Backsourcing pain can be avoided

The term ‘backsourcing’ is beginning to be heard more frequently in the world of IT service provisioning and, as is the case with clever terms that pick up considerable traction, there is some confusion around just what it means. And, as usual, there are multiple definitions being put into circulation for it.

Pure backsourcing most often refers to the process of bringing previously outsourced IT functions back in-house. This can result from a variety of circumstances, including, for instance, a project going horribly wrong and the customer yanking the supposedly mishandled IT responsibility back into its own shop.

The about-faces that characterize pure backsourcing can also be spurred by less acrimonious occurrences: one firm buys out another, the bought-out firm has a nifty outsourcing agreement set up with its friendly neighbourhood service provider that the purchaser doesn’t think is so nifty, resulting in the contract being quashed and the IT being brought back home to roost.

Perhaps the most notable case of this example occurred in the U.S. in 2004, when JPMorgan Chase was scooped up by Chicago-based Bank One. Two years previously, JPMorgan Chase had garnered considerable attention by entering into a US$5-billion outsourcing agreement with IBM, one of the biggest on record. Less than three months after the Bank One buyout, the new owner decided the IBM deal didn’t work to its liking and backed out of it.

Another kind of backsourcing that is fast becoming a trend is the “Build-Operate-Transfer” concept. This sees a company outsourcing a particular IT responsibility to a service provider only for a set period of time. When that time is up, the tasks revert back to the customer. This process is particularly useful for firms that want to get a complex process off the ground and running as quickly as possible.

No matter what kind of backsourcing occurs at a company, it runs a very real risk of injecting a healthy dose of disruption into the equation: jobs are lost, processes are forgotten and have to be relearned, confusion can reign supreme.

As pointed out by Albert Silverman, an analyst with PricewaterhouseCoopers in Toronto and an outsourcing observer for 20 years, the most successful outsourcing projects are carried out by those firms that know their business and know whether outsourcing is right for them. For those wishing to avoid the upheaval that can result from unplanned backsourcing, this is sage advice.

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