Outsourcing and insourcing: myths and reality in Russia

To speak about outsourcing and an insoring, it is necessary to deal with determinations though already from the name to much it is clear that insourcing (from the English in and source/resource) means solving of tasks at the expense of internal reserves, and outsourcing (out and source) – at the expense of external.

In relation to the IT field it means that the company can attract as the third parties to transfer of a part of functions to them on service of information infrastructure, and to create own internal reserves for the solution of such tasks.

And in a case with insourcing it is as about internal division, and, perhaps, about the subsidiary company servicing the only customer. The main thing that, as well as in a case with outsourcing, here too SLA – the agreement on the service level usually works. In case of outsourcing, there are contractual relations between two companies, the customer and the contractor, and service is provided by the external supplier.

It is possible to study projects of IT outsourcing in the directory of TAdviser. Insourcing projects it is not always advertized outside the created structures though turnovers of such insourcing companies can be very considerable. In particular, the large industrial companies with the state equity participation, for example, in an oil and gas sector are inclined to create insourcing IT structures. Recent example from the financial sector: creation of insourcing company "Sberbank-Tekhnologii" by Sberbank. Also insourcing structures Gazprom has (Gazprom Inform) and Lukoil (Lukoil-Inform).

By data, which are given by CNews on 2012 ^[1], from 45 to 65% of IT budgets in Russia are the share of insourcing that creates this "gray" market. And a part of these amounts can be redistributed in an order type to subcontractors – the outsourcing companies. It is not surprising that often from IT service companies it is possible to hear disapproving responses for benefit of insourcing. By detailed consideration both models have both advantages, and shortcomings.

Business premises to IT outsourcing development

For survival in the changing competitive environment business needs the minimum time of acceptance and implementation of solutions

Myth No. 1: Outsourcing always provides economy

Actually, outsourcing is not always a guarantee of economy of the IT budget. As it appears from data of MarketVisio below, it is known also by most of customers: the main motivating factors for outsourcing use not financial, first of all is the shortage of examination and personnel in the company.

The motivating factors for outsourcing use

MarketVisio Consulting, 2012

As note in CROC, the cost of the contract of IT outsourcing can be equal or even to exceed the cost of infrastructure maintenance by salaried employees. At outsourcing other advantage – an opportunity to strictly control execution of works, their quality and cost. Also there is an accessibility to knowledge and experience of narrow specialists which the customer does not have sense to employ to itself to the state.

"Sometimes we advise customers to continue to use the scheme of insourcing. There are cases when own competence in the customer is very high, and use of the external contractor simply does not make sense in terms of service quality improvement", - told in the company.

Myth No. 2: Outsourcing suits all

All that, eventually, will be cheaper outside, than "inside", what is measured within SLA, and what appears too difficult for IT services of the company is told to outsourcing. Outsourcing of IT infrastructure, technical support, support of business systems, outsourcing of printing, outsourcing of call center and other types already gained the widest circulation in Russia. Nevertheless, for the non-standard solutions IT outsourcing it can be inapplicable.

Use of outsourcing is reasonable in two options: first, in case of work with standard technology, both necessary and in this connection systematic procedures of prevention and elimination of incidents. Within outsourcing it is possible to receive specialized service within work with the standard solution for rather little money.

The second option – if the companies are required anykey-services. It is possible to give an example from the sphere of retail, most often a different geographically-distributed structure of networks, the high level of fault tolerance of services and a possibility of centralized operation. In this case quite frequent practice is use of IT outsourcing for accomplishment of not numerous transactions which require physical presence of the specialist.

Corus Consulting notes that despite more and more broad penetration of IT outsourcing, insourcing will remain demanded for unique solutions: for example in case the company within long years develops own product or service, a unique system under which a complex of unique competences and expert knowledge are required. It is very difficult to transfer such systems to outsourcing as this type of service is suitable for support of more or less standardized solutions. Such services should be in a sense universal to be demanded more than at one company.

Myth No. 3: The competence of an insourcing command is much weaker than outsourcing

As practice shows, it not so. On the contrary, according to Irina Semyonova, the marketing vice president of Maykor, in insourcing structures display commands which already have long-term experience of service of the specific technical park of the customer (in this case, internal).

"Such commands have no dead times on entry into specifics of business and the customer's IT infrastructures, there is an understanding of features of internal communications. However if only the name changes – the internal department grows in the separate legal entity - it practically does not change an essence and the volume of problems with service which existed in the company before", - she explained.

Besides, according to her, in regions, especially for the city-forming enterprises and small towns, the market of the IT personnel is almost absent or is developed in volumes, insufficient for the large customer. Pick up (or just to select) partner outsourcing happens to efficient staff of employees extremely difficult. Insourcing - the unique method in this case.

Minus of insourcing is that if the expert leaves the company, it gives rise to need to spend a set of time and funds for training of the new employee. In most cases, at departure of such specialist the company is forced to refuse development of this system and to think of migration on new, specialists of Corus Consulting note.

Myth No. 4: The insourcing and outsourcing companies have identical SLA

Fundamental difference of outsourcing and insourcing that in outsourcing market there is a real competition.

"We did not see that insourcers had considerable volumes of business outside their area of dwelling. It means that they have no serious motivation to fight for quality of service. Of course, those that try to expand the customer base meet. However they are initially focused on rendering services within one customer", - believe in Jet Infosystems companies.

About same speak in T-Systems CIS: those companies which select insourcing want to control everything: processes, data, purchase and accounting of each set of the equipment, etc. Sometimes it helps to correct a problem quickly. However such approach does not allow to avoid systematic failures. Minuses of such model can consist that there are no accurate and measured SLA with the internal customer, and, strangely enough, lack of transparency and accounting of that on balance.

"Besides on balance of the organization there is rather high CAPEX: the equipment, licenses, buildings, other fixed assets, and high personal costs, including the Internet, mobile communication, sick-lists, awards and also a managerial personnel. It is possible to refer smaller controllability to minuses of outsourcing", - experts of the company said.

Outputs

Irina Semyonova believes that opposition "insourcing vs outsourcing" is a little far-fetched. These models can quite coexist. The companies can involve new contractors in the new directions, and for already existing works on service of the developed IT infrastructure to make use of competences and the accumulated experience of own services for quality management of services.

If to speak about the choice between insourcing and outsourcing, there is a sense to pay attention to the following: if you have a conservative business which is not giving in to modern trends it is possible to prefer insourcing from a position "why something to change if everything works", speak in Maykor. But if you plan the new direction, territorial expansion, there is a need to rebuild urgently or to completely update a service portfolio if there is an understanding that services can be rendered at essentially other qualitative level and change enormous bureaucratic machinery there are neither forces, nor time – it is necessary to try outsourcing.

Borlas says that often deal with the hybrid circuit. In some schemes the insourcing model, in others – outsourcing prevails, but anyway these two types of consumption interact and supplement each other. Insourcing – a conservative method of consumption – in it the main focus is placed on own command, own examination is cultivated. Insourcing speaks rather about closeness and a nestandartizovannost of business in the field of IT. Of course, the format of insourcing raises the status of the head of IT – in the large organization he is the director, the chief of several departments, in his subordination dozens of people. There is some delusion that it is easier to manage internal personnel and if it is necessary, then can overtime work. In rather rare (and unclear for me) cases the insourcing format is also accepted for increase in capitalization of the company.

Pass the companies at which core business is rather mature from the point of view of the organization of processes to outsourcing. The company which is successfully managing the business is quite able to manage one more (or several) IT service providers. Only two functions are extremely seldom transferred to external control - it is service of the customer and own security.

"From minuses of outsourcing it is possible to call two. From the business executive you turn into the manager and services of the external company under certain conditions can be more expensive, than charges of internal personnel (but here it is already necessary to compare also quality and efficiency). The main pluses of outsourcing is and there will be a transparency of costs, disposal of non-core assets and functions", - concluded in Borlas.

Read Also

Insourcing in the field of information technologies

The largest IT and insourcing companies in Russia

Competences of IT insourcers

Notes