Backsourcing: Why, When, And How To Do It

New report from Cutter Consortium outlines steps to follow when initiating backsourcing

New report from Cutter Consortium outlines steps to follow when initiating backsourcing

Arlington, MA — May 19, 2005 — "Enterprises should thoroughly evaluate how they can backsource their IT operations even before they enter into an outsourcing arrangement," said Jeff Kaplan senior consultant at the Cutter Consortium.

Backsourcing, explained Kaplan, is the process of an enterprise retaking responsibility for previously outsourced IT functions, and bringing these functions back inhouse. This process often involves legal, human resources, technology, business operations and vendor relationship challenges. It can also entail customer support, sales and regulatory compliance issues.

Cutter Consortium's new Executive Report, "Backsourcing: Why? When? And How To Do It," by Jeff Kaplan, provides a step-by-step guide to help enterprise decision-makers evaluate whether to terminate outsourcing arrangements and reassume responsibility for their IT operations.

"Terminating an outsourcing agreement can be equally devastating for both the enterprise customer and outsourcing company," said Kaplan. "There can be direct business costs in operational disruption and penalty fees. There can also be many indirect costs associated with the damage done to a company's reputation and corporate relationships with its customers, partners, employees and investors."

Kaplan went on to say that these outsourcing risks have caused many organizations to put "pre-nuptial," backsourcing agreements in place that clearly state the terms and conditions by which enterprises can terminate outsourcing agreements and regain control of their operations in the event their outsourcing arrangements fail. These "exit" clauses can mitigate the risks of outsourcing failures and assure the smooth transition of IT functions back to the enterprise.

The report examines the forces that are driving the backsourcing trend, and provides a set of guidelines for establishing an effective backsourcing process; one that ensures IT organizations can continue to support corporate operations even when an outsourcing arrangement is no longer meeting its original objectives and must be terminated.

In the report, Kaplan details steps to follow when initiating backsourcing:

1. Notify the outsourcer of the initiation of a backsourcing process.

2. Perform a current operations audit and a needs assessment.

3. Establish a project plan and timetable.

4. Develop security policies and procedures to safeguard proprietary information.

5. Quickly determine staff reassignments and mutual roles/responsibilities.

6. Include disaster recovery and business continuity in your backsourcing plan.

7. Communicate backsourcing goals, objectives, plans and timetables to enterprise staff and affected third parties.

Kaplan concluded, "The best way to successfully backsource is to develop an outsourcing strategy, contracting and management process that provides multiple opportunities for an enterprise to exit the relationship, and regain ownership and responsibility for its IT operations. In other words, outsource with backsourcing in mind."