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The Case for Insourcing

November 30, 2014
Posted in: Innovation, Software


For decades outsourcing IT products and services overseas has been the prevailing trend throughout the industry. It became a popular business model because it was thought to be the best way to reduce cost, to capitalize on available talent, to support changing customer needs, and to accommodate scaling resources. However, in recent years many companies have reassessed their IT policies to include some, or all, of their services being brought back onshore or in house – a process known as insourcing.

This shift has largely been the result of increased offshore pricing, the change in priorities for new software delivery models, a renewed focus on service quality, and the increase in availability of talented developers throughout the United States. Returning your IT resources to a local environment can also allow for an improvement in time to market results by removing many of the barriers to communicating expectations and by allowing access to the feedback necessary to achieve optimum results. This increased communication can also lead to fewer errors in the final product.

Many practices which are now prominent in software development require frequent, open communication between clients and developers which often cannot be achieved in an outsourced relationship. These include:

  • The agile development model
  • Business intelligence
  • Testing

Besides the many improvements that can result from open communication, there is an additional benefit to localizing your software development team – a stronger connection to your intellectual property. If you are creating innovative software solutions for your industry, keeping the development process close to home helps to limit the possibility that your ideas will be publicized without your consent.

However, these benefits do not mean that insourcing is a one-size-fits-all solution. There are still instances when outsourcing can make the most sense for your company, and often a blend of both insourcing and outsourcing services is ideal. For more standardized processes that do not require continual communication, such as ERP, outsourcing can be a good fit. However, services that are related to how your company operates are probably best kept in house. The right location of tasks and services is driven by quality, cost, and the availability of talent. Where you house your services is ultimately your decision, and it is often a decision best made on a case-by-case basis.

If you are thinking of insourcing some of your company’s IT services, it is important to consider your specific situation to determine if the effort of the transition will provide you with the appropriate amount of value. First, you should assess your existing costs, service, quality, process efficiency, and personnel requirements against the market standards. Then you should anticipate that the transition alone will cost at least 5-10 percent, sometimes as much as 15-25 percent, of your monthly outsourcing costs until you are fully insourced. Plan on a four to six month transition for smaller transfers, and nine to sixteen months for more complex transitions. Finally, make sure the people responsible for your transition are intimately familiar with how your old system worked and with how you envision your new system to function – an error in communication during this sensitive juncture could severely impede the transition process. Once you have fully assessed the situation, you can determine if insourcing is the right step for your company.

If you have any questions regarding insourcing, or are looking for a local IT development team, give RTS Labs a call today!