Insourcing gains a stronger foothold

While fewer than 15 per cent of IT departments are expected to insource their IT and business services before 2005, it appeals to IT directors like Diana Brown of Dun & Bradstreet for management and delivery of those tasks.

That is because of bad blood from disappointing relationships with numerous IT services providers focused more on their own profitability than improving the agility of their customer's business. It was often their bureaucratic, overbearing business style that caused clashes with Brown's IT staff in the past. Brown, who has experience on both the client and IT service provider side since the 80s, can cite more stressful outsourcing arrangements than rewarding ones.

Worldwide, 90 per cent of organisations are renewing their outsourcing deals, according to Meta. The high cost and risk of changing vendors and transferring services back in-house is driving this commitment.

Meta concluded that when insourcing - the process of ending an existing outsourcing agreement and bringing outsourced services back in-house - most IT departments need two years to rebuild their operational process, knowledge and internal culture to a satisfactory level of service. Exacerbating the challenge is that the changeover period of insourcing "increases the risk of disrupting business operations - an unacceptable alternative for most companies", Meta said in a July research paper.

But with infrastructure services becoming commoditised and transaction costs low enough by 2005, insourcing and switching of vendors will become common practice, Meta analysts said.

Organisations like D&B have developed a steely attitude when it comes to delivering and managing the company's technology and business services. The reason: various IT staff and managers have been burnt in the past by experiences with outsourcers who showed their real interest was in profit and not improving the client's business, which also downgraded their level of service, according to D&B's Brown.

For Brown, it is imperative to keep a company's core IT and business tasks in-house. D&B insources IT processes which are critical to the business, such as application development.

Insourcing can make your IT team nimble and add a lot of flexibility, Brown said.

"Through providing application development across five different business units our core services team ends up having a very strong group of people who really know the business," Brown said.

But by outsourcing something as critical to D&B as application services, "it'd be like taking a ticket in a queue", she said. "We believe it's more costly to use an outsourcing provider because you're paying them to [make a] profit. Also, it's harder to contain the cost of supporting and keeping services which are outsourced, as there's a premium on those services."

In her previous role as business innovation manager of an industry superannuation fund administrator, she helped manage a software development outsourcing relationship with EDS, but questioned if there was real value in outsourcing, because "with EDS it was a numbers game".

"They were all about making their numbers and increasing their margins, and charging us to get that."

Brown also disliked the "strangeness" of working with a global services giant like EDS, saying the company applied unsuitably complex service methodologies and pricing models to a medium-sized client like the fund administrator, which in the end proved too "weighty" for the organisation to manage.

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