Navigating the Challenges of Insourcing

Posted 06-06-2013

Navigating the Challenges of Insourcing

By Karen A. Frenkel

A year-and-a-half ago, one-third of PaceHarmon’s clients were considering bringing IT functions back in-house and requesting analyses of insourcing options. The interest in the topic prompted senior associate Christopher Stacy of the Vienna, Va., outsourcing advisory services firm to author the report “Are You Ready for Insourcing?”

Buyer behavior has changed during the last several years, Stacy discovered. “Companies are more willing to take the risk to migrate,” says Stacy, “and deciding how to set strategy for operations has also changed.” Buyers are willing to pay more in the near-term for in-house delivery, and expect a long-term ROI and revenue improvement, rather than just future efficiencies of delivery, Stacy says.

Repatriation is challenging, as are the coordination and timing that maintain continuity of service, particularly with a resource provider that’s losing its business. A frequent insourcing pitfall, says Stacy, is failing to coordinate the transition with sufficient buffer contingencies.

The loss of internal intellectual capital is a major challenge for companies that outsourced, according to Stacy. He says they opted for blackbox legacy outsourcing deals with attitude of “I don’t care what you do, just manage the Service Level Agreement, that’s the result I care about.” But PaceHarmon finds clients now seek a whitebox approach that keeps tabs on how work gets done. Otherwise, they must rebuild their internal organization “by creating something from nothing,” says Stacy.

A frequent reason why insourcing transitions fail is under-estimating the operational differences, says Stacy. Many companies don’t realize they need to attract new talent, for example. Companies should question whether they can retain star resources, contractually and realistically. “Can you incentivize them to stay and also attract new talent in sufficient numbers?” Stacy asks.

But it’s not just about whether HR can recruit and process the on-boarding, he says, it’s about whether your organization has “the right cachet in the marketplace, the right footprint to get the right resource skill sets and the right volumes of resources looking at your company.” Companies should investigate markets where they envision setting up data and delivery centers, what the local talent pool is, and who else is hiring in those areas.

Companies should also determine what their rights are to retain employees currently working for their service provider and who can be “re-badged” to become in-house resources. Service providers often do not resist because they want to shed personnel and are glad there’s an employer for them instead of needing to find a new account in which to place them.

Technology-wise, migrating data to a new platform, monitoring capabilities, and configuration management databases all require infrastructure. “It’s not an easy task to import legacy data from the service provider,” Stacy says. He recommends assessing the complexity of the environment to determine which functions should and should not insourced. That, in turn, can have an impact on a proposed schedule for insourcing activity. Next, a company should evaluate the infrastructure that supports its environment by looking at variability, the number of platforms and supported applications, and the number of image types, Stacy recommends.

Because the service provider may own the infrastructure, a company may have to set up its own infrastructure. That task is dictated by the volume and complexity of the data that resides on the service provider’s infrastructure, and whether and how it can be transferred. “To move those infrastructure tools in-house and then migrate the data is a project in and of itself,” Stacy warns, “so determine how well the data procedures are documented by the outsource producer and judge what it will take to execute that transfer.”

The repatriation process also depends on whether a company’s contract includes a transition assistance claim; in other words, “that they play ball and support the transition.”

Navigating the Challenges of Insourcing

What if the contract doesn’t have a transition assistance claim, and the service provider is not motivated to help as it knows it is losing a gig? How can a company incentivize the provider to cooperate? Stacy suggests engaging the provider with the lure of project-based services. “It will cost a little extra, but it will be worth it to get the support,” he says. “It’s not just that they may not be willing to support, it’s that they may say they’re willing, but in actuality shed their best resources to other accounts.” Hence, it’s advisable to require that both key people and the project scope be retained.

An alternative to holistic insourcing is selective repatriation. Companies can look hard at insourcing “on a tower-by-tower basis”; that is, service desks, deskside support or asset management. “Don’t try to boil the ocean,” Stacy cautions, rather “see what specifically makes sense to bring in, and to the extent that you can do so effectively with your contract, bring things in gradually and see how it goes.”

Stacy expects selective repatriation to continue, with the trend depending on the success of initial decision-makers. “CIOs talk to each other,” Stacy says, and insourcing trailblazers’ experiences and ROIs will determine “whether others are emboldened to make similar decisions.”


About the Author


Based in New York City, Karen A. Frenkel writes about business, entrepreneurs, innovation, computer science and technology, and has been published by Bloomberg.com, Bloomberg Businessweek, FastCompany.com and Science.