And, Insourcing is likely to not see the light again, anytime soon
The late 1980s witnessed the dawn of Outsourcing which started its consolidation process in the early 1990s, initially though having services like Call Center/ Service Desk and Back Office moved from in-house teams to 3rd party providers who begun to focus their Core Business in such services.
On the second half of the 1990s decade, Outsourcing started to expand to any other activities that were either highly labor intensive or could significantly benefit from the synergy effect of having a team that would deal on a daily basis with a wide variety of case scenarios (driven from distinct client’s business dynamic), like Research & Development or Application Lifecycle Management.
The new millennium witness yet another expansion of Outsourcing which now moved into the IT Operations Landscape, also comprehending the support towards live Core Business Applications.
Over this period a multitude of companies decided to fully Outsource their IT Operations and in many cases, this meant moving the majority of their in-house teams to a 3rd party provider in exchange for a 5 to 8-year Outsourcing commitment regarding the support of their IT Landscape.
Multinational corporations started by creating multinational contracts that allowed in one hand a steady revenue stream to IT providers who would have the capacity to undergo such process in multiple geographies while the client company would hope that having all the teams moving to the same 3rd party entity, their inherent operational knowledge would remain in the same “community”.
Amazingly this approach worked and there are no known cases of major catastrophic irreversible impact to any company Core Business that derived from having some core piece of knowledge or know-how permanently gone missing. Even though the overwhelming majority of client companies did not have their IT processes properly documented much less the way in which the Business Processes were mirrored in the IT Systems Landscape.
A part of the former IT Teams (the ones that did not migrate to the 3rd party provider) assumed IT Coordination roles (defining, enforcing and monitoring corporate IT roadmap and running Services as well as interfacing with internal client areas).
Outsourcing meant having the IT Manager (ahead of a team of 100) replaced by the CIO (ahead of a team of 10)
Since 2005 a new trend in operations arises with the massive adoption of Data Center and Server Consolidation, Virtualization and the adoption of Cloud Computing.
This had two complementary yet contradictory effects, the average system became a critical system, yet demanding exponentially less workload and effort to be maintained.
At this point in time, the problem was not on the “client's shoulders” but on the providers’.
Having gathered several outsourcing contracts from distinct clients, those providers ended up with massive tech support teams which, despite having become slimmer over the years, where yet colossal in order to cope with the amount of distributed systems in need of support within the former IT Landscape configuration.
The event of Consolidation, followed by the agility that Virtualization brought to “the equation” and finally the redundancy and restore capacity that Cloud added to the existing IT landscapes, represented almost “overnight” a high redundancy rate of HR expertise in such companies.
Client’s, on the other hand, were demanding costs to be reduced since they have understood the financial leverage allowed by the combination of those three factors.
A pretty messy situation for the IT providers for they were unable to move and adapt at the pace the market was establishing.
A market shift always means “Killed in Action” as well as “Survivor Gone Stronger” companies, and this process is still taking place ”as we speak”.
Some big IT Outsourcing companies are vanishing (at different speeds) while others are rising and becoming stronger by “capitalizing on the spoils”.
In this cycle, some clients have considered Insourcing.
After all, technology did evolve to the point where the majority of tasks are no longer so labor intensive; and even the ones that still are, like Call Center or Service Desk, will likely become increasingly less demanding due to the event of breakthroughs like Artificial Intelligence.
Insourcing really seemed like the right move.
So, why haven’t we seen any massive Insourcing trend?
To begin with, it would still mean higher costs and decreasing competitive edge (since again the tech expertise and experience would be focused on one single reality, the parent company); but there is another strong reason not to Insource, and it relates with a new Value Proposition in the market.
A new generation of Outsourcing Companies has arrived at the marketplace and their focus is on the creation of breakthrough outcomes for the client’s IT landscape, such as DevOps; SysOps; Intelligent Adaptive Security; Wide Range Automation.
Those companies aim at creating such innovative portfolio that assures Response Times in the scale of minutes (instead of hours) and Resolution Times that range from “immediate” (if automation and replication are possible) to a few minutes.
The new edge IT Outsourcing Value Proposition is not to reduce costs but to enable exponentially higher competitive leverage to its clients.