Why are so many organisations bringing outsourced IT back in-house?

To outsource or to not outsource? That, for many IT leaders, has been something of a religious question for a long time. You’re either a follower or you’re not.

But we are no nearer to answering the question of whether outsourcing works. In recent months, Computer Weekly has talked to numerous large organisations that have brought large-scale outsourcing arrangements back in-house with enormous benefits.

AstraZeneca has saved $350m a year from its IT budget by insourcing. The DVLA expects to save £300m over 10 years from a similar exercise. Daimler anticipates €150m annual savings. Even General Motors, which practically invented large-scale IT outsourcing and was owner of outsourcing giant EDS for many years, is slowly insourcing about 90% of its previously contracted-out operation.

Clearly if you can make savings of that size, there is something fundamentally wrong with the outsourcing model at scale.

And yet, in the last six months of 2015, UK public sector outsourcing leapt 55% compared to the first half of the year, and across the year was up 26%. In contrast, private sector outsourcing spend fell by 42% during the second half of 2015 – but was still worth £688m in new deals.

In the public sector – and in particular local government – there seems more confusion than ever. In Whitehall, the Government Digital Service issued an edict against large-scale contracts and is encouraging moves to bring IT in-house. And yet it’s also conducting a review into how to handle the billions of pounds worth of outsourcing deals set to expire in the course of the current parliament.

In local government, we’ve seen Cornwall, Dorset, Bournemouth, Liverpool, Birmingham and others move away from outsourcing – often after a realisation that their suppliers are unable to deliver austerity cuts and still make a profit. But we’ve also seen many councils signing up to new long-terms contracts on a promise of delivering cuts.

Of course, a big part of outsourcing success relies on the buyer to be an intelligent customer. But too often, organisations simply outsource the IT skills they need to manage suppliers effectively.

Like so much in the digital world, IT chiefs need to take a much more granular approach to sourcing. It maybe that certain routine, predictable, process-oriented IT tasks are very well suited to being run by a specialist outsourcer at scale. But you might struggle if your customer-facing web or mobile software shop is run by a supplier when you need fast response, agile development and rapid iteration.

Digital transformation is a huge challenge for traditional outsourcers and a threat to their business model. Those suppliers need to go through a lot of change – belatedly – or they will be swept away by smaller, more agile alternatives.

Outsourcing has its place – but the “all or nothing” approach is surely dying.

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