Hitting The Right Balance of “In” and “Out”. A Closer Look at Evolving Sourcing Models
With the rising demand for risk mitigation and service-based outsourcing, providers constantly develop improved sourcing models to meet customer demand. This article, published in IAOP’s July 2013 issue of Pulse Magazine, examines the evolution of sourcing models, which improve to create more reliable, low-risk, and low-cost services. It presents a short overview of outsourcing history, and explains how Remote In-sourcing, one of the latest sourcing models, is an innovative extension of traditional insourcing and outsourcing models.
Using an impressive number of direction-related terminologies, the outsourcing industry has developed an exhaustive lexicon of business models and service offerings. The flexible and often overlapping business models aim at improving business efficiency and eliminating the risks associated with the outsourcing process, though unsurprisingly not all models are as successful as others. The question of how to limit the risks of outsourcing is at the very core of the industry. In fact, risk mitigation is what often determines whether to in-source or out-source.
The outsourcing lexicon has by now become confusing and almost directionless. Each new sourcing model sends you either in- or out-, off- or on-, near- or far…is there an over and under yet? There is no need for all the confusion; to understand outsourcing one must simply understand why people do it in the first place. In reality, companies outsource for two main reasons: to gain expertise and to cut costs. The first consideration is the lack of expertise in a certain area. Any expertise can be found anywhere in the world, which is “just” a question of the second consideration
– the cost. The two considerations create a milieu of problems as companies attempt to find the best available expertise for the cheapest possible price.
Of course, from the outset the purpose of outsourcing was to limit costs by giving responsibility for internal IT departments to experts like IBM or EDS. At first, companies outsourced their non-core competencies, but by 1990s with the Internet increasingly providing necessary technology foundation, more companies tried to outsource their (near-) strategic functions.
As such attempts became unmanaged with limited controls and standards, many outsourcing deals came to a halt. Trust in outsourcing diminished and the fear of unmitigated risks increased. Many companies learned the hard way that it is easier to fix problems in-house, rather than watch things go awry while coordinating with a third-party. Nevertheless, in order to resolve the need for expertise and cost efficiency, outsourcing was not abandoned as a business strategy. Instead, providers aimed to improve their service offerings. New guidelines were written as more accountable and outlined contracts were demanded. As a result, for almost 10 years the industry has been working with “scalable” outsourcing and pay-per-cost contracts. Yet again the demands of outsourcers and the industry as a whole are beginning to change as more flexible but still reliable – sourcing models are being introduced.
Download full article to learn more about Remote In-sourcing, one of the latest sourcing models, is an innovative extension of traditional insourcing and outsourcing models.