by market research firm REPORTOCEAN, the market is expected to grow at an average annual rate of over 7.7% from 2021 to 2027. This growth suggests that more companies are outsourcing specialized IT tasks in response to the progress of digitalization.

(Reference: PR TIMES │The global IT services and outsourcing market is expected to grow at an average annual rate of 7.7% until 2027 )

Differences Between IT Outsourcing and SES

IT outsourcing is often confused with SES (System Engineering Services). The differences between the two can be summarized as follows:

Item	IT Outsourcing	SES
Scope of Work	All or part of IT-related operations	Specific projects or tasks
Personnel Allocation	Tasks handled by external company	Technical specialists dispatched to client companies
Main Purpose	Cost reduction and operational efficiency	Temporary reinforcement of specific technical skills
Contract Duration	Relatively long-term	Relatively short-term

IT outsourcing is suitable for long-term operational efficiency, while SES is ideal for short-term technical reinforcement. Understanding these differences enables companies to choose the service that best suits their needs.

Types of IT Outsourcing

The types of IT outsourcing can be broadly classified into the following five categories:

Type	Overview
Full Outsourcing	Delegating all IT operations to an external company (including system development, infrastructure management, operation/maintenance, and security)
Hosting	A form where infrastructure such as servers and systems are managed and operated at an external data center
Housing	A form where company-owned server equipment is installed at an external data center and physical management and maintenance are outsourced
Help Desk	A form where IT-related inquiries and support tasks are outsourced
On-Site Service	External IT engineers and technicians work on-site to support IT operations

Tasks That Can Be Outsourced in IT Outsourcing

The main tasks that can be outsourced through IT outsourcing are as follows:

Main Outsourced Tasks	Overview
Technical Support	- Resolving hardware and software issues - Handling network troubles - Responding to user inquiries
System Management	- Managing and operating servers and networks - Updating and maintaining software - Monitoring and optimizing the overall IT infrastructure
Tool Maintenance / RPA Implementation	- Selecting and implementing business efficiency tools - Implementing Robotic Process Automation (RPA) - Post-implementation maintenance and improvement support
System Development / Modification	- Designing and developing new systems - Modifying and adding features to existing systems - Modernizing legacy systems, application development, etc.
PMO	- Planning and managing IT-related projects - Optimizing resource allocation - Risk analysis and countermeasure planning

By outsourcing these tasks according to their business needs, companies can expect benefits such as cost reduction and improved operational efficiency.

Why IT Outsourcing is Gaining Attention

In today's business environment, companies face the major challenge of balancing efficiency and innovation. To tackle this challenge, optimal utilization of IT resources has become essential. IT outsourcing has emerged as a solution to address this need. The main reasons why IT outsourcing is considered important are as follows:

The increasing need for operational efficiency
The rising demand for DX (Digital Transformation)
To focus on core business operations

These reasons are closely tied to the challenges companies face, and IT outsourcing helps resolve each of them. Let's take a closer look at each reason.

Increasing Need for Operational Efficiency

To strengthen competitiveness, operational efficiency is essential, but many companies face barriers such as a shortage of IT personnel and lack of expertise.

By leveraging outsourcing, companies can quickly adopt the latest technologies and efficient business processes. Additionally, it helps reduce the time and cost of training in-house IT personnel while utilizing advanced technical expertise. As a result, companies can focus on their core strengths and achieve overall productivity improvements.

Increasing Need for DX

DX (Digital Transformation) involves using digital technologies to innovate business processes and enhance competitiveness. However, implementing DX requires advanced IT skills and operational know-how, and many companies face resource shortages.

IT outsourcing is an effective solution to this challenge. By utilizing the knowledge and latest technologies of external specialists, companies can promote DX initiatives. Outsourcing is particularly effective in cutting-edge areas such as AI, cloud computing, and data analytics. This enables companies to drive DX initiatives swiftly and efficiently, securing a competitive edge in the market.

To Focus on Core Business Operations

IT is essential in modern business, but not all companies are proficient in handling IT operations. For companies unfamiliar with IT, managing IT-related tasks can be a burden and prevent them from allocating sufficient resources to their core business, potentially hindering growth.

By utilizing IT outsourcing, companies can delegate non-core areas and focus on their core competencies. For example, manufacturers or service companies can outsource system operations and instead concentrate on enhancing product development or customer service. This strengthens core operations and accelerates business growth.

Outsourcing can be considered an effective way for companies to strengthen their core operations and drive business growth.

Benefits of Using IT Outsourcing

By leveraging IT outsourcing, companies can enjoy the following benefits:

Reduction in labor and operational costs
Improved quality of operations
Flexibility to adapt to market and business changes

These benefits directly contribute to improving competitiveness and operational efficiency. With IT outsourcing, companies can focus on their core businesses while effectively integrating advanced IT expertise. Let's explore each benefit in more detail.

Reduction in Labor and Operational Costs

One of the major benefits of IT outsourcing is cost reduction.

Performing IT tasks in-house incurs various costs, such as hiring and training IT engineers, maintaining servers and network equipment, and updating software. By outsourcing to external specialists, these costs can be significantly reduced.

Additionally, in-house staff can focus on their primary duties, leading to improved productivity. Moreover, by delegating IT infrastructure management and maintenance, capital expenditures and upkeep costs can also be reduced.

As a result, overall corporate expenses can be minimized, and efficiency can be enhanced.

Improved Quality of Operations

Specialized outsourcing firms have many highly skilled staff. Entrusting tasks to such professionals can greatly enhance the quality of operations.

This allows companies to execute tasks efficiently using the latest IT technologies and best practices, strengthening competitiveness. Choosing a vendor familiar with cutting-edge technologies such as AI and cloud also enables the delivery of more innovative and value-added services. Consequently, the overall technical capabilities and operational efficiency improve, leading to increased customer satisfaction.

Flexibility to Adapt to Market and Business Needs

A major advantage of IT outsourcing is the flexibility to adjust IT resources according to market and business changes. Companies can quickly scale or specialize their IT support based on business growth stages and environments.

For example, during business expansion, additional system development or operational support can be arranged, while during downsizing, resources can be reduced. When new technologies are needed, companies can immediately access external experts with relevant knowledge.

Thanks to this flexibility, companies can maintain an optimal IT environment while improving cost efficiency. This enables rapid adaptation to market changes and strengthens competitiveness.

Disadvantages of IT Outsourcing

IT outsourcing also comes with some drawbacks. The main disadvantages are as follows:

Know-how may not accumulate within the company
The security measures of the contractor must be thoroughly checked
There is a possibility of incurring extra costs

Understanding these disadvantages in advance and taking appropriate measures is key to successful IT outsourcing. Let’s take a closer look at each disadvantage.

Know-How May Not Accumulate Internally

One significant drawback of IT outsourcing is the difficulty of accumulating technical know-how within the company. When system operations are fully outsourced, internal opportunities to develop IT-related skills decrease.

As a result, the company may lack sufficient knowledge or experience when aiming for future internalization or system improvements. Also, higher dependency on external providers can lead to a loss of autonomy in technical decision-making and problem-solving.

To mitigate this risk, it is important to actively share knowledge with the outsourcing partner while simultaneously fostering internal talent. With future in-house development in mind, aim to build a structure that systematically accumulates expertise.

Need to Thoroughly Check Contractor's Security Measures

In IT outsourcing, there is a possibility that security risks may increase as confidential company information and important data are entrusted to external parties. To prevent information leaks and unauthorized access, it is essential to thoroughly check the security measures of the outsourcing partner. Specifically, you should confirm data management methods, access permission settings, and the use of encryption technologies, and it is advisable to define security conditions at the contract stage.

Also, whether the outsourcing partner has acquired Information Security Management System (ISMS) certification is an important consideration. ISMS certification is an international standard that indicates organizational, human, physical, and technical security measures are properly implemented. Companies with ISMS certification are considered to maintain advanced security management systems through continuous risk assessment and improvement.

By choosing such companies, you can more reliably protect your company's data.

Unexpected Costs May Occur

In IT outsourcing, there is a risk of unexpected additional costs. For example, you may pay for unnecessary services under a comprehensive contract, or incur additional costs due to unforeseen system changes.

To mitigate this risk, the following measures are effective:

Narrow down the necessary tasks
Regularly review the outsourced content
Clearly define and confirm the scope of the outsourced content

It is also important to obtain quotes from multiple vendors and compare cost-effectiveness. These measures make it possible to achieve cost-efficient IT outsourcing.

Steps to Implement and Utilize IT Outsourcing

When implementing and utilizing IT outsourcing, follow the steps below:

Organize internal challenges and clarify the purpose of outsourcing
Determine the scope of the tasks to be outsourced
Select a company to outsource the work to
Sign the contract
Implement IT outsourcing
Evaluation and improvement

1. Organize Internal Challenges and Clarify the Purpose of Outsourcing

Start by organizing the issues your company is facing. For example, the following challenges may apply:

Too much time is spent on system operations, leaving no time for core business activities
IT infrastructure is unstable, leading to frequent troubles
The cost of IT infrastructure and system operations exceeds the budget
Due to the lack of IT engineers, system operations and development are delayed

Through interviews with on-site staff, clarify what is hindering actual operations and what kind of support is needed. Based on that, define the purpose of using outsourcing.

[Examples of Purpose]

Outsource IT tasks to focus internal resources on core activities like product development and sales
Introduce new systems or technologies by outsourcing to experts familiar with the latest technology
Reduce operational costs by outsourcing and reallocate the saved budget to other business areas

With such concrete goals, it becomes easier to determine which tasks to outsource and to select the right vendor.

2. Determine the Scope of Tasks to Be Outsourced

Decide on the scope of the tasks to be outsourced. It is important to clearly define which parts will be handled in-house and which parts will be outsourced. Clarifying the scope will facilitate communication with the outsourcing partner.

Moreover, if the outsourcing scope is ambiguous, there is a risk of overlapping work between your company and the outsourcing partner, leading to wasted costs. By defining the scope in advance, you can clarify roles and avoid duplicated efforts.

When determining the outsourcing scope, consider whether the quality of work can be maintained or improved. Retain tasks that require high internal expertise or important decision-making in-house, and outsource others to ensure a balanced allocation. Viewing the overall workflow and designing optimal task distribution is the foundation of effective outsourcing.

3. Select the Outsourcing Partner

Select a company to outsource the tasks to. Pick several candidate companies and investigate their strengths and track records in detail. Selection criteria should be based on alignment with your previously defined goals and task scope. Specifically, evaluate their development/operation experience in target tasks, technical capabilities, support structure, and security measures.

Especially in IT outsourcing, handling of confidential information is crucial, so you must pay close attention to the outsourcing partner’s security measures. Carefully check for security certifications such as ISO27001, countermeasures against information leaks, and unauthorized access prevention measures. Choose a company that meets your security requirements.

4. Sign the Contract

Once you’ve selected an outsourcing partner, proceed with signing the contract. The contract should clearly specify the following items:

Scope of services provided
Pricing structure
Contract duration
Security measures
Service Level Agreement (SLA)

By clarifying these points, you can prevent future troubles and build a foundation for smooth outsourcing operations.

5. Implement IT Outsourcing

At the implementation stage of IT outsourcing, check whether the agreed-upon terms in the contract are being followed. Set up regular reviews and progress meetings to share updates and identify issues.

Maintain close communication with the outsourcing partner to foster mutual understanding and enable more effective collaboration. Proper management and coordination at this stage will maximize the benefits of outsourcing and lead to long-term success.

6. Evaluation and Improvement

To succeed in IT outsourcing, regular evaluation and improvement are essential. Specifically, follow the steps below:

Regular evaluation: Monthly or quarterly checks of service quality, cost efficiency, and goal achievement
Identifying issues: Identify current problems and potential future risks based on evaluation results
Planning improvements: Work with the outsourcing partner to plan specific measures for identified issues
Reviewing contract terms: Adjust the task scope or conditions as necessary
Responding to new needs: Consider adding new services in response to company growth or market changes

By continuing this cycle, you can always make the most of IT outsourcing under optimal conditions.

If Choosing an IT Outsourcing Company Is Difficult, Contact "Solashi"

In this section, we have explained an overview of IT outsourcing, its benefits, and the steps for implementation and operation. By utilizing outsourcing appropriately, it is possible to improve the efficiency of IT operations, reduce costs, and quickly introduce the latest technologies. Furthermore, by outsourcing highly specialized tasks, your company can focus on its core business activities.

Our company, Solashi Co., Ltd, is an offshore development company based in Vietnam. Taking advantage of Vietnam’s abundant IT talent and low cost of living, we offer a high-quality development system composed of excellent engineers. Since we have many Japanese staff members who are well-versed in business, we are also able to propose optimal system solutions.
If you are facing challenges such as a shortage of IT personnel that is hindering business expansion or the execution of new projects, please feel free to consult with Solashi Co., Ltd. Based on our extensive experience, we will propose the optimal development structure to solve your challenges.

Akira Shimazoe

Representative of Solashi Japan LLC. Born in April 1989 in Fukuoka Prefecture. Graduated from the Graduate School of Information and Mathematical Sciences at Osaka Prefecture University. Joined Suntory System Technology Co., Ltd., an IT subsidiary of Suntory Holdings, in 2014. Broadly responsible for the development, operation, and implementation of vending machine delivery management, efficiency improvements, and sales management systems. Founded Yper Inc. in 2017, serving as CTO and CPO. Contributed to the launch and growth of the app-linked delivery bag "OKIPPA." Selected for Toyo Keizai's prestigious "Amazing Venture 100" and Forbes' "Forbes 30 Under 30 Asia 2019."