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Choosing to outsource or insource not a simple decision

November 05, 2014

During the Gartner Sourcing and Strategic Vendor Relationships Summit in September, Gartner analysts Frances Karamouzis and Frank Ridder offered a thoughtful and entertaining foray into one of the more important issues of the innovation economy: Should organizations choose to outsource or insource?

The question itself is not as binary as it seems. Products in your household or services you buy are provided by companies that likely mix both models. And while the debate between the two approaches was posed in a narrower IT context, it presented some all-too familiar contours in discourse on the future of the modern marketplace.

Both analysts offered some compelling pro and con takes, with Karamouzis promoting insourcing and Ridder outsourcing. If not for the technology focus, one could easily build a time machine and plant the forum in the late 20th century NAFTA battles. Thankfully, it wasn't that—instead, the audience received a decent outline of why each side’s arguments contain enough merit to cause a draw.

Interestingly enough, the exchange was something of a throwback for Karamouzis, who tangled with the issue in a classic research note back in 2005 titled “Weigh the Strengths and Suitability of Global Insourcing vs. Outsourcing.”  In that piece, Karamouzis argued, “globalization has made an impact on all phases of the sourcing life cycle. However, few organizations have updated their sourcing strategies to account for global sourcing in their decision-making process.”

Perhaps sensing a general climate of plan-deficient outsourcing, Karamouzis asserted that “many simply decide to ‘go offshore’ and set in motion a series of events that result from that single decision, without undertaking some basic steps to ensure the integrity of their decisions and options.”

Some of those same arguments were on display in her overview of outsourcing cons. Her warning: Don’t break your business model for customized deals, own your destiny, hold fast onto valuable intellectual property and beware  nexperienced outsourcers.

Outsourcing, however, is not at all an unfamiliar landscape to Ridder, who’s long covered the organizational competencies required to make it successful. Ridder is not exactly anti-insourcing (even though he put on a good show for the purpose of the Orlando debate), but he makes solid points regarding the need for agility as he argued back in 2013: “Sourcing managers need to manage the evolution of their IT services sourcing strategies aligned to dynamic market and business requirements to ensure a state of the art IT sourcing ecosystem. This requires increasing agility and flexibility by leveraging smaller deals and an increased number of IT service providers in their IT service value chain.”

With outsourcing, countered Ridder, accountability is focused, talent management overhead is reduced, project models are better scaled and there’s a lot more innovation that ultimately leverages investment.

The challenge, however, is that the conversation seems way ahead of the pop culture discourse on sourcing. It’s no secret the average consumer doesn't understand sourcing, and what they do know is defined by the negative political tones of red and blue state friction over the impact of outsourcing on the U.S. job market. Hence, the outsourcing argument can run into obstacles due to public anxiety triggered by an ever-changing globalized economy (which has accelerated since the 1980s) and a fragile, recession-battered labor market.

Nor is insourcing immune from similar tensions: While nowhere near as politically vilified as outsourcing, it could be associated in a negative context with modern labor unions by certain blocs of the national electorate.

Still, the insourcing and outsourcing debate is much more than a vexing policy scuffle on the sideline. It can be a healthy intellectual engagement on the hard strategic choices organizations must make to grow. Business leaders should have better situational awareness of those debates and eventually encourage such discussions internally. That said, the discourse should only be one out of many factors that inform strategic sourcing decisions. It’s also not such a bad idea to demand the same level of awareness from service vendors who know how to navigate those choppy waters. Those who can will realize much success.

Charles Ellison is a senior analyst relations strategist for TEKsystems. He keeps close tabs on changes and public policy shaping the innovation space. He is also a former congressional staffer, senior aide to state and local elected officials and an expert advocacy strategist. You can reach him with questions and comments @twoARguys via Twitter.

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