Insourcing–the process of bringing back in-house IT work that had been outsourced–is in style. Bob Mathers, principal consultant with Compass Management Consulting, points to recent high-profile IT and business process outsourcing initiatives that were brought back inside Chrysler, Delta Air Lines, Barclays and AT&T as evidence of the insourcing trend.
“We expect more organizations to seriously consider repatriation,” Mathers says.
Mathers credits the increased interest in insourcing in part to a maturing outsourcing market. “Clients and vendors are becoming smarter and more sophisticated about what services lend themselves best to outsourcing,” he says.
Insourcing is also a sign of the economic times, according to Adam Strichman, an independent outsourcing consultant based in Mechanicsville, Va. “A lot of companies are looking at their options,” Strichman says. “Executives move on and new management must find creative ways to try to save money. If it is in, they look at pushing it out. If it is out, maybe they look at bringing it back in.”
But bringing IT back in house can be as complex as transitioning services to an outsourcing provider. And sometimes, insourcing is even costlier than outsourcing. Termination fees, facility build-outs, shared assets, application migration, personnel training and transitions, new hiring, and software license transfers can quickly add up.
The decision to insource should not be made lightly. It requires a thorough assessment of current and future objectives and options.
“You’ve got to understand the gap between your current capabilities and what you’ll need to do it right and understand whether you’ve got the wherewithal to close that gap in a reasonable period of time,” says Mathers.
Use the following nine questions to help you determine whether insourcing is right for your organization.
Legal issues can be particularly challenging, Mathers says, like working through employment contracts, maintenance agreements, and software licenses.
“The transfer costs [for software licenses] are shockingly high,” Ruckman notes.
As a general rule of thumb, Ruckman says you can plan to spend at least five to ten percent of your monthly outsourcing costs on transition until you are fully insourced in a low complexity transfer and as much as 15 to 25 percent on high complexity situations.
Also calculate your ongoing cost for in-house support. “Again, businesses underestimate the internal staffing and expertise requirements to manage the operation,” Mathers says.
It can be especially difficult to evaluate in-house skills, quantify the new resources you’ll need, and factor in the cost of recruiting and relocating qualified staff. Replacing skilled offshore staff is especially difficult.
“[The vendor team may] clam up on the helping front. They’re not getting paid to develop a new solution for you,” says Strichman. It’s not that they’re trying to be difficult, he adds. They simply can’t offer to help.
Find out who knows where the bodies are buried and create incentives to help with the transition, if possible.
“Never forget that the client is always part of the reason things are the way they are,” Mathers says. “Unless you are honest with yourself about your role in the current state, you risk spending a lot of time and money and not fixing the underlying problems.”
For example, if the client systems remained in their data center and weren’t moved to the sourcing provider’s delivery center, the project will be less complex. Plan on a four to six month transition for low complexity transfers, says Ruckman, and nine to 16 months for high complexity situations.
How long it will take to see a return on insourcing is an even greyer area. “I have seen deals reach a positive ROI from insourcing in less than 10 months, and some take ten years,” says Strichman. “There are no simple rules. I know that sounds like what a consultant would say, but it’s true.
Some sourcing consultants are better suited to insourcing situations. “Many firms view outsourcing as the solution to all problems. They don’t have a process tailored for insourcing,” says Strichman. “And it is not just ‘outsourcing in reverse’.”
Many consultancies shy away from insourcing because outsourcing is where the money is, and with a multi-year deal, it can keep flowing in. “When we do an insourcing gig, we are essentially working ourselves out of a job–if done right,” Strichman says.
