Small but growing businesses inevitably reach a tipping point at which it becomes increasingly difficult to rely on their outsourced IT function to deliver. In such circumstances the logical step is to bring that function in-house, but what is the human impact of such a step? In this article, Ed Lecky-Thompson (ed@ltclondon.com) examines when - and when it isn't - right to take such a step, and proposes a simple checklist to ensure such a move is as painless as possible.
Most MDs are acutely aware of their additional legislative responsibilities once payroll hits five people. Often less obvious, however, are the headaches in other aspects of the business that kick in at around the same point in time. One such headache is how best to handle IT requirements; more staff means more computers, more software, more phones, more pages printed, more emails sent and, therefore, a greater strain on the IT support function.
A typical small business starts off as a one man band and, therefore, typically consists of one laptop, an internet connection and, with a bit of luck, a printer. In a world where IT competence is increasingly regarded to be as crucial as reading or writing, such a burden does not usually require any third party help, and hence the business keeps cost low by having no IT function at all.
The second hire inevitably brings with it a headache; the need to share files, a printer and an internet connection almost always involves the solicitation of the services of an IT company to set up a simple office network. Generally speaking, a quick thumb through the Yellow Pages, a phone call to Acme IT Services and a PO for a hundred pounds solves the problem - for a while, at least. The third and fourth hire bring similar headaches, too, and the savvy MD then starts to look for a more cost-effective solution.
That cost-effective solution tends to be, at this stage, some form of support contract with Acme IT Services. In a typical setup, a monthly retained services fee of a few hundred pounds is paid to Acme, who in turn provide telephone and email support when staff run into difficulties, provide general day-to-day maintenance and housekeeping, and make chargeable site visits when required; that is, when things break, or when new equipment needs installing. Acme would also generally act as a sounding board for the MD, providing advice and consulting on a case by case basis.
The true cost of such a service is the sum of the basic monthly service charge imposed by Acme and any fees incurred for site visits and other additional services. This monthly figure would therefore fluctuate, but any MD must watch it over time; the easiest way to do this being, of course, to require his or her accountant to code separately costs incurred in IT hardware and software spend, and in the IT support function itself. At the three-to-four employee mark, this latter figure is likely to run at around the £ 400 per month mark; at ten employees, closer to £ 1000 per month, and at fifteen employees, closer to £ 1500 per month.
At that point, most MDs would start to query whether or not the status quo was appropriate; if they grow even further, will Acme be able to cope? Or will Acme in turn have to hire more staff purely to service and support their account? Crucially; how will the cost compare to simply hiring an IT Manager?
This is what is known as the 'tip over' point - the point at which it becomes a smart move to hire an IT Manager to look after the company's requirements full time, as well as provide a service and support function to staff when required. It is, in effect, the first step toward a fully-fledged IT department.
The tip over point is of course different for each business, but it generally falls when the number of employees hits around the twenty five mark, and IT support starts to hit the £ 3,000 per month mark; equivalent to slightly more than a £ 30,000 salary after employer NI.
And so, at this point, many would take the plunge, give Acme their notice and then advertise the vacancy. There are, however, three crucial HR issues to consider that should give some pause for thought.
1. How do we assess the quality of candidates?
The IT industry is particularly marred by a higher than average proportion of unsuitable candidates. As a relatively new discipline, there is no established or agreed examination and qualification process, and most 'diplomas' offered in Britain today are, frankly, a complete waste of time.
As such, the only way to ensure the quality of a candidate is to make sure that a genuine expert is involved in thoroughly vetting his or her cv, and additionally as part of the interview process. One genuine expert would almost certainly be somebody from Acme - the support company you're letting go.
Don't be fooled into thinking Acme won't play ball - they'll be only too happy to help. Most IT support firms realise that their clients will eventually grow up and leave the nest, and as such are usually quite keen to help them do so when the time is right; after all, as an MD, you'll doubtless have friends in smaller firms who could use their services, and Acme will almost certainly be after a referral.
2. How do we manage them once they're on board?
The perennial axiom that most IT people are hard to manage is not entirely without foundation. As part of your interview process, your outgoing IT company will assess technical suitability, but as part your own assessments of suitability, you should, if at all possible, reject any candidates who exhibit any of a number of established warning signs. These include excessive introversion, inappropriate arrogance and a total lack of business awareness - three characteristics often attributed to many IT people, but by no means universally present. They must be avoided for your first hire.
Having a manageable IT function is, of course, of paramount importance, but applying appropriate management practice thereafter is also crucial. It is important to plan carefully how you intend to run the new function moving forward, and that your new recruit is fully aware of your plans.
A few pointers:
- Ensure your IT Manager has a named line manager within the business and does not simply report to the MD. Whoever is in charge of operations and business processes may be a suitable candidate.
- Ensure your IT Manager implements suitable processes, seeks your approval and then documents them carefully; these should include new and departing staff, support queries (with targets for response and resolution), faulty hardware, procurement of new equipment, procurement of consumables (e.g. toner), backup and recovery and so forth.
- Re-enforce with your IT Manager the idea that he or she is responsible for the implementation of an IT structure and policy which is fundamentally part of, not just sympathetic to, the overall current and future strategy for the business. As such, it is crucial that he or she is made part of the management team and regularly present at management meetings.
Perhaps the most important piece of advice is that the MD must recognise that managing an external supplier as he or she has to date, and managing a member of the team, are fundamentally different. Simply regarding the IT Manager as an in-house and less expensive version of the IT support firm is counter-productive. Take the time to build a structure for your new function from the outset and you will improve the effectiveness of that function immeasurably, and hence also the scale of your return on investment.
3. How do we maintain high IT standards?
Many MDs are understandably nervous of 'having all their eggs in one basket'. Not only is there the nightmare scenario that the IT Manager is hit by a bus or otherwise leaves the business suddenly, but also there is a nervousness that any bad decision will not be picked up until it is far too late, since the IT Manager is the sole source of technical knowledge in the business.
Neither of these risks really apply when the IT support company was present; they had several members of staff, all of whom were equally knowledgeable of your business, and as such the loss of a given member of staff at their company would not be particularly disruptive to your business, even if it was to theirs. Similarly, their professional indemnity insurance meant that any bad decision would leave you clear to sue them to cover your costs; something it is obviously difficult to do with a member of staff.
Thankfully, there are simple workarounds here, too:
- Ensure the IT Manager documents everything. This should mean agreed processes, network diagrams, asset tagging, software serial numbers, passwords, purchases, disposed assets - assume you can never be too exhaustive. Get these documents stored on paper as well as electronically, and ideally pay to get them sense checked by your old IT company. What you are aiming to establish is a compendium of data such that a replacement member of staff could pick up where your new recruit has left off with the minimum of fuss. Your IT Manager should not balk at this too much; you are, after all, simply covering your back.
- Get any major changes or projects (such as a switch from Notes to Exchange) proposed by your IT Manager as a full business case, rather than simply a technical case; in other words, make him or her cost-justify the choice of hardware/software, vendor and methodologies. Get him/her to cite independent sources recommending any particular technologies or packages, as well as illustrate clearly any risks associated with the project in question.
- If budget permits, retain your old IT support company on a limited basis. Ideally, you require them to maintain just enough knowledge of your network and systems that they could take over again in an emergency, and are also able to flag any potentially controversial decisions by your new IT function. Again, be sure to explain to your IT function your business case for doing so, lest he or she feel somewhat emasculated.
As your IT department grows, these steps become less important; more people mean more heads carrying appropriate knowledge, and cross-department debate often gives a more considered approach to new projects. It should not, for example, be necessary to retain the services of your IT support company once your IT function grows to three or four people.
As you can see, taking the plunge at the twenty-five employee mark is a simple business decision on paper; spend less, get more. It is a step which must, however, be approached with care. An effective MD will recognise the importance of such a change, and therefore the importance of getting it right first time, along with the potentially very serious implications of getting it wrong.
At the time of writing, Ed was Joint Managing Partner of London-based Cleara Digital, the interactive and new media division of growing communications group Cleara. Ed is now founder of Lecky Thompson Communications, an enterprise project management consulting outfit. Ed also holds non-executive Directorships in two growing Hertfordshire-based technology start-ups. This is the full, unabridged version of a two-part article from People Matters, the first part of which appears in the April 2006 issue.