External IT support in transition - which model works when?

The current shortage of permanent IT staff and the simultaneous demand for digitalization present many companies with major challenges. A lack of resources in IT departments means that digitalization processes and software development can no longer be covered internally.

As a result, many companies turn to external IT support. But what options are available and how can they be used effectively within the business?

Summary

Because the labor market, especially in IT, is so tight, it makes sense to look at the different forms of external support available to companies. According to the platform Presseportal, 54 percent of IT experts in German companies already work externally. However, the many external options make it difficult to keep track of suitable working models, because many employers still do not know which different options are available and which type of support is actually sensible for their business.

This blog post sheds light on the wide range of options for client companies that need support. It lists both the different forms of external support and their advantages and disadvantages.

Outsourcing

IT outsourcing, part 1: What is IT outsourcing? Pros and cons!

According to a study by it-daily.net, by 2023 around 20% of companies are expected to outsource their IT departments entirely. The term “outsourcing” is made up of “outside”, “resource”, and “using” - in short, using resources from outside.

With outsourcing, either only certain business areas or entire departments can be handed over to external service providers. These external service providers are also called managed service providers. They take responsibility for the respective services on behalf of the client companies. The scope of the work they take on is defined in service level agreements, which create transparent cooperation between the external provider and the company. Even large companies such as WhatsApp, Slack, or Citigroup outsource their IT to external providers.

When is outsourcing useful?

Outsourcing can be useful for companies when they want to reduce costs, increase efficiency, and focus on their core competencies. Through outsourcing, companies can hand over services or production processes to external providers or suppliers that are usually specialized and can therefore often offer higher quality and/or lower costs. This can be particularly advantageous for small and medium-sized companies that may not have the resources to do all tasks in-house.

Advantages of outsourcing

• Outsourcing can reduce costs and time because new employees do not need to be trained and no expenses have to be incurred for maintenance and infrastructure.
• Outsourcing allows companies to focus on their core business, because increasing revenue is one reason for outsourcing certain areas.
• External providers are up to date, meaning they have the latest know-how that they can apply for the client company.

Disadvantages of outsourcing

• The company must trust the external provider when sensitive company data is passed on.
• The completeness of the service level agreement is essential, otherwise the client is liable for errors made by the contractor. This is why contract drafting is often complex before cooperation begins.
• Handing over areas of the business also always means a certain dependence on external service providers.

Current and future outsourcing levels

Percentage of respondents who plan to keep or increase their outsourcing level

Temporary employment

IT outsourcing, part 2: What are the pros and cons of temporary employment in IT?

In temporary employment, client companies engage a staffing agency with a temporary employment license. The agency then lends its permanently employed staff to the respective client. During their assignment in the client company, these employees can be integrated into the day-to-day business like the client’s own staff.

Under the latest legal regulations, a temporary worker can be deployed in a client company for up to 18 months. After that, the worker is either taken on permanently or placed with a new company. According to Unternehmer.de, around 2.3 percent of people in employment in Germany currently work as temporary workers, and the trend is rising.

If a company needs short-term support, for example because of a spike in orders, temporary workers can be brought into the company via a fast selection process to handle urgent tasks over a certain period.

Advantages of temporary employment

• Because the staffing provider handles the pre-selection of temporary workers, the search for employees takes little time.
• For large orders or deadline-driven deliveries, temporary workers can be brought into the company at short notice and help achieve success.
• Temporary workers can fill in for employees during maternity leave or longer periods of sick leave.
• The resulting costs are always foreseeable in advance.
• The staffing provider covers ancillary wage costs such as sick leave or company vacation.

Disadvantages of temporary employment

• Temporary workers always mean a time investment for the training phase.
• Frequent changes in temporary staff can demotivate employees and place a strain on the working atmosphere.
• Temporary employment rarely gives clients access to highly qualified and experienced specialists. It often involves career starters who want to get to know the labor market through various assignments.

Freelancers

IT outsourcing, part 3: Pros and cons of freelancers

Freelancers are self-employed and carry out assignments for companies. Their work is always contractually agreed, usually through a service contract based on hourly billing, and refers to a specific period of time. Unlike outsourcing, where entire departments can also be taken over, freelancers are responsible for specific projects or defined sub-tasks.

Freelancers are almost always highly qualified and experienced specialists in their field. Only in exceptional cases do IT professionals start freelancing immediately after university or training. The vast majority first gain extensive experience in employment before taking the step into self-employment.

IT freelancers in particular are becoming increasingly sought after as companies continue to digitize. However, freelancers are not integrated into the organizational structure of companies. More on that in our special article on the topic.

What is the difference between self-employed and freelance?

Many people use the terms “self-employed” and “freelance” synonymously, but in reality there is a difference. Both self-employed people and freelancers are independent workers who are paid for their work, but the nature of that work differs.

Self-employed people are individuals who own or run a business and earn income from providing services or selling goods. This means they usually operate a business where they regularly offer products or services. Examples of self-employed professions include entrepreneurs, craftsmen, or retailers.

Freelancers, on the other hand, are people who have a specific skill or experience in a certain field and use it to provide professional services to clients. Examples of freelance professions include lawyers, doctors, tax advisors, or designers. The term “freelance” is legally defined and covers certain professions that usually require appropriate training or certification.

Another important difference between self-employed people and freelancers is the way they bill. Self-employed people usually charge by the hour or a flat amount for their products or services, while freelancers generally bill based on effort or project and often charge a higher hourly rate.

Advantages of freelancers

• The recruiting process for a freelancer is very fast. According to a recent study, the effort required to hire permanent employees is five times higher than for freelancers.
• Freelancers can be deployed flexibly depending on need.
• Through projects in different companies, freelancers bring a lot of experience and can quickly familiarize themselves with new topics.
• Freelancers are usually highly qualified experts who offer and implement intelligent solutions.
• With the right onboarding and offboarding processes, freelancer know-how can be retained in the company (see also our other blog post).
• Freelancers can quickly help cover staffing shortages.
• Recruitment costs are usually lower than for employees.
• Because freelancers are independent, companies usually do not need to provide a working environment, which creates a cost advantage.
• Because they are hired on an hourly basis, you only pay for the services actually rendered.

Disadvantages of freelancers

• When a company uses freelancers, legal matters must be clarified so that there is no risk of false self-employment.
• Freelancers are in high demand, and finding the right one can be difficult. At ElevateX, we are happy to help you find a suitable freelancer for your company.

Permanent employees

As the name suggests, permanent employees have a fixed and regulated relationship with their employer. They receive a regular income.

Ideally, permanent employees stay with a company for a long period and form the foundation of a successful business. This solid base can then be temporarily and flexibly expanded by one or more of the alternatives mentioned here.

The share of permanent employees is currently still around 60 percent (Monster).

Advantages of permanent employees

• Permanent employees perform ongoing tasks with the same level of quality.
• Over a long period in the company, loyalty, experience, and knowledge build up.
• If a company wants to build long-term competencies, permanent employees are essential.
• Long-term employees know the company structure and bring a high degree of reliability.
• Permanent employees offer companies better planning security.

Disadvantages of permanent employees

• Permanent employees are an inflexible model, because areas can disappear as the company changes.
• Employers incur high ancillary wage costs for social benefits, vacation, sick leave, and training.
• Long time-to-hire.
• In many cases, hiring permanent employees is associated with high recruitment costs.

Freelance teams

In freelance teams, individual freelancers join together. However, each individual retains freelancer status. New projects are handled jointly. The shared vision of the team strengthens cohesion and enables more work to be delivered. As long as no economic partnership is entered into and no company is formed from the team, all members remain tax-independent from one another.

Advantages of freelance teams

• More capable teams can increase productivity and therefore produce extremely good results.
• Having multiple freelancers means more know-how is available.
• Freelance teams are connected in a larger network, which can give them more experience.
• Teams are already familiar with each other and know one another’s strengths and how to use them.

Disadvantages of freelance teams

• As with individual freelancers, demand is high.
• Know-how is required to use freelance teams correctly and in compliance with the law.

Overview of all options mentioned

Conclusion

IT outsourcing options 4/4: Which option is right for me?

When it comes to finding the optimal solution for using IT specialists in companies, there is no simple or universal answer. Every situation has to be analyzed individually in order to find the best-fitting model.

The decision each company makes for the right option depends on its short- or long-term goals. If a company wants to focus independently on developing its IT department, for example, long-term employees who can familiarize themselves with the subject over a long period of time make sense.

For a project with a fixed deadline, or for quickly scaling internal departments, freelancers can be interesting because they bring their experience and knowledge into internal teams.

For tasks that are not part of a company’s core competency, outsourcing may be worth considering.

In the best case, the option chosen should move the business forward in the long term. The balance between cost savings and high efficiency should not be lost from sight.

Do you recognize yourself in this article and have a need for digitalization support in your company? We will be happy to advise you on the right options for your situation!