Has an outsourcing project failed?

Insourcing: The result of failed outsourcing projects?

In my last article I presented examples of success and failure in outsourcing projects, gave tips for successful outsourcing and highlighted which things are actually suitable for outsourcing and which are not.

In today's post I would like to deal intensively with the counterpart to outsourcing. The term insourcing describes the reintegration of tasks, functions and processes into a company. As a rule, the term is used when an outsourcing has previously taken place.

The study of the IT trends 2014 by the global consulting firm Capgemini showed that 28% of the companies surveyed who had outsourced an IT project this year, then reintegrated it into their own company - in particular, this concerned projects in Application Management. It is also interesting that problems with the outsourcing service provider rarely lead to insourcing - most companies were interested in faster response times and the rebuilding of know-how.

That is why companies choose insourcing

Of course, from a financial point of view, it is not a good idea for companies to first outsource a process and then put it back into storage. Still, there are a number of scenarios where insourcing is the best option to get back on track.

The following reasons are conceivable:

  • Regaining know-how: With every major outsourcing decision, sooner or later there is also a loss of in-house know-how. Often companies realize too late that it would be better to keep the know-how in their own company.
  • Faster response times and greater flexibility: Especially in the IT area, fast response times and a high degree of flexibility are mandatory. If the responsible IT colleague is one room further away, issues are often processed faster than with external service providers.
  • Reduction of dependency: Anyone who outsources things is at the same time intensely dependent on the selected service provider. If there are problems with the service provider, your own company also suffers, which can have devastating effects. One possible reason for insourcing is to reduce dependency on other companies.
  • Wrong expectations of quality and service: A major reason for most outsourcing decisions is to expect financial savings. If these savings are reversed, for example by increasing the number of warranty cases, this is a reason to put production back into storage. In addition, poor service from the outsourcing service provider can also lead to insourcing.
  • Lack of identification: Employees who identify strongly with a company and its products often deliver better results than employees who have no real relationship to the company. In the call center area in particular, this can have a strong impact on customer satisfaction.
  • Utilization problems: Especially in times when the general economic situation is bad, it often happens that employees are underutilized due to the crisis. For companies, this can be a reason to reintegrate processes that were outsourced (easy to learn) in the past in order to fully utilize their own employees even during the crisis and to save the costs charged by the service provider.

What advantages can insourcing offer?

So there are many reasons that speak in favor of reintegration. However, it should not be forgotten that there are also certain risks associated with insourcing that need to be considered.

Below you will find a list of possible advantages that can arise from insourcing:

  • Development of know-how and expansion of competencies that can be mapped in-house
  • The time that you had to spend on agreements with the service provider is no longer necessary
  • Short-term fluctuations in the workload can sometimes be better absorbed if colleagues from other departments can jump in spontaneously
  • There may be quality and / or cost advantages
  • There is no dependency on the reliability of the service provider

These disadvantages can arise

Where there are advantages, there are often disadvantages. You should consider the following points when making an insourcing decision:

  • In an interview with WirtschaftsWoche, Prof. Wolfgang Maaß from Saarbrücken University points out that insourcing can be very expensive and time-consuming
  • If new employees have to be hired, there are higher internal personnel costs
  • Production risks have to be borne again yourself - if, for example, a product is recalled due to a production defect, no claims for damages can be made against third parties
  • The focus on core competencies, which is often a reason for outsourcing, is being reversed

Conclusion

Not every outsourcing decision made in a company is permanent. If certain situations arise in which it no longer makes sense to continue to implement the processes and tasks externally, a company should have the courage to reverse such a decision.

Insourcing is not always necessarily proof that a previously outsourced project has failed. It is also possible that certain conditions have changed in such a way that, taking into account the new starting position, it only makes sense to reverse a decision that was correctly made in the past and to position the company better for the future.

As part of my self-employment, I myself made the decision some time ago to outsource only extremely complex design work to a contractor. Since then, I have been doing simple graphic editing myself after having acquired the relevant know-how over a long period of time.

So insourcing does not only make sense for larger companies.

Tim Benjamin Peters
Tim Benjamin Peters went into business for himself after completing his studies and works in various positions with outsourcing service providers.

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