Is outsourcing IT overseas past its prime? According to a new survey, it is. Consider this: Two years ago, 84 percent of the respondents to a Global IT Outsourcing Study sponsored by Chicago-based consulting firm DiamondCluster International said they planned to increase their level of offshore outsourcing. In 2006, that figure fell to 64 percent. Meanwhile, 47 percent of respondents said they "abnormally" ended at least one outsourcing deal in the past 12 months—up from 21 percent in 2004.

There are several reasons why the bloom is coming off the outsourcing rose, says Michael Conley, vice president of key accounts for Forsythe Technology Inc., a Skokie, Ill.-based IT consulting firm, but the largest factor is cost. "New tools are making it easier to manage and measure projects in-house, so many firms are realizing that it's actually less expensive to bring certain IT functions back," he says. Meanwhile, companies have learned that getting outsourcers to deliver to specifications requires far more oversight and management than they bargained for. And then, of course, there's the security issue. All these factors, Conley says, make outsourcing IT overseas "grossly inefficient."

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Thinking about bringing some IT functions back behind the firewall? Read: Five Tips for Insourcing

But that doesn't mean you should blindly pull all your outsourced projects back behind the firewall. Before making the decision to insource, Conley says, develop a methodology to measure cost versus risk, and a strategy for rolling out applications and implementing policies for processes that will return to IT's domain. "Be sure to incorporate security and business continuity in your plans," he says. "You can't be successful unless those things are understood." Also key is communicating the bottom-line value of insourcing to the business units. "Be sure that the measured deliverable of X is always communicated," he says, "so the business unit doesn't come back and say, 'We thought we were getting Y.'"

Granted, outsourcing isn't exactly dead yet. Conley says many companies still outsource mainframe activities and coding. But in the Information Age, "companies are realizing that data is the currency of the future, and it needs to be carefully guarded," Conley says. "You don't want to give away your crown jewels."

For additional information on offshoring, see:

Small Businesses Struggle to Offshore

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