Outsourcing is
not the panacea to all business problems. After the frenzy of outsourcing
triggered by the economic downturn, organizations are now agonizing
over problematic deals. And many have figured the solution is to
go back to square one and bring it back in-house.
Sure, outsourcing
can work wonders provided it is backed by proper planning, execution,
monitoring, and commitment to the project. The change in business
environment has been a strong imperative for organizations to take
a call on their outsourcing decisions. Bringing back operations
in-house is commonly referred to as insourcing or back sourcing-a
trend increasingly finding favor amongst disillusioned customers.
Insourcing is
not new. There have been sporadic instances of insourcing over the
past couple of years. The most publicized being the bringing back
of IT operations from IBM by JP Morgan after its merger with BankOne.
In fact BankOne was experienced in bringing back operations in-house
having successfully insourced operations from IBM and AT&T a
few years ago.
Insourced Projects: Back to Square One
- JP Morgan brought
back operations from IBM
- BankOne brought back
operations from IBM and AT&T
- Cable & Wireless
brought back IT operations from IBM, and billing and customer
care from Slumberger Sema
- Selfridges brought
back operations from Capgemini
- Prudential announced
insourcing of data centers from Capgemini after expiry of
its term next year
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The other most
talked about insourcing project is by Cable & Wireless which
has terminated its 10-year deal with IBM and has started bringing
back its operations in-house.
Selfridges, a
luxury department store chain, is yet another customer who recently
announced its intent to bring back the management of its data center
in-house after its contract with Capgemini expired. Selfridges will
outsource a part of the function with retail IT service provider,
Retail Assist. More recently Prudential also announced the intent
to bring back operations in-house after its contract with Capgemini
expires in April 2006.
Although insourcing
has been taking place for a while now, a report by Deloitte and
another by Cutter Consortium-wherein they use the term backsourcing-has
brought the issue out in the open triggering heated debates and
interest amongst the outsourcing community.
So does this
increased inclination to bring back operations in-house spell doomsday
for the outsourcing industry? Why are companies reconsidering the
benefits of outsourcing and opting for in-house expertise?
The answer lies
in the history of these deals and the changing imperatives of companies
that are linked to the dynamic economic and regulatory environment.
The current crop of problems has its origin in the perception that
IT is only a business enabler and not a competitive advantage. Organizations
then started looking for lower costs of getting things done and
outsourcing was the answer. But that did not solve the first question
they were faced with, which was: how was IT going to integrate with
the business vision of the organization?
Outsourcing was
the most popular business fad during the economic downturn and nobody
thought it could go wrong. It was only after the economic environment
began to improve and benefits still failed to trickle in that the
management began to ask tough questions.
But nobody could
do much, locked as they were in rigid contracts. Most of the contracts
in the early days were service-provider driven, as customers, in
a hurry to achieve cost savings, did not bother to put their house
in order before outsourcing. Consequently they did not even know
what they were outsourcing.
Many Shades
of Insourcing
The importance of insourcing cannot be undermined in a flat
world. Just check out the variety of contexts it has been used
in:
- Insourcing is used
to refer to the jobs created by the US subsidiaries of overseas
companies. For instance, in 1980 Nissan set up its plant
in Tennessee and today employs 7,400 people in the state
- Thomas Friedman in
The World Is Flat refers to insourcing as a “whole new form
of collaboration and creating value horizontal.” When the
complexities of a global supply chain are taken over by
an external agency so that customers can concentrate on
their core-competency, it gives rise to insourcing
- When you buy a service
from the subsidiary of a group company. For instance, a
large conglomerate may have hived off its IT operations
into a separate company and you may outsource your IT needs
to that company, it is called insourcing
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Worse was to
follow when they found themselves mired in rigid and inflexible
contracts. Where cost cutting was the major driver to outsource,
customers could do precious little when they found costs escalating
and their IT budget going haywire.
