Can Insourcing Help Companies Roll with Business Changes?


The troubled economy is leading lots of companies to reassess their business and conclude they need to make changes to survive. This self-examination trend may not be a good thing for offshore service providers. As I've written before, while North American companies are largely satisfied with cost savings enabled by offshoring, they've been far less happy with offshore efforts at business transformation.


Business change, including mergers and acquisitions and other changes forced by the economy, is leading an increasing number of North American companies to evaluate their sourcing options, said Ben Trowbridge, CEO of outsourcing advisory company Alsbridge, in an interview with SearchCIO.com Executive Editor Karen Guglielmo. And there's been a slight increase in the number of companies choosing to bring some outsourced IT functions back in-house.


There's some supporting evidence, including a Gartner survey showing just 9 percent of CIOs planning to increase outsourcing this year and another from the International Association of Outsourcing Professionals that shows 25 percent of organizations doing less outsourcing and many taking a more cautionary attitude toward it. This hardly indicates a mass abandonment of the outsourcing/offshoring model (I don't think we'll ever see that), but it may mark the beginning of what could be a significant shift.


Companies that insource IT functions -- or at least bring them back onshore -- hope to enhance their business agility, Trowbridge said. They want "the ability to react quickly to business unit change and not be driven by SLAs that prevent you from changing." Indeed, some outsourcing clients see SLAs as a kind of necessary evil, as I've written before. They constrain the ability to add new services when needed and, perhaps more important these days, hamper the ability to control costs by taking away services when they are no longer necessary.


That doesn't mean all, or even most, offshored IT activities will return to North America. There simply aren't enough North Americans to perform those jobs, many of which involve specialized programming skills, said Trowbridge. Companies must carefully consider whether they have enough workers with these skills. "Even though you may have a labor pool that's become available in one part of IT or another part of your business, it doesn't mean those people actually know how to perform the tasks you want to insource." (Vineet Nayar, CEO of India's HCL Technologies, is taking some heat for saying much the same thing.)


Gaining more control over IT functions is both a pro and a con, said Trowbridge. "You have to worry about every last detail of program activities in the discipline of whatever has been outsourced." Over time, he added, your IT organization may have lost its focus in these areas.


And watch out for organizational issues, he warned. "There may be a perception with the team that the work is moving back, and they can potentially go back to the status quo." (And dissatisfaction with the status quo may have led to outsourcing in the first place.)


Change tends to save companies money, whether it involves moving outsourced activities back in-house or outsourcing internal activties, said Trowbridge. While companies can shave 10 percent to 15 percent off their IT costs through insourcing, they could later cut 20 percent by outsourcing those same functions. Perhaps, then, this interest in insourcing is nothing more than regular cyclical activity.