Computer Weekly Editor's Blog

Feb 12 2016   10:23AM GMT

Why are so many organisations bringing outsourced IT back in-house?

Bryan Glick Bryan Glick Profile: Bryan Glick

Tags:
EDS
GDS
Government IT
Insourcing
local government
Outsourcing
Skills

To outsource or to not outsource? That, for many IT leaders, has been something of a religious question for a long time. You’re either a follower or you’re not.

But we are no nearer to answering the question of whether outsourcing works. In recent months, Computer Weekly has talked to numerous large organisations that have brought large-scale outsourcing arrangements back in-house with enormous benefits.

AstraZeneca has saved $350m a year from its IT budget by insourcing. The DVLA expects to save £300m over 10 years from a similar exercise. Daimler anticipates €150m annual savings. Even General Motors, which practically invented large-scale IT outsourcing and was owner of outsourcing giant EDS for many years, is slowly insourcing about 90% of its previously contracted-out operation.

Clearly if you can make savings of that size, there is something fundamentally wrong with the outsourcing model at scale.

And yet, in the last six months of 2015, UK public sector outsourcing leapt 55% compared to the first half of the year, and across the year was up 26%. In contrast, private sector outsourcing spend fell by 42% during the second half of 2015 – but was still worth £688m in new deals.

In the public sector – and in particular local government – there seems more confusion than ever. In Whitehall, the Government Digital Service issued an edict against large-scale contracts and is encouraging moves to bring IT in-house. And yet it’s also conducting a review into how to handle the billions of pounds worth of outsourcing deals set to expire in the course of the current parliament.

In local government, we’ve seen Cornwall, Dorset, Bournemouth, Liverpool, Birmingham and others move away from outsourcing – often after a realisation that their suppliers are unable to deliver austerity cuts and still make a profit. But we’ve also seen many councils signing up to new long-terms contracts on a promise of delivering cuts.

Of course, a big part of outsourcing success relies on the buyer to be an intelligent customer. But too often, organisations simply outsource the IT skills they need to manage suppliers effectively.

Like so much in the digital world, IT chiefs need to take a much more granular approach to sourcing. It maybe that certain routine, predictable, process-oriented IT tasks are very well suited to being run by a specialist outsourcer at scale. But you might struggle if your customer-facing web or mobile software shop is run by a supplier when you need fast response, agile development and rapid iteration.

Digital transformation is a huge challenge for traditional outsourcers and a threat to their business model. Those suppliers need to go through a lot of change – belatedly – or they will be swept away by smaller, more agile alternatives.

Outsourcing has its place – but the “all or nothing” approach is surely dying.

2  Comments on this Post

 
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  • Matt X
    Well, here's one organisation still flying the flag for overpriced outsourcing and replacing UK IT workers with cheap onshored staff:

    http://www.bbc.co.uk/news/uk-scotland-35832028

    According to the article, the Scottish government's rural payments system is being developed by CGI, but with work subcontracted to another supplier, who has been firing UK freelancers and replacing them with cheap onshored staff, but charging the client much higher rates than the UK freelancers, and pocketing the difference. Profiteering, loss of UK jobs, abuse of the immigration system and waste of taxpayers' money, all in one neatly bundled package.
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  • YuliaZab
    Going outsource makes sense, when it comes to the competencies, which are not core for your company. It allows you to concentrate on the activities that you are good at and shift a piece of work onto a team that is more professional. Well, another option is to hire an in-house team, which is always at hand and immediately controlled. But it stands to reason if your company commands a fair sum of money, which is not suitable for startups, for example. Whether it is a safe bet for startups to manage in-house teams or not... Well, it remains to be seen http://www.nexgendesign.com/does-your-startup-really-need-inhouse-development
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