Insourcing Picks Up Steam

I recently read an interesting report on insourcing by Pace Harmon. We have previously discussed some of the elements that should go into a decision whether or not to outsource or to offshore. Some major companies such as GM are re-insourcing operations that had previously been outsourced offshore.

Outsourcing typically works best with commodity IT activities. If complex activities are outsourced over the long run, an organization runs the risk of losing the insight and expertise needed to leverage new opportunities as the technology landscape evolves.

Pace Harmon report on several facts that are driving the insourcing trend:

• Wage inflation in India and other prime offshoring locations have led to an erosion in the wage differential between onshore and offshore talent
• Management costs associated with maintaining an offshore or outsourced relationship. Tracking and resolving quality issues can be especially expensive.
• Lack of provider agility and flexibility. When you purchase an offering from another company, you are limited to either purchasing their standard offering or paying a premium for premium service.

Organizations that are considering insourcing need to keep several factors in mind:

• Make sure that you have accounted for all of the costs of the re-insourcing operation. This will include direct costs, such staffing costs and termination penalties, as well as indirect costs such as those associated with reduced stability during the migration
• Does your outsourcing contract specify that the vendor is required to provide you assistance with the insourcing, including training and process documentation? If not, find out what it will cost to get that assistance from your vendor.
• Is your organization up to handling the level of complexity that your environment demands?
• Will you be able to attract and retain the right staff? You may be able to re-badge some of your vendor's staff, but would you be able to retain them?
• Are your organization's processes mature enough to be able to manage your team's technical responsibilities properly? If your organization does not have the maturity to collect requirements and track progress properly, you may not be ready for this transition.