Tips on better insourcing

Michael Palmer faced an extreme situation last year. The COO (and former CIO) of Allied Office Products had to slash his IT budget by 39 per cent. But his solution was as radical as the circumstances he was in; he decided to bring in-house nearly all of what the US$280 million office products supplier had been outsourcing.

Palmer still does some outsourcing, but thanks to insourcing 85 per cent of the IT work, he’s now saving nearly US$500,000 a year. Here’s a guide for making insourcing decisions.

1. Take a good look at your existing outsourcing relationship. If your organization remained involved in the day-to-day outsourced activities, it will be much easier to insource. If not, you may want to get more intimately engaged before deciding to pull the plug.

2. Baseline your costs. Palmer looked at his internal costs and projections before deciding what to bring in-house. He determined what development and maintenance would cost in an insourced environment, but he also considered the value of time. In-house development is completed more quickly because employees have a better understanding of the company.

3. Figure out additional resource needs. Palmer sat down with the senior vice-president of IT and determined that he would have to hire a database analyst and two senior programmers or analysts for the Web site. Even with additional staff, Allied now saves nearly US$200,000 a year on hardware maintenance and monitoring, and US$275,000 a year on new development.

4. Communicate with employees. Some may not be on board with the requirements of a new insourced environment. Palmer reviewed each employee individually, told the person what skills would be needed and gave the employee the choice of retraining or having several months to find a new position.

5. Give yourself a cushion of outsourcing/insourcing overlap. No matter how prepared your staff is, it will take time to get up to speed.