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Outsourcing, adieu: Companies retake the reins on IT services

After giving away the farm, some IT departments are bringing select outsourced services back in-house. Here's how they're doing it.

By Howard Baldwin, Computerworld
July 18, 2013 03:07 PM ET

Computerworld - Almost as soon as the outsourcing deal was inked, it was an $800 million disaster.

The Fortune 500 company's seven-year, $120 million-a-year IT services deal had all sorts of problems from the beginning, according to an IT director whom we'll call Skip Currier (not his real name), who had a front-row seat to the debacle. "From the beginning, the project was understaffed and overambitious. They didn't fulfill certain parts of the contract, and our executives didn't force them to," he says with a sigh of exasperation. All told, the deal was badly executed and badly managed, with plenty of blame to go around.

It's no wonder, then, that this organization chose not to renew the deal and is bringing responsibility for deploying and managing technology back in-house. It's not alone, of course. The most famous recent example: CIO Randy Mott brought a broom into General Motors last year and swept 90% of its outsourcing deals out the door.

Other high-profile companies turning to insourcing over the past few years include the Sainsbury's grocery chain and financial services firm Santander (both of whom, along with GM, turned down interview requests, as did most of the outsourcing firms involved).

While it would be misleading to say that insourcing is a new phenomenon -- companies have been cancelling major outsourcing deals as long as there have been major outsourcing deals -- indications are there is a shift in thinking underway. Charles Green, a Forrester Research analyst focusing on sourcing and vendor management, sees "an ongoing level of dissatisfaction with outsourcing," citing Forrester's 2012 services survey of some 1,000 IT services professionals, where nearly half the respondents listed "poor service quality" as a challenge and 32% stated they were looking to bring work back in-house.

What's also changing, according to several sourcing consultants and IT executives who did agree to talk, are the deals themselves: their duration (shorter), their focus (narrower) and how they're managed (more closely). Other issues -- changing economic conditions, new technology and even the competency/incompetency of outsourcers -- are also feeding the insourcing trend.

Whether they're ready to cut the cord or not, companies should take heed of these converging forces as their outsourcing deals come up for renewal. (For more about how to rein in an outsourcing contract, see Three tips for intelligent insourcing.)

The problem(s) with outsourcing

As the saying goes, when you're up to your butt in alligators, it's hard to remember that your original objective was to drain the swamp. Business executives who followed the admonition to "stick to your core competency" determined that IT was not their companies' core competency and so waded into the outsourcing swamp unawares.

Problems that are roiling those waters include:

Lopsided decision-making. Kevin Chase, CIO of [Energy Future Holdings] (EFH), is in the process of what he calls "rightsourcing" ([details below]) one of the [biggest outsourcing deals ever,] which dates back to 2004, when EFH was known as TXU Corp. The goal of such outsourcing agreements at the time, Chase explains, "was to hold a single outsourcer accountable for delivering all IT services -- as well as many business functions -- while achieving cost reductions through operating efficiencies and economies of scale."

Originally published on www.computerworld.com. Click here to read the original story.

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