Insourcing vs. Outsourcing

Like the quote from William Shakespeare’s Hamlet “To be, or not to be: that is the question,” most CIOs are struggling with the question, “Insourcing or Outsourcing?” While there is no generic answer on what will work best for an organization in terms of what to keep inhouse and what to outsource, CIOs can take help from specialized consulting companies to help them solve this puzzle. I have an interesting case study to share on this topic.

The CIO of a leading Consumer Products company from the US had gotten a mandate from his CEO that there should be a headcount reduction of 100 resources from the IT Team over the next 12 months. The CIO, who was already under cost pressure, had already done an internal assessment to evaluate if outsourcing and offshore outsourcing were viable options for this organization. The outcome of the internal study was not encouraging to the CIO, as they could not identify any areas for outsourcing due to the nature of their business. Reducing 100 resources over 12 months was going to be a big challenge, and the CIO could not see light at the end of the tunnel.

So the CIO decided to hire an external consultant to help him validate the study finding and also identify ways to reduce the headcount without compromising on the Service Level Agreements. The Consulting Company conducted a two-week study with the help of the CIO, and to their surprise the outcome of the study was very much in line with the internal study. The CIO was happy that the consulting company’s report was concurring with their internal study, and hence he thought it would be easy for him to approach the CEO and say that the 100 resource reduction was not possible. Unfortunately, the CEO’s stand remained unchanged and the CIO was looking for help to reduce the headcount by 100 resources.

The CIO decided to take help from the same consulting company once again.

With the background information already available with this consulting company, they knew it was a difficult task but not impossible. After some analysis at their end, they recommended a strategy that was neither insourcing nor outsourcing but a solution that would give them benefits of both - and most importantly would implement the CEO’s mandate. Below are the highlights of the solution:

An outsourcing service provider was selected that agreed to operate from a dedicated facility at the client’s premises for a minimum of three years and also pay a lease amount for utilizing the facility.

The legal agreements were put in place to ensure that it was a win-win for the client as well as the service provider and at the same time protect the client’s interest at all times.

The outsourcing service provider agreed to take on their payroll 100 resources within six months of the project kick-off from the client organization.

The employees were happy; they were not being displaced and were given an option to work on the same project but on the outsourcing service provider’s payroll.

The entire infrastructure for 100 resources was brought over by the outsourcing service provider thus saving the client organization the cost of managing and supporting it.

With all this, the balance sheet of the CIO had a reduction of 100 resources but for all practical purpose the same team was working from their basement.

The overall cost for the CIO reduced by over 10% over a period of 12 months.

As a part of the deal, the service provider agreed to implement some of the industry best practices from their experience, revise the Service Level Agreement on a quarterly basis and show continuous improvement in their performance.

Improvement in internal customer satisfaction took place due to enhanced support and service from the service provider.

At the end of it this arrangement worked out best for everyone – the CEO, the CIO, the employees and the service provider as well. From this case study, you can see that “Insourcing or Outsourcing” is something that a CIO will have to decide based on a number of factors. Generally hiring an external consultant helps and I am not saying just because we are consultants ourselves. There are incidences where even we seek help from specialized consultants in areas such as training, human resources, legal, etc. At the end of the day, we cannot be experts in all areas; it only makes sense to consult experts.