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Looking Squarely at Insourcing: How to Know If You’re Ready

by David Lewis

General Motors created quite a stir in the marketplace when it recently decided to shift from a 90 percent outsourced IT service delivery model to a 90 percent insourced service delivery model. Assessing your outsourced/insourced services mix is a healthy exercise for any enterprise, especially if you are seeking more in-house expertise, the ability to react more quickly to changing business requirements, or if you have concerns about quality issues or unrealized value from outsourcing.

When companies ask ISG, “What are the key issues I should consider if I repatriate services?,” we give them these Top 5 answers:

1. Understand the contractual implications. Whether your contract is expiring or you are terminating early, be sure to assess key contractual terms, including the termination assistance provision, its pricing and application length, the post-termination implications to intellectual property (IP), your rights to hire service provider staff and your rights related to documentation, source code, tools, policies and procedures.

2. Know your numbers. Building a business case to insource is more than comparing the costs of internal resources and outsourced resources. Be sure your business case doesn’t get undermined by the sometimes-forgotten costs of incumbent transition assistance, contract wind-down, due diligence, program management, recruiting fees, retention, facilities acquisition and build-out, replication of tools, process design or service integration requirements.

3. Stake a claim for operations in the program plan. Managing a service provider requires different capability than running IT operations. Unless you have an existing in-house operation, building operational processes and training your new staff in executing the processes can take considerable time and expense. You will need to develop and train staff on service delivery processes, integrate onshore and offshore delivery, develop and train on tools, and develop performance management capability.

4. Tailor-make the new organizational structure. To support the new internal delivery model, carefully design the organization, sizing, job description and training. And don’t forget organizational change management, including a communications plan to address your various stakeholders.

5. Draw a clear map to transition. Transition to internal delivery represents a significant risk to the business. A detailed transition plan needs to address people, processes, work product/IP and the associated artifacts and technology, with a particular focus on knowledge transfer. A transition plan should include defined quality gates that are supported by documented acceptance criteria. Create a stabilization period to address open issues and a clean hand-off from the incumbent to steady-state internal operations. Do not expect the incumbent to be a willing or low-cost participant in this exercise.

While ISG doesn’t forecast that insourcing will be a major trend, selective insourcing is a reality and requires the same level of diligence and planning as outsourcing. ISG offers a methodology focused on insourcing, its unique requirements and its inherent risks. Contact David Lewis to discuss further.

About the author

Mr. Lewis is a Director in the ISG Manufacturing Industry Vertical organization. Mr. Lewis’ primary responsibilities include: client relationship management, business development, oversight of strategic sourcing engagements and service provider relationships. He has spent 29 years in Information Technology and his credentials include experience in outsourcing account management and service delivery management, as well as experience in working with clients in defining outsourcing strategies, performing operational and financial assessments, leading large-scale Information Technology and Business Process engagements, and managing transitions. He has been involved in outsourcing transaction and transitions as well as account operations both as a customer and as service provider. In addition, he has expertise in relationship management, governance models and performance management.