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insourcing

Reducing risks in insourcing projects

The practice of outsourcing has long been favoured by many organisations, particularly for IT focused areas, but could this trend be coming to an end?

According to a 2012 Deloitte study, there is a small but growing reversal of outsourcing where companies are bringing previously outsourced functions back in-house. This trend is called insourcing and it could significantly impact the project management landscape over the next three years.

Why organisations go through the insourcing process vary but most are due to concerns about supplier performance, changes in business strategy or to improve customer service and experience.

The study also showed 79% of those who had taken the insourcing journey were satisfied or extremely satisfied with the results and there was zero dissatisfaction.

One of the most prominent cases of insourcing in Australia was led by the Commonwealth Bank Australia (CBA), who after outsourcing its entire IT function in the late 1990s, brought all of its IT back in-house in 2006.

CBA’s outsourcing deal with EDS was terminated by incoming CEO Ralph Norris as it failed to deliver the expected savings and service levels. The aim of the move was to give the bank more control over its back end, to end poor customer service and quality, as well as improve its processes.

The reasons why many companies don’t go commit to insourcing, despite its many benefits, is the idea the transformation is too risky as a complex transformation could potentially be costly and cause disruption to the business. So instead they persist with the current, often broken, model of outsourcing.

This was highlighted in the recent published failure of Queensland Health when the department brought its payroll system back in house. Instances like this contribute to the belief the benefits of insourcing may not outweigh the risks.

Other barriers to insourcing usually relate to acquiring the necessary skills and resources and recapturing the intellectual property now held by the outsourced supplier. It can also be challenging to rebuild the internal capabilities required to manage functions and processes that have long been outsourced.

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Bruce Nixon is the CEO of Holocentric, a business management systems provider. As CEO, Bruce is consistently encouraging the building and delivery of solutions that are better aligned to customer needs and that provide more strategic value.
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