Insourcing

Insourcing is a business practice in which work that would otherwise have been contracted out is performed in house.

Drivers: the most common is to keep core competencies in house. It is argued that if a company outsources a core competency, it can lose control over that competency or lose contact with suppliers who can help it remain innovative in relation to that competency. Other factors that weigh in favor of insourcing having an IS service or product that requires considerable security or confidentiality or that requires resources that are not adequately available in house.

Challenges: it includes gaining the respect and support from top management that is needed to acquire needed resources and get the job done. Other challenge is finding a reliable, competent outsourcing provider that is likely to stay in business for the long term- or at least the duration of the contract.

Insourcing often involves bringing in specialists to fill temporary needs or training existing personnel to perform tasks that would otherwise have been outsourced. An example is the use of in-house engineers to write technical manuals for equipment they have designed, rather than sending the work to an outside technical writing firm. In this example, the engineers might have to take technical writing courses at a local college, university, or trade school before being able to complete the task successfully. Other challenges of insourcing include the possible purchase of additional hardware and/or software that is scalable and energy-efficient enough to deliver an adequate return on investment (ROI).

Insourcing can be viewed as outsourcing as seen from the opposite side. For example, a company based in Japan might open a plant in the United States for the purpose of employing American workers to manufacture Japanese products. From the Japanese perspective this is outsourcing, but from the American perspective it is insourcing. Nissan, a Japanese automobile manufacturer, has in fact done this. http://whatis.techtarget.com/definition/insourcing Outsourcing means the purchase of a good or service that was previously provided internally or that could be provided internally. With IT outsourcing, an outside vendor provides IT services traditionally provided by the internal MIS department.

Drivers: one of the most common is the need to reduce costs. Outsourcing providers derive savings from economies of scale. They realize these economies through centralized data centers, preferential contracts with suppliers and large pools of technical expertise. A second common factor driving companies to outsource is to help a company transition to new technologies. Outsourcing providers generally offer access to larger pools of talent and more current knowledge of advancing technologies. Third, by bringing in outside expertise, management often can focus less attention on IS operations and more on core activities. IS department personnel manage the relationships with outsourcing providers and are ultimately still responsible for IS services.

Challenges: First, outsourcing requires that a company surrender a degree of control overcritical aspects of the enterprise. The potential loss of control could extend to several areas: control of the project, scope creep, the technologies, the costs, and their company’s IT direction. Second, outsourcing clients may not adequately anticipate new technological capabilities when negotiating outsourcing contracts. Outsourcing providers may not recommend so-called bleeding-edge technologies for fear of losing money in the process of implementation and support, even if implementation would best serve the client. Third, by surrendering IT functions, a company gives up any real potential to develop them for competitive advantage — unless, of course, the outsourcing agreement is sophisticated enough to comprehend developing such advantage in tandem with the outsourcing company. However, even these partnerships potentially compromise the advantage when ownership is shared with the outsourcing provider, and the advantage may become available to the outsourcing provider’s other clients.

Steps to avoid pitfalls:
• Do not negotiate solely on price.
• Craft full life-cycle service contracts that occur in stages.
• Establish short-term supplier contracts.
• Use multiple, best-of-breed suppliers.
• Develop skills in contract management.
• Carefully evaluate your company’s own capabilities.
• Thoroughly evaluate outsourcing providers’ capabilities.
• Choose an outsourcing provider whose capabilities complement yours.
• Base a choice on cultural fit as well as technical expertise.
• Determine whether a particular outsourcing relationship produces a net benefit for your company.
• Plan transition to offshoring.
• Use SOAs to increase agility

One example of outsourcing would be where a manufacturer of goods decided that it would be more cost effective to allow outside contractors to bid for the provision of transport services to deliver their finished goods to customers. The high costs of in house transport, fleet of vehicles to be purchased or leased, maintenance, drivers, insurance etc. would be reduced to a contract fee paid to an outside transport firm. This could be on a per item basis or other arrangement but would free up valuable capital and allow for better forecasting of costs. Regular monitoring of performance would be required to ensure the outsourced work was being carried out in line with company requirements and regular reviews of costs to ensure best price was being paid.