1.2 Sourcing from WithinWhy Insource?

1.2 Sourcing from Within”Why Insource ?

Interestingly enough, the companies that we visited in our quest for that all- elusive benchmark were all struggling with the outsourcing issue. Some companies had outsourced their entire operations piece and were struggling with the trends of decreasing LOS and increasing costs, as described earlier. Other companies were looking to outsource, citing that hardware and software operations were not a core competency. In either case, it is obvious that outsourcing is on everyone's mind and will continue to be a viable alternative. The point we do want to drive home is that even though it is a viable option, it is only the correct one if certain factors are met. However, unless you have truly defined and stabilized your requirements as well as your operation, you must lean toward insourcing.

There are many factors that come into play when deciding whether or not to outsource a specific functional area or business. There are entire books dedicated to this subject that go into much further detail than will be addressed in this chapter. It is, however, a very important piece of the overall ISD model, with regard to implementation, and will be addressed in this context.

Some of the more "important" factors to be considered are:

• Customer Satisfaction

• Financial Savings

• Delivery

• Quality

• Scalability

• Variability

• Measurability

• Predictability

• Definability

• Competency

• Staffing Capability/Retention

• Velocity (reaction to change

• Stability

As you can see, the decision to insource or outsource is not purely one of economic consideration; the ability to react to changes in the business with timely delivery of quality services and the Q and D of the quality, cost, delivery, and value (QCDV) equation, plays a very big role. QCDV, defined in detail inChapter 5, plays a very big role in customer satisfaction, which is probably the biggest factor to consider. Therefore, in order to determine whether or not it makes sense to insource, it is important to understand what makes for a successful outsourcing partnership. The thought here is that if you cannot establish a successful partnership, then you should look to keep these services in-house.

Let's look a little deeper into a few of these factors and our rationale behind them:

1.2.1 Customer Satisfaction

This is the single most important factor to consider. You could argue that all the other factors listed above are a means to achieving customer satisfaction. This is why you see the list beginning and ending with customer satisfaction. To emphasize the point: How many times have you been willing to pay more for a good or a service because your level of satisfaction was so high? If the customer is not satisfied with the goods or services you provide, you can be sure they will either be looking elsewhere or escalating their concerns. It is for this reason that you must take a customer approach.

1.2.2 Definability and Measurability

Key factors to successfully outsource a specific functional area or business is dependent upon not only how well you define your customer requirements, but how well you can measure how they are being met. This may sound pretty basic and somewhat obvious; however, the fact remains that if you cannot clearly define what you need and are unable to put the appropriate measurements in place, then how can you expect your outsourcing partner to meet, let alone exceed, customer expectation? It cannot be stressed enough that you must be able to put the appropriate metrics in place. In addition to measuring your outsource partner, it allows your outsource partner the ability to measure themselves and to be proactive.

1.2.3 Stability and Variability

These, too, are among the most important factors to consider. Some of the most successful outsourcing ventures are with pieces of the business that are very stable, mature, definable, and measurable. This is why legacy operations are a perfect example of how to be successful with outsourcing. Legacy operations usually have very little variability associated with them. When we say variability we refer to changing requirements, changing functionality, dynamic customer base, etc. As stated before, variability drives change, change drives instability, and instability drives breakage , which drives cost and downtime, resulting in customer dissatisfaction. Think about the different pieces of your operation; those with the least amount of variability are those that are most manageable both from a delivery and a financial perspective.

1.2.4 Predictability

Predictability of quality, delivery, and cost of service also has a direct effect on customer satisfaction. A perfect example of this is the fast food industry. How many times have you gone to your favorite fast food franchise expecting to get predictable quality, service, and price, regardless of the town in which you are. It is the same with any good or service: Customers expect predictability.

Other factors and observations to consider:

• You may be able to outsource specific functions or areas with the core competencies listed above, but what you cannot outsource is a common goal. The goals of any ISD organization should be to increase level of service and to reduce cost, both of which will increase customer satisfaction. These goals can conflict with those of an outsource partner whose main goal is to increase revenues . It must be treated as a partnership if success is to be achieved.

• Outsourcing has an increase in " formality " associated with it that manifests itself in the form of "red tape." Therefore, if your business requirements are changing frequently, the ability for your outsource partner to respond with the same velocity may be hindered.

The message that should be coming across is that outsourcing makes the most sense in an environment, business area, or set of services that is definable, stable, and measurable. If these factors are lacking, then your outsource partner will not be able to provide the timely delivery of quality and predictable services in a cost-effective manner. In addition, you can be assured that customer satisfaction will be negatively impacted. The appeal of insourcing is that it allows you to experience the day-to-day operation of your business to better define your portfolio of services, the metrics by which to measure the delivery of these services, and provide for a chance to stabilize the operation. Once these factors have been defined, then the issue of outsourcing can be revisited.