Bagg Technology Resources: “Backsourcing” What is the trend here?


There is a phenomenon called the “paradox of choice.”  It argues that though we want many options, in the face of a large number of possibilities we tend to make decisions more impulsively, or not at all.

In other words, too much choice prompts us to be reactive rather than strategic.  And that can be the case when faced with the decision to outsource, in-house, or contract for some tasks while outsourcing others, and everything in between.

According to recent reports, backsourcing — also known as insourcing — has been increasing over the last four years. The best-known examples include such companies such as General Motors, JP Morgan Chase and American Airlines.

Computer Economics recently released its survey report, “IT Outsourcing Statistics: 2013/2014” which shows a trend towards a decline in outsourcing.

According to these statistics, outsourcing is down from an average 11.9% in 2012 to 10.6% in 2013.

BTR Blog Graph

There was a time when outsourcing was the standard go-to answer. For about 15 years, 90% of businesses in North America favoured outsourcing first and foremost — albeit, it was its perceived cost-saving factor that drove the trend.

But as every technologist knows, in our industry change is the only constant. Today, outsourcing is no longer the obvious or simple solution. It has become far more complex given the explosion of mixed sourcing models, such as staff augmentation, managed services, out-tasking, project-based consulting and cloud service providers.

That said, outsourcing of IT is still predicted to continue to be a major part of IT budgets. Certainly, outsourcing can be a magic bullet in some cases. But in others –not so much.  As a longtime consultant, I know there’s no one-size-fits-all solution.  To suggest otherwise would be a disservice. Each situation is unique and has to be assessed as such.

More and more IT leaders say they are learning this fact the hard way – hence, the rise in backsourcing.

A Forrester study conducted last year shows 32% of 1,000 IT professionals who had been using third-party service providers plan on ending the relationships and bringing the work back in-house.

The main reasons listed for their change of heart include:

  • Poor quality of service.
  • Savings were not as high as expected.
  • Outsourcers were lagging behind in technology.
  • Their companies had grown to the point where in-house made more sense

Interestingly, a 2012 Deloitte survey of 111 decision-makers shows 79% of those who backsourced were “happy” with the results.  The rest were neutral – adding up to a dissatisfaction rate of zero, which is rare.

Still, the authors of the report warn:  “Reversing the decision to outsource can be professionally uncomfortable for the sourcing initiative’s leaders, and the dismantling of relevant in-house capabilities often makes in-sourcing infeasible in many cases. “

Their point drives home the need to think strategically, and long-term, in the face of an elastic list of options.

As Forbes business writer Adam Hartung notes in his analysis of outsourcing, flexibility for IT is now as critical a factor as cost.

Certainly, in the short term, outsourcing may appear more affordable but the key question in our hyper-competitive fast-changing market must be, Does it make business performance better?’  Does it make you a better competitor?

Again, the need for agility for and within business are driving the IT trends whether it involves insourcing, the development of “rogue applications” by the business without governance or building an in-house IT service bureau for the organization.

Next month: Key questions that can help in your decision-making


Joanne Boucher

D: 416-847-4962

Joanne is the General Manager for Bagg Technology Resources, bringing over 20 years of industry experience in Project and Solutions Resourcing in Information Technology, Digital Interactive, Engineering, Management, Contract/Full Time Resourcing.

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