Insourcing Vs. Outsourcing: Determining The Road To Success

In the aftermath of the recession, it appears inshoring or brining back IT work back home to U.S. soil is in style. Is it at the expense of outsourcing? Hardly.

The outsourcing market is nearing saturation with mature markets like India and Philippines reaching near full capacity. Apart from that, there have been a host of other countries tapping into outsourcing with concepts like nearshoring, where companies can keep a tab on the work done by outsourcing to Mexico and Latin America.

However, insourcing needs a lot of thought before it is exercised since it may not be right for every firm. Bringing work that was previously outsourced back home may not translate to cost savings. There may be additional costs involved like rehiring and training of personnel. There are also fees for breaking outsourcing contracts within a certain period. Besides, insourcing results in full ownership of operations by company managers. And they may or may not be trained to handle such tasks.

Some of the evidence presented in the case for insourcing include Delta AirLines, Barclays, Chrysler and AT&T. Principal consultant, Compass Management Consulting, Bob Mathers told in a recent story on the insourcing trend that these companies have shown that the trend to insource is in. Mathers said, “We expect more organizations to seriously consider repatriation.”

The idea to insource also stems from the fact that it may be cheaper to outsource to firms in rural villages in places like Idaho or Ohio, where the cost of living is significantly cheaper than New York or California. Moreover, suppliers and customers are more sophisticated now in picking the services that are most appropriate for outsourcing. For most companies, IT is something that can be outsourced because it is not their major area of concentration. Hence, it may not make much sense to spend more money for facility building when it comes to inhousing IT, when outsourcing to India can be cheaper.

It could be true that insourcing is a sign of companies looking to innovate and redefine strategies. Since, companies are expecting a recovery to take place following the economic downturn, they are looking for new strategies to survive in a market with stiff competition. Adam Strichman, Independent outsourcing consultant told, “A lot of companies are looking at their options.” He added, “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.”

One problem with inhousing is that transitioning from the outsourcing phase to the insourcing phase will need to be outsourced. There also has to be clarity on the efficacy of insourcing because it is not guaranteed to produce ideal results as expected. Often, inshoring can cost more than outsourcing because it involves additional costs such as shared assets, application migration, etc. So, it is still a matter of preference, if a company decides to inhouse or outsource. It all decides on the goals of the company, particularly in the future. Mathers was quoted in the article as saying, “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.”

Editor’s Note: This blog entry was modified by a editor to note that certain quotes and information came from an article written by Stephanie Overby. The article, Insourcing needs a lot of thought before it is exercised since it may not be right for every firm.

Source: CIO

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