Fascinating Webcast last week that I tuned into. Consulting firm Compass analyst Geraldine Fox presented the session, which examined insourcing — repatriation of functions after you’ve outsourced them.
What drives a company to explore bringing activities — particularly IT — back in house after a stint of outsourcing?
She says the major driver is price. "They’re concerned that outsourcing is costing them more than they anticipated."
Although organizations "continue to save 10%-15% in year one," she said, "what we’re finding in a deal that is more than three years old, we’re finding gaps of anywhere between 10%-40% over prevailing market prices. These results may seem shocking. With our conversations with executives, they already instinctively know that outsourcing is more expensive — for certain organizations — than performing the services themselves in house. What they find is, over time, rather than decreasing, their actual budget is increasing. To some extent, this is dependent on how the client manages the deal."
She points out, "In many cases, what we’ve seen is that these organizations have had unrealistic expectations to begin with."
That brings up a major challenge with insourcing. If a company is unrealistic walking into outsourcing, will it also be unrealistic in taking on repatriation?
Advises Fox, "Evaluate whether your organization is in a position to become a ’best performing’ company. Will executives be willing to make the investment to [put your operation] in line with best-performing organizations?"
For advice on how to get insourcing right, listen to the Webcast yourself, here.