Use outsourcing standards to reap in-house benefits, users advised

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Use outsourcing standards to reap in-house benefits, users advised

One of the main attractions of outsourcing IT has been the potential to cut costs and improve efficiency. However, in many cases, organisations can achieve these benefits by running a service in-house, according to outsourcing advisory firm Morgan Chambers.

The company has dubbed this process "insourcing", by which an internal service is run along commercial lines, in the same way as an organisation will set targets and demand a high quality of service from outsourcing suppliers.

"Insourcing involves applying market forces, culture and disciplines to such internal services, not as a one-off exercise but on an ongoing basis," said Morgan Chambers.

IT services are usually insourced for two main reasons, according to Morgan Chambers, whose clients include Barclays, BP and PepsiCo. The first type of insourced service occurs when an outsourcing contract fails to meet expectations.

The second is where an organisation has made a conscious decision not to outsource, often because IT is seen as giving an advantage over competitors.

Over the past few years, some companies have ended large outsourcing deals and taken IT back in-house. For example, US banking giant JP Morgan last year scrapped a £2.8bn, seven-year outsourcing deal with IBM to bring the service back in-house.

To make insourcing work, IT directors will need in-depth knowledge of how outsourcing suppliers work, said Morgan Chambers. Key questions to answer include:

  • How do suppliers reduce costs and still make money? 
  • How do suppliers improve productivity? (They typically have to make 5% to 8% productivity improvements for users.)
  • What level of investment is needed to run an IT function?
  • How do you calculate whether your IT running costs are in line with the market?
  • What level of investment is needed to run an IT function?

Five rules for successful insourcing

  • he IT director must have a deep understanding of outsourcing business models, tools and techniques and, importantly, be able to keep this knowledge up-to-date
  • The process must be represented at board level to get ongoing support
  • The IT director must have a significant budget to keep pace with a changing market
  • IT can only make insourcing a success if there is a governance structure and an education/training programme in place
  • The business must accept that the insourced IT operation needs at all times to be run, managed and measured as if it is an external service provider.
    Source: Morgan Chambers
Related Topics: IT outsourcing, VIEW ALL TOPICS

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