|On the Outs with Outsourcing
Why and How Companies Are Opting to Backsource
After U.S. unemployment rose again to 9.1% in May, Senator Mark Warner (D-Va.) and Representative Frank Wolf (R-Va.) announced a bipartisan legislative partnership to promote backsourcing. Defined as pulling outsourced functions back in-house, backsourcing has been on the rise for some time.
The Warner/Wolf bill is aimed at manufacturing, technology and service jobs. It proposes $5,000 in forgivable loans for each new job brought in-house/stateside and new tax codes at the state and federal levels to provide additional incentives to businesses interested in relocating from a foreign country. Additionally, it would help employers develop new training programs and strengthen existing ones that provide industry-recognized credentials for workers in the advanced manufacturing and IT industries.
This will inevitably fuel a trend that is already well in motion. David Rutchik, partner with outsourcing consultancy Pace Harmon, says he has "seen insourcing decisions gaining steam within the last year and expects that trend to continue to increase in 2011."
Meanwhile, an inverse fall in outsourcing is happening. Outsourcing advisory firm TPI reported that the value of new or restructured outsourcing deals signed during the second quarter of 2010 fell globally. The value of new or restructured outsourcing deals signed during the second quarter of 2010 dropped 13% compared to the value of deals agreed to during the first quarter of that year. Likewise, demand for IT outsourcing (ITO) fell particularly sharply during the second quarter, with the value of ITO deals dropping by almost 30% compared to the first quarter of 2010. Even after accounting for the impact of the tough economy, these numbers indicate that other factors are at play.
Why the Rise in Backsourcing? And Why Now?
Whereas many jobs used to be offshored in search of cheap labor and materials, the margin is simply not what it used to be. One oft-cited factor for the rise in backsourcing is that the gap between labor costs in the United States and countries like China, India and Mexico is shrinking.
In IT services specifically, another important factor is overall CIO dissatisfaction with outsourcing. The top reasons for CIO dissatisfaction include: desire for greater control over IT, costs, change in strategic direction, failure to achieve business goals, outsourcing providers who are dishonest about their core competencies, and the top-cited reason: poor quality of service. The 2011 IDG Enterprise Outsourcing and Service Providers Survey reported that while 44% of the 1,176 IT leaders who responded to the online survey said their service-level agreements (SLAs) were tighter than they were three years ago, they identified poor-quality service as the top risk of IT outsourcing — ahead of security, loss of internal knowledge and hidden costs.
Successful Backsourcing: Insights & Best Practices
Are you one of the many organizations considering backsourcing one or more functions? Before you move forward, take stock of a few key items. For example, end-user computing support such as help desk level 1 and network management employees, tend to be more apt candidates for backsourcing because their roles require to be in the same physical location as the hardware and software. Likewise, business analysts and project managers are also well suited for onsite roles because they need to engage face-to-face with members of the business and technology teams. If you are not certain whether the role/skills you are considering bringing back in house fall in this category, use the following checklist to aid in your decision:
• Identify your goals
• Make a business case
• Review termination rights and responsibilities
• Find out if a transition team is possible
• Consider future requirements
• Examine your role in why outsourcing didn't work
• Determine business buy-in
• Assess your timeline
• Research advisor options
These steps comprise a measured approach we at STAR BASE call "back-outsourcing." This careful deliberation ensures that the right IT functions are outsourced and the ones best-suited in-house are kept there, or brought back in through a well-executed backsourcing game plan. Once you determine that backsourcing is indeed the right move, follow these steps to ensure success:
• Notify the outsourcer
• Perform an operations audit and needs assessment
• Establish a backsourcing plan and schedule
• Determine staff reassignment and responsibilities
• Develop security policies to protect proprietary information
• Incorporate business continuity into the backsourcing plan
• Communicate the backsourcing plan, goals and objectives to the enterprise and affected third parties
While STAR BASE continues to be a go-to partner for on-demand talent, we don't necessarily advise offshoring your entire help-desk either. Carefully deliberate each of these considerations, execute against them accordingly, and you will be able to leverage backsourcing when it is the right solution — and decide against it when it's not.
Glossary of Terms
• Insourcing: Delegating a job to someone within the company
• Outsourcing: Delegating a job to someone outside the company
• Backsourcing: Pulling outsourced functions back in-house
• Back-outsourcing: STAR BASE's approach to successful backsourcing
•Wolf.house.gov: Sen. Warner, Rep. Wolf Announce Bipartisan Initiative To Create Jobs
• Infoboom.com: Goodbye Outsourcing, Hello Insourcing: A Trend Rises
• Silicon.com: Outsourcing: New deals are in decline
• CIO.com: Goodbye Outsourcing, Hello Insourcing: A Trend Rises
• CIO.com: No. 1 Gripe with Outsourcers: Lousy Service