Outsourcing, adieu: Companies retake the reins on IT services

After giving away the farm, some IT departments are bringing select outsourced services back in-house. Here's how they're doing it.

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Chase likens the new strategy to a hub-and-spoke system, where EFH is the hub and the spokes connect to multiple outsourcing vendors that then implement strategies developed under EFH's control. "This model enables EFH to own all key decisions and drive the priorities most important to the business, while we leverage the strengths and scale of several global IT delivery organizations."

So far, no one can argue with his results. "As a result of rightsourcing to this 'best-of-breed' model, we've reduced our IT costs by 30% over the past four years. We've eliminated more than $50 million of recurring costs because we've taken more direct control over strategy and optimized day-to-day operations," Chase explains.

Because internal people know better than outsourcers what the company really needs, they can "focus on gaining new efficiencies, automation and leveraging innovation for each business unit's benefit," Chase elaborates. What's more, because IT has been able to gain more productivity from fewer people, "we have been able to reduce total staffing across IT by 25%," he says.

Pace Harmon's Martin says this strategy makes sense. "You can still outsource routine functions. There's nothing sacred about having someone monitor your network devices or do tech support," he points out, reasoning that repeatable, routine activities are not central to a company's strategy.

Consultant Stewart concurs that he's seeing Chase's strategy becoming more popular. Companies have greater control, he says, by doing what he calls specialized "striping" of vertical business processes -- that is, outsourcing specific activities, rather than wholesale responsibilities.

Key metric: Understanding IT costs

There's one more piece to the insourcing puzzle that companies need to nail down, practitioners agree, something that's always been difficult: understanding IT costs. One good thing that came out of Currier's disaster is that "it exposed the real cost of IT. Originally, from the business perspective, IT didn't 'cost' anything, because it was buried." As the company begins to insource again, it has a better understanding of what IT costs.

ITNewcom's Stewart agrees that understanding costs is important, because it helps you determine what you're getting from an outsourcing agreement. "Ten million dollars a month sounds like a lot of money," he says, "but it's not the invoice that comes in every month, but understanding the true cost of IT and what level of IT you're getting."

Companies need to benchmark their costs and make an informed decision about the rightsourcing model. "By going through that process, they can go to the market and ask outsourcers what they would charge, and compare [prices]."

Besides understanding what IT costs, the most important key to remember when considering insourcing is that the world has changed. IT is no longer something that can be surgically excised and transplanted to an outside firm. It is strategic, something that needs to be managed and even nurtured.

"It's not always about the cost. It's also about getting the business back to its core competency, retaining their agility in business processes, without owning the assets or managing the capital expenditures," says Stewart.

Silicon Valley-based freelancer Howard Baldwin wrote most recently for Computerworld about CIOs in emerging economies.

This article, Outsourcing, adieu: Companies retake the reins on IT services, was originally published at Computerworld.com.

Copyright © 2013 IDG Communications, Inc.

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