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Outsourcing, adieu: Companies retake the reins on IT services

By Howard Baldwin
July 18, 2013 06:00 AM ET

Staffing and other woes. As Martin notes, when many outsourcing deals were first inked a decade ago, there was a huge gap between what companies could pay workers in India or the Philippines versus those same costs in the U.S., so there was a significant financial incentive to do business overseas. But now wage inflation in the U.S. hovers in single digits, while it's in double digits in India. "There's still a significant differential between what you pay a database administrator here and there, but it's compressing," Martin observes.

Those rising costs, coupled with some customer complains about language difficulties while talking to offshore service representatives, have also spurred some companies to bring call centers back onshore.

Three tips for intelligent insourcing

Sourcing experts -- both IT executives and consultants -- advise that companies may not be able to transition to insourcing quickly or painlessly. "If outsourcing is difficult on a scale of one to ten," says Steve Martin, a partner at outsourcing consultancy Pace Harmon, "insourcing is a 12." Here are their suggestions for successful transitions from outsourcing inward.

  • Watch the calendar. Outsourcers require notice for cessation of agreements, even if it's being done for cause. You'll need anywhere from 12 to 24 months to get ready to make the transition, suggests Martin.
  • Check your resources. Insourcing requires having both the staff resources to manage activities you haven't been doing and to purchase software you haven't had to own. Not everyone has the resources that GM's Kevin Mott had when he began bringing several thousand employees back onboard.
  • Prepare for change. As Energy Future Holdings' CIO Kevin Chase notes, insourcing requires configuring a new model of IT structure. That requires that everyone involved to change, which isn't always easy with a global IT organization. It is, however, necessary, he says. "Don't let your current situation stop you from creating a more flexible organization for the future."

A shift in mindset. Recently, a light has gone on over the heads of many business leaders regarding the importance of technology: It is a core competency. The last few years have convinced what were once considered non-tech companies in fields like automobile manufacturing, retail, hospitality and consumer packaged goods that technology plays a central role not only in what they build, but in how they interact with customers.

"As the economy starts to thaw, companies are moving out of maintenance mode," observes Pace Harmon's Martin. As that happens, IT "is becoming more critical to business operations, and that puts a higher premium on gaining control through insourcing," he says.

At the same time, the business side is more involved in technology decisions, and "with the business side driving more of the discussion around technology investments, companies are forced to reevaluate their outsourcing deals," says Forrester's Green. Specifically, business executives are quite interested in any value to be gained by moving from a traditional outsourced model to a cloud service model, where the company manages and has control over its data but doesn't necessarily own the software or hardware it uses.

How to re-grab the reins

EFH's Kevin Chase epitomizes the trend of companies taking back control over their systems, as he has reconfigured his internal IT organization, increasing its numbers to 25% of the total IT staff (internal and external) and "giving it responsibility for strategy, governance, and operational and project leadership, architecture design and subject matter expertise," Chase ticks off.

While shifting those capabilities back in-house, Chase at the same time brought in or maintained relationships with firms such as HCL, Accenture, PwC and Capgemini. HCL manages infrastructure, Accenture and PwC are currently leading strategic projects across the enterprise and Capgemini manages applications. "This helps us get an optimal balance of cost, quality and control," explains Chase.

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