Is “IN” the new “OUT”?

There are regular debates in the fashion press as to whether black/blue/grey/brown (delete as appropriate) will be the new black! The never ending deliberation as to what is the staple trend of the season results in a short lived outcome that is replaced no sooner than it reaches the high street.

Correspondingly, those of us in the sourcing markets have known for years and with reasonable confidence that “Out is the new Out”. Outsourcing has remained the failsafe pair of jeans of the industry.

More recently though there has been an increasing (although still small) number of organisations looking at insourcing, citing a desire to bring key knowledge back in-house, together with wanting greater visibility and control over IT service delivery. This leads to the key question: “Is IN the new OUT?” However, just because there is an emerging trend does not mean that it will necessarily suit your business. Insourcing is a complex and potentially risky decision with many fundamental differences from re-sourcing to an incumbent or even a new third party. These are highlighted below:

Transferring responsibility

Although most will attest to the fact that one cannot outsource the accountability for services, outsourcing does transfer responsibility for service delivery to a third party. Client side skills inevitably shift to those of managing the supplier in order to ensure effective delivery. Insourcing, by contrast, involves transferring back the full responsibility for services as well as the accountability. This is often a major cultural and behavioural change for organisations, requiring effective change management.

Organisational challenges

There are people and organisational challenges, such as designing, building and recruiting the new organisation ready to receive and deliver the incoming services. This sits alongside the rights of employees engaged in service delivery for the incumbent supplier to transfer back under TUPE*. This is often an unknown factor until the actual transfer date; a fact that makes planning the new organisation difficult.

Knowledge transfer

Knowledge transfer is also a key concern. Transferring services between suppliers (as happens in re-sourcing) is a reasonably well trodden path, but when the receiving organisation is a new and unproven client organisation, there is far less expertise. In fact, the same processes need to apply, with classroom and/or on-the-job training followed by work shadowing (client staff shadow the supplier) and then reverse shadowing, over typically a three month period of time.

Underestimating the workload

Clients also often underestimate the challenges of establishing the necessary processes, tools and ways of working within their own organisation. After sometimes two or three generations of outsourcing, many client side organisations have lost the ability to run and deliver services in-house.

Exiting the contract

Managing supplier exit is in itself complex, with risks to be managed and commercial and contractual exposure such as inadequate exit planning and the hidden costs of supplier exit assistance, often coming as not so pleasant surprises.

Designating an appropriate amount of time

Gauging the correct amount of time to effect a smooth transfer of services is also key. Too short a time and the smooth and effective transfer is fundamentally at risk, too long and there is a risk that the incumbent supplier will start to take their eye off the ball and that key supplier staff will start to look towards their next career move, with service quality inevitably suffering.

Getting everyone else on side

Finally, this is typically a large and complex programme of change, requiring effective sponsorship, governance and programme management.

IN may be the new OUT, or this may yet be a few brave pioneers testing out the water in terms of insourced operating models. Either way, this is certainly not yet a well-trodden path and there are many pitfalls for those venturing that way to avoid.

If you are considering insourcing and would like guidance and advice, please do not hesitate to get in touch.

*TUPE refers to the "Transfer of Undertakings (Protection of Employment) Regulations 2006" as amended by the "Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014".