IT organizations looking to insource their application development or management need to assess how close they want to be to their data, and have an honest conversation with their vendors about the transition ahead.
Insourcing, or bringing previously outsourced IT functions back in-house, is on the rise, experts say. In the application sphere, insourcing is happening in "individual pockets," usually stemming from dissatisfaction with service delivery, according to Dane Anderson, a research vice president in the IT services and sourcing group at Gartner Inc., a Stamford, Conn.-based consultancy.
The vendor is usually not solely to blame for this dissatisfaction. "Often it isn't due to poor skills, but poor outlining of the requirements," Anderson said.
In addition, IT organizations usually cite the need for engagement with the applications as a primary motivator for turning to insourcing. "The client business changes the level of intimacy or proximity that they need to have," said Ben Trowbridge, CEO of outsourcing consulting firm Alsbridge Inc.
Each IT organization needs to find its own correct balance for application outsourcing vs. bringing applications in-house. Here, Anderson and Trowbridge provide advice on how to insource previously outsourced IT application development and management work:
Start by taking stock of your application outsourcing landscape. "One of the biggest challenges many organizations have had is we get a pack-rat syndrome, to a certain degree," Anderson said. "We keep adding stuff, and the application portfolio often becomes the garage."
It's important to make the application insourcing decision based on the specific application or groupings of applications at hand, assessing your need for proximity, he said.
"As organizations are looking at how they're going to execute something through the use of software and applications and what it intends to give back to the business, the ones that are going to be more directly related to that ... should be kept inside," Anderson said. "The issue is, from an application perspective, is what is important to the business today? How close do we want to be to the data and to influence how the data is used?"
He pointed to business intelligence applications as a good example of those you might want to bring back in-house, if you have the right tools and skills. "If the data we are looking to mine is that necessary, is that something we should hand to someone else to do the analysis for us? It almost seems counterintuitive," he said.
Think in terms of application lifecycle management, not just initial cost savings. Anderson said he asks clients why they're outsourcing: If their main goal is to achieve cost savings, and they expect to do so in the first 12 months, he questions the need for a long-term contract that might not deliver such big savings over time.
"Too often in the outsourcing decisions, we say, why are we doing this? To reduce costs. But we forget about, what do we do next?" he said. "You need to look at the application lifecycle. Maybe a portion of it could be [outsourced], but any new development activity or customization needs to be done [in-house]."
Check your IT outsourcing contract and documentation. Trowbridge suggests that companies looking to insource previously outsourced IT application work check their IT outsourcing contracts early in the process and see what their obligations to the vendors are. He also recommended looking at all of the sales documentation from when the outsourcing deal was sold to your IT organization, as there will often be assurances that the provider will help should you ever want to bring the IT applications back in-house.
Talk to your vendor. Now is the time for an honest conversation with your vendor to talk about what you're planning to do, and have it help you plan a good transition.
"You have to go through a bit of a readiness check and [discuss] how to collect the data you have, analyze it, verify it and report how to go forward," Trowbridge said."You're trying to come up with a complete plan before pulling the trigger. Otherwise, you're trapped in a position where you've notified them officially in writing but don't have a good way to do it."
Assess and assemble your team. Once you have a good organizational design, turn your attention to your team and the number of positions you need to fill, Trowbridge said.
According to Trowbridge, he recently worked with a consumer finance company that had outsourced its applications to two different vendors but was looking to pull the apps back in-house. Each vendor had been supporting 25 to 30 applications each, with several people working on each application.
"The knowledge required to move all of that back was pretty daunting," Trowbridge said. "There were 60-plus applications, each unique with its own documentation."
Depending on the scale of the insourced application work, the organization will probably interview to fill positions. "That's probably one of the prime points that can really mess up an organization when you're moving back in -- if you need to do these 60 different jobs, and you don't have the right skills and interests to do those jobs, then you've got a problem -- a fundamental organizational and human capital mismatch," Trowbridge said.
Make your application insourcing plan detailed, but not unyielding. An application outsourcing or insourcing plan has to be detailed, but not so detailed that it's inflexible, Anderson said. If you planned to reduce costs through outsourcing by 15% over the next 12 months and your outsourcer has met expectations, consider outsourcing more work to this vendor. If it hasn't, then make sure your IT outsourcing contract leaves you room to bring work back in-house.
To gauge your readiness for application outsourcing or insourcing, Anderson recommends asking yourself a series of questions (see sidebar).
Trowbridge emphasized that outsourcing is a tool that meets a need at a certain time, but it's not always the answer.
"If things change and it doesn't fit, what you want to have is the flexibility to bring it back," he said. "When you have that flexibility, IT organizations stay current and aware of what's going on with their applications."
This was first published in December 2009