By Randy Ottinger
How much does your company spend on outsourced services and staff augmentation every year? Seriously, do you know how big that number is? Would that money be better spent on building expertise within your own ranks? Could you actually save costs by insourcing? These questions are being asked more and more in the executive ranks.
There is no question that outsourcing has its advantages. In certain circumstances outsourcing can reduce costs, provide access to best-in-class thinking and resources, as well as improve resource flexibility and scalability. There has been an undeniable trend towards outsourcing and staff augmentation over the last 12 years. The global outsourcing services market has grown to $99 billion in 2012, up from $45 billion in 2000 according to a study by Information Services Group/TPI. With that said, a 2012 Deloitte Study
indicates that outsourcing and staff augmentation have failed to deliver on their promised value proposition. Of the companies Deloitte surveyed, 48% terminated outsourcing deals for cause or convenience.
What is the alternative? What holds the promise of saving costs, providing new innovative solutions, and improving the overall operations of your company? Good old-fashioned insourcing. The same 2012 Deloitte study indicated that 34% of companies that terminated outsourcing contracts decided to insource as a future strategy instead. Here’s why.
Top 3 Reasons for Insourcing
1. Improve customer service or customer experience. We’ve all sat on the phone for way too long with a call center, only to talk to someone who is not able to adequately address our issues, then ask for a supervisor and hyperventilate. This happens with both external and internal customers – especially when shared services like IT or finance are outsourced. To support this point, a 2005 Deloitte Study found that, “Outsourcing often reduces organizations’ responsiveness to market changes and poses internal political, organizational, and cultural challenges.”
2. Improve controls. Often it seems there is a significant increase in management expertise required to successfully manage an outsourced relationship. Organizations worry about intellectual property and confidentiality risks, lack of transparency, changes in the size and scope of projects, loss of institutional knowledge, loss of control over key processes, and other issues that are difficult to control when functions are outsourced.
3. Reduce operating costs. This is a HUGE issue because one of the primary reasons companies outsource is to reduce costs. The 2012 Deloitte study referenced above indicates that, “Overall, actual cost reductions through the most recent outsourcing experience are lower than expected with 53% of respondents anticipating significant savings (greater than 10% cost reduction), while only 42% experienced significant cost reductions.”
How Insourcing Can Save Costs and Capitalize on Employee Capacity
When cheap labor exists externally and internal resources seem overburdened, how can insourcing save costs or even be a viable option? Well, as the Deloitte studies show, factors such as tailored solutions, bundling of services, and project scope creep all raise the cost of outsourcing.
In addition, there is a hidden opportunity for insourcing: the ability to tap into existing employee capacity to take on more projects. Most organizations are unable to access this available resource because they operate through a single – and overworked – management system. If companies create a dual operating system, adding an employee-led innovation network that works alongside the traditional management system, employee capacity is instantly increased. The employee-led innovation network provides the opportunity for employees to lead in a significant way that is not available to them in the existing management system.
To increase your insourcing opportunities, it’s probably time to significantly change the way you operate. For more information on the dual operating system, refer to Dr. John Kotter’s latest book, Accelerate (XLR8).
At Kotter International, Randy Ottinger helps leaders accelerate strategy implementation in their organizations.
