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Is insourcing the new outsourcing?

By Rachelle Peard. Published on 24 May 2013

Senior interim transformation director Michael Hyltoft is a recognised expert in Shared Services. He has led a variety of SSC projects from managing outsourcing and near-shoring programmes, to insourcing back into the UK from overseas. Here, he reviews the pros and cons of insourcing and outsourcing.

“Insourcing can provide the necessary information and control to improve executive business decisions. Although this requires considerable investment, significant savings on outsourcing costs are likely to be made.”

“When considering the move from outsourcing to insourcing, you have to acknowledge exactly what has changed within an organisation,” he said. “For some, the main driver will be to create a transactional service providing advice and information, as opposed to being the engine room of the business which fixes issues.”

Michael lists a number of key reasons for a business to decide to insource:

  • greater integration and collaboration with the business
  • opportunity to make better-informed business decisions
  • improved operational control and transparency
  • greater flexibility and ability to respond to business needs
  • financial savings
  • higher level of customer service

“For example, a client may wish to better understand how to improve management accounts, liaise more efficiently with suppliers and identify business behaviours. For others, the emphasis will be on improving the response for those using the shared services, making sure they receive a quality service and not simply scripted responses to their questions.”

In his most recent project, Michael was keen to praise the outsourcing provider’s role both in originally setting up the outsourcing agreement and in helping to bring the services back internally. To get the most out of the process, a business needs to take and maintain ownership at all times.
“On a day-to-day basis it’s very difficult to understand where a business is going. Outsourcing shared services means working to set guidelines, which can sometimes limit flexibility. The distance from the front and back office is physical, mental and operational, which is very difficult to change. This is not the fault of the outsourcers because they are acting on given instructions, but they are simply not close enough to embrace the crucial changes that are sometimes needed.”

Michael says; organisations need to determine the priorities that they are specifically looking for from their shared services, and where they are in the company’s lifecycle.

For example, if the requirement is for more cost-effective back office processes then outsourcing to a low cost destination such as India may provide a solution; whereas if the emphasis is on the provision of high quality customer service, the in-house route is more likely to deliver the desired response. This however has to be considered in light of the UK-based outsourced Shared Services Centres now available.

“I have seen companies choose to outsource simply because other companies are doing the same. They then can’t understand why it’s not worked for them,” he continued. “You have to understand what is behind each of the company’s decisions and think about why you want to do it internally. There is no one simple answer which fits all situations.”

“Outsourcing can provide a quality low cost solution, but don’t expect full integration with your business unless you spend the time and effort you would have done, had it been internal. When things go wrong, it’s easy to point the finger at the outsourcing provider, but remember that it should be a partnership. You need to have a good relationship and understanding of what you want t which can be achieved with effort from both sides.”

“The same principle applies in-house – you have to maintain ownership. Insourcing solutions have to meet the needs of the business, or you won’t achieve the key benefits initially set out.”

Michael Hyltoft is an independent consultant specialising in Shared Services Centres and Supply Chain Finance. He has been working in his current role through Eton Bridge Partners for the last 11 months and has more than 15 years’ experience in Finance, Shared Services, Technology and Outsourcing.