Why can't midsourcing services have hourly rates like Outsourcing our managed service contracts could?
Fundamentally, midsourcing is a process by which an outside company facilitates the practices within an organization that create outcomes consistent with having your own IT person or staff. While IT service providers claim to be your virtual IT department, or your IT department, or your one stop shop for technology service needs, they fail to implement practices consistent with in house IT staff.
Labor costs are an obvious place to see the inconsistency in outsourcing as it relates to replacing an IT department. IT departments, for instance, cannot bill premium labor rates for services and expect to keep within budget. Outsourcing companies traditionally offer premium rates for knowledge capital that they intend to focus on an organization. IT departments are often challenged to contain labor costs while outsourcing companies are challenged to grow them. The reason for this is because unlike Outsourcing companies and managed service organizations an in house IT department is constantly challenged to meet levels of service that promote organizational efficiency. If you are billing for your time, efficiency is not a metric that is measured because often it is counter productive toward the process of revenue generation.
When executed properly midsourcing cannot sustain itself using hourly labor rates. Midsourcing at its fundamental level requires that as a service it maintains consistency with the outcomes including labor costs and service levels. Labor costs are most easily translated into outsource value as a factor of time. This formula breaks down with midsourcing because as an external agent becomes more efficient and consistent with an IT department's outcomes, time as a factor begins to negatively impact the profitability of the service posing concerns on the viability of the midsourcing model.
Midsourcing becomes a viable option when it fully compares to the labor cost for an IT department. The challenge at that point is creating a scalable model for the diverse sizes of a small business and their IT needs. Businertia tackled this issue by identifying a formula for when an organization will hire a full time staff vs how large of an infrastructure that staff manages. The cost per device should remain consistent and scale very easy to meet the demands of businesses at all size levels.
The end result is that midsourcing is only profitable when it is efficient enough to manage IT assets and produce outcomes consistent with an in house IT department.