Insourcing, Like Outsourcing, Is No Panacea

Ann All
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Back in 2007 I wrote about the growth in federal outsourcing contracts during President George W. Bush's two terms. According to a New York Times report, such contracts jumped from $207 billion in 2000 to some $400 billion in 2006. A number of concerns were raised in the report, including a shortfall of government staffers overseeing the contracts, a steep reduction in competitive bidding and the growth of "quasi agencies" like Lockheed Martin, which laid out $59 million in lobbying and political donations during the time frame and received more money from the feds than the Justice or Energy departments in 2006.


In late 2008 President Obama pledged to examine work outsourced by federal agencies to "ensure that it is fiscally responsible and effective." In a letter to Department of Housing and Urban Development employees, Obama wrote:

... It is dishonest to claim real savings by reducing the number of HUD employees overseeing a program but increase the real cost of the program by transferring oversight to contracts. I pledge to reverse this poor management practice.

Since then, many agencies have pledged to reduce the amount of outsourced work. Yet in many cases they apparently haven't achieved the savings they anticipated.


According to the Washington Post, Defense Secretary Robert Gates in August told reporters the Pentagon was not "seeing the savings we had hoped" from bringing work in-house. Now Army Secretary John McHugh has acted to slow insourcing, suspending already authorized proposals and saying he will personally oversee all new ones. In a memo, McHugh said all proposals to insource work must include "a manpower requirements determination, an analysis of all potential alternatives to the establishment of permanent civilian authorizations to perform the contracted work, certification of fund availability and a comprehensive legal review."


Huh. So proposals were being approved without those things?


I think I see the problem: Some organizations see outsourcing as a panacea. Guess what? It isn't. Neither is insourcing, if it's not approached strategically. I think too often organizations respond to perceived shortcomings in efficiency by adopting outsourcing (or insourcing), with little real analysis of how such a sweeping organizational change will affect their business.


Interestingly, both outsourcing and insourcing initiatives can benefit from the same bit of good advice: Break big projects up into more manageable chunks. In my post from last March, Danny Jones, a partner at sourcing advisory TPI, explained that breaking down transformation projects into stages that can be contracted for as the project progresses "enables estimates to be more accurate and solutions more flexible, allowing for unanticipated changes or complications." (Let's face it, the nature of these kinds of projects almost guarantees there will be unanticipated changes.)


Similarly, when I interviewed Bob Mathers, a principal consultant for Compass Management Consulting, he told me insourcing should start with the basics:

You have to take what seems like a monumental task and break it down into manageable pieces and then say, "OK, what skills do we have and what expertise do we need and do we have the appetite for bringing services back in-house?"

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Add Comment      Leave a comment on this blog post
Feb 8, 2011 11:51 AM Shaleen Shah Shaleen Shah  says:

I have to agree with you on your stand here for the mere fact that businesses who outsource/insource do fail in their efforts because they're passing on the problem; not the solution.  Even if a company opt for rural sourcing, the question here is not of location and cost - but how to manage your team to be their most productive.  In short, there's no band-aid fix for a company's problem.  It takes the right game plan played by the right team to make any solutions work. 

Feb 8, 2011 5:59 PM watchingfrogsboil watchingfrogsboil  says:

Top Pentagon Military Officers are also Top Lockheed Martin Salesmen

Not sated after sacking the U.S. Treasury, like locusts our Military Industrial Complex is swarming around the globe seeking new sources of sustinance.  In the photo linked below we see U.S. Air Force Chief of Staff General Norton Schwartz presenting a model of the C-130J-30 Super Hercules to Indian Defense Minister A.K. Antony at a ceremony at the Air Force Station at Hindon near New Delhi, India on Saturday (5 February 2011) to mark the induction of the first of six Lockheed Martin C-130J airplanes purchased for the Indian Air Force.

U.S. total debt $55.6 trillion, U.S. federal debt $14.1 trillion, U.S. federal deficit $1.5 trillion, U.S. dollar rapidly losing world reserve currency status, as U.S. politicians bought and paid for by multinational corporations (legalized by Citizens United vs. FEC) cut education, close schools, convert asphalt roads to gravel and accelerate America's descent into oblivion so they can pay Lockheed Martin and other greed- and graft-infested government contractors billions for Rube Goldberg defense systems and myriad non-defense boondoggles as unnecessary, unaffordable and unjustifiable as our unending wars for oil and profit.  And with the open support of Pentagon top brass, the debt for death and destruction will grow to plague nations around the world:



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