Many companies believe a strong Internet presence is as strategically important as the generation of steady revenue streams. For e-businesses, maintaining and developing a fully functional site with almost zero downtime is crucial to their survival. The choice between creating an online presence in-house or sticking to core competencies and outsourcing the project may therefore be one of the most important e-decisions a company will ever take.Small businesses are more likely to be tempted by the outsourcing option. The prospect of getting to grips with the Internet and new technology can be overwhelming. This is true, even for a company that specialises in high technology. Prodamus.com sells an encrypted email service and its ethos is that individual companies should concentrate on their core competencies. Martin Ince, co-founder and managing director, says: "We are a twelve-strong company that sells a unique encrypted email service, so it is not cost-effective for us to develop an in-house team of web developers and designers." It was an easy decision for Prodamus to outsource its web development. "Because we use an outsource model, bringing our web development in-house is not an option," explains Ince. Although Ince is satisfied with the quality of service he receives, many companies' encounters with web design agencies or similar businesses were found to be unsatisfactory. Deadlines had not been met, despite factoring in time for delays; and when some sites went live, the promised bells and whistles proved to be a damp squib. Many businesses complained about the lack of communication between themselves and their suppliers; that getting their suppliers to listen effectively was problematic; and in times of stress that maintaining contact was virtually impossible. Despite never signing a service level agreement, Ince has never encountered problems with his supplier. If he requires a different type of functionality, Ince meets his supplier and they draw up a new specification. "There have never been any problems with communication," he says. "There is a lot of weekend contact - the company offers a personal service. So far, our supplier, which consists of four people, has never run over time or over budget." Prodamus pays a retainer that covers all services, from updating content, web design and increasing site functionality, to the day-to-day running of the site. Not all businesses that operate within an outsourcing model prefer to outsource. Despite being a remote online service provider of horizontal web-enabled business services, Inultus.com decided to construct its own website in-house. Paul Waddington, vice-president of marketing, was anxious to avoid the difficulties that often accompany the outsourcing model. Specifically, he wanted to avoid employing a web development company that, eager to augment its fees, would take on too much work and be unable to meet targets and standards. Nonetheless, he concedes that developing in-house also has its drawbacks. "Many companies are left with the heavy burden of content management, systems updating and keeping abreast of software developments," he claims. "Added to this, the same economies of scale no longer exist when a company chooses to go it alone." If the entire web development is kept in-house, failure to invest in ongoing training for IT staff will make a company vulnerable when it starts to lag behind in state-of-the-art expertise. Despite the pull for small companies to outsource, this route was rejected by Mike Elms, chief executive of Hotcourses.com, an education-based interactive information site. He believes that small companies should devote time and energy to recruiting a dedicated and compatible team of people. "Building a website is just the first step in a series of many. There will be teething problems and additional functionality will need to be incorporated into the site on an ongoing basis," he says. Elms argues that doing the job in-house brings quicker results: "It takes a fraction of the time to make changes and fix bugs than it would take a consultancy - there's no bureaucracy." In addition, because consultancies and agencies work with a number of clients at any given time, it is naïve for businesses to expect the same level of commitment or enthusiasm that ensures that projects are completed on schedule and within budget. These views are shared by Dr Neil Bacon, chief executive and medical director of Doctors.net.uk, an online portal dedicated exclusively to General Medical Council registered doctors. Initially, the task of building the portal was outsourced to a major web design company. However, the company was unable to meet the standards set by themselves and Dr Bacon's team. In 1998, after missing its launch date, the portal decided to bring development in-house. Subsequently, Dr Bacon discovered that: "Bugs were fixed in hours as opposed to days and having an in-house team of web developers and designers was conducive to the continuous development that was required by the portal." For Dr Bacon, "Even the best service level agreements did not provide us with the level of commitment to get the portal up and running, and to standard. Today, everyone who is involved in the ongoing development of the portal has equity in the company and, as a result, things have been straightforward." The company has continued to keep the fundamentals of the portal in-house and will only outsource when specialist knowledge is required, for example, the development of its secure virtual hard drives. A tight reign However minimal the task that is outsourced to a third party, Elms recommends strong supplier management by identifying specific objectives and fixing budgets. This is essential for SMEs starting out in e-business as it is not uncommon for the unscrupulous to exploit the inexperienced. "Consultancies and agencies will always try to wriggle out of some things. What a SME cannot afford is a nasty shock, for example, £25,000 or more to update a piece of software." This was almost the experience of Lesley Foucé, managing director of Entirelyentertainment.co.za, an entertainments-based website. After approaching a number of web design companies and being quoted £35,000 for a site re-design and improved functionality, she decided to bring the development of her site in-house. Foucé discovered that she could achieve a similar level of functionality - for a fraction of the cost - by utilising various web publishing packages currently on the market. She also noticed that many web agencies were keen to supply her with costly functionality that she did not need. One of the most powerful reasons for SMEs to outsource is that they lack the funds to engage in the aggressive recruiting tactics necessary to attract and retain experienced staff. However, such is the conviction among some that in-house is best, that they believe this problem can be surmounted and even turned to competitive advantage. René Hoffman, vice-president of engineering at TeVeo.com, a website that enables camcorder owners to broadcast live and recorded streaming content over the Internet, has made bleeding edge skills part of his business proposition. "We make a point of hiring web developers in all stages of their training in order to increase the flavour of our site and to reflect our user base, which ranges from 10-year-old surfers right up to pensioners," says Hoffman. Similar to Napster.com, the service and success of TeVeo's website is dependent on how quickly the company can bring emerging technologies to market. It is essential that TeVeo has constant access to its key developers who are at the forefront of developing new technologies, and monitoring emerging technologies, trends and the competition. By keeping its web development in-house, TeVeo has retained ownership of its technology. It never shares technologies with its rivals - a situation that would have arisen had TeVeo outsourced its key web technology. Small parts of the TeVeo website were outsourced, but this was mainly due to the company requiring specialist skills for relatively small parts of projects. The team consists of 40 permanent in-house people and another 10-15 people who work on rolling contracts. The company's advice to anyone thinking of creating a web presence is to use experienced managers in-house to handle all the outsourced aspects of a project, and ensure that in-house teams comprise a good mixture of web developers, programmers and designers. Inultus.com's Waddington concurs that the optimum approach consists of a combination of outsourcing and in-house expertise. "Look at your existing IT people and assess whether they can improve on their existing skills - consider whether they could manage their own web teams," he advises. "Concentrate on your core competencies and outsource where possible. Examine all existing business processes one by one since any internal audit will lead to concrete answers." Those heeding this advice should bear in mind that it is potentially easier to retain control of a project when it is based in-house as opposed to outsourced. Since everyone reports to the same organisation, complete ownership of projects is easier. More importantly, in-house web development often ties into existing legacy systems. Outsourcing a project can be labour-intensive and stressful if managed badly. And those unfamiliar with the concept of outsourcing should not underestimate the management skills involved in seeing a project through to completion.
This was first published in December 2000