Outsourcing a done deal with very few able to rebuild in-house capability

Once an organization outsources, it is a mammoth task rebuilding in-house capability, or insourcing. In fact, of all the companies in Australia that have outsourced a mere 23 per cent have brought services back in-house, according to a Gartner study undertaken last year.

The preference is to incrementally outsource elements of the business rather than bring it all back in-house. With big bang outsourcing deals a thing of the past, selective sourcing is being driven locally by IT skills shortages and the desire to free up staff and resources.

Rolf Jester, Gartner distinguished analyst and vice president said research shows that, on an annual basis Australia-wide, the companies that bring a service back in-house only amounts to a low single digit or percentage.

"There is not a big deal in any given year and it is much more likely for a customer to simply renew an outsourcing contract with an incumbent provider. It is rare for customers to switch to another provider," Jester said.

"The trend towards more outsourcing is gradual and has been going on for a very long time and if you look at the work performed in-house versus that given to an external service provider, a small percentage point or so shifts every year. This isn't likely to change. The IT services or outsourcing market is growing at a slightly greater rate than the IT market overall.

"In Australia only 12 percent of organizations in the survey had an enterprise-wide sourcing strategy, 84 percent said it is done purely on an ad-hoc basis, and four per cent did not know."

Forrester IT and information management senior analyst Tim Sheedy said he has not seen any major changes to the way companies approach outsourcing in the past 12 months.

Sheedy said some elements of in-sourcing have already made their way back into organizations in the form of help desks or "the coalface of IT".

Sheedy said one trend he is not seeing is big server or mainframe outsourcing deals being brought back in-house.

"I believe there is a lot of hype in the market around outsourcing as 'business transformation' or agility and this is not translating into huge outsourcing deals," Sheedy said.

"I have not seen any massive changes in the way Australian companies are doing outsourcing."

Sheedy said the vendors sell their offerings around different terms. For example, CSC promotes its offerings as innovation while IBM is pushing business process transformation services.

"There isn't a huge volume of providers in Australia which is why we see work going offshore."

One high profile recent example is Qantas which has outsourced internal IT applications support and maintenance.

The transition will take over 15 months and Qantas will shed some 340 Australian IT staff.

Qantas chief executive officer Geoff Dixon said it would require an investment of up to $100 million to develop an inhouse capability, an investment it could not support.

"The applications support and maintenance work relates to over 300 applications that use a wide range of computer languages and technologies, and much of this work involves ageing systems," Dixon said.

Bucking the outsourcing trend is the Commonwealth Bank of Australia (CBA) which recently resigned with EDS.

The original deal in 1997 was a 10-year, $A5 billion partnership.

The new deal totals $A573 million and only covers the provision of mainframe and mid-range data processing services through to June 2012.

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