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Outsourcing vs. insourcing: The line's not so clear

An important part of a CIO’s job is understanding which IT functions are best handled by others and which should be kept in-house. But the answer is not always so clear-cut in the outsourcing vs. insourcing dilemma; in fact, it can be a real brainteaser.

“It’s not a bright line,” explained Tom Young, who oversees the infrastructure group at sourcing advisory firm TPI. “Think of it in terms of left brain and right brain, where the analytical left-brain functions get outsourced and the conceptual, big-picture right-brain functions are retained.”

Such as? A company’s security policy and its enterprise architecture are ill-suited for farming out, in Young’s opinion. An IT security policy needs to constantly adapt to new threats and changing regulations. “You might want to have the administration of security done through a third party, but you want policy and oversight set by the company,” he said. And if you farm out enterprise architecture, he added, you’re simply raising a conflict of interest for the provider: “You don’t want to give the person providing the service the keys to the kingdom.” What’s the rule of thumb? Functions that are routine and can be done by a set of rules tend to lend themselves well to third-party providers.

To help its clients solve the outsourcing vs. insourcing conundrum, TPI draws a chart of all the IT functions and subfunctions within each domain that a company might outsource, laying them out from the “transactional and simple to the conceptual and complex,” according to Young. At some point along that continuum, a company draws its line: outsourcing to the left, insourcing to the right. And even then, the rationale sometimes doesn’t become clear until after the CIO has lived with the contract for a while. “You’ll find yourself wanting to adjust those boundaries once you’ve had time and experience with that contract,” he said. “It happens a lot.”

Do you have an outsourcing brainteaser? If your company has solved the outsourcing vs. insourcing puzzle, I’d like to hear the details.

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