Should your company be insourcing or outsourcing?

Gary Slack, president and COO of QinetiQ North America, reviews the benefits of insourcing and outsourcing, and suggests that you ask yourself which is better for your company in today's market of uncertainty.

We are in an unprecedented market today, and companies must look at non-traditional ways to succeed.

Gone are the days when there was certainty about the federal budget cycle; uncertainty today is the norm. New projects are few and far between, many more tasks are being done on a short-term contract basis and cost control is paramount.

This has created a business-to-government market where we’re seeing more hiring of short-term capabilities rather than traditional outsourcing.

As long as federal contracting crawls along, technology providers must accelerate their business decisions based on what’s best for their company and their clients.

One effect of this dynamic is that contractors must decide whether to keep their capabilities in-house, ready for all opportunities, or to apply the “as-a-service” model to customers’ requirements by outsourcing as needed.

In other words, we must be flexible. We must use the here-and-now realities as our GPS and toss away the fold-out auto club roadmap.

Cost options have changed

Years ago, when considering costs, contractors could choose between two options – how long do I want to carry the cost of a particular capability – say, engineering, accounting and bookkeeping – or do I even need that capability full-time?

In today’s fiscally restrained climate, however, questions of in-house versus outsourcing extend beyond traditional fiscal considerations to things more technical in nature because government contracts are more short-term and more narrowly defined. As a result, contractors are increasingly turning their attention to the core capabilities they need to meet their customers’ needs.

Everything else is a commodity.

Management must decide whether to own the technology or the resources needed to provide the solution, or to buy them on an as-needed basis as a business process outsourcing (BPO) investment.

For example, you might need high-level compliance assistance for perhaps three to six months. Since it normally takes that long for a new employee to be trained and become productive, bringing such expertise in-house may not be cost-effective, whereas outsourcing could mean paying a premium and perhaps getting a lower level of expertise than you desire.

In-house versus outsourcing decisions are also more complex because long-term relationships between employer and employee are less prevalent. In fact, one trend we’re seeing is that companies are taking on contracted subject-matter experts for “power bursts.” Even most incumbent roles on federal programs no longer last beyond the usual five years.

We live in a dynamic society where expert resources move around frequently, building up diverse experience to offer a broader set of capabilities to companies.

New dynamic, new benefits and risks

This dynamic brings with it both benefits and risks. Insourcing is particularly appropriate for activities such as program finance, human resources and core competencies. Engineering specialties, for example, are better in-sourced if that is what the company primarily sells. Having a cadre of specialized talent on staff is evidence that you are a viable business in it for the long haul.

With insourcing, you create an infrastructure of efficiencies and greater understanding of the general corporate structure.

Outsourcing benefits include the ability to change the size and scope of an activity, the flexibility to cancel when it’s no longer needed and the opportunity to lower costs by buying a service that is shared with other companies.

The downsides are that you might need the talent longer than expected, and the additional time can be costly. Then, of course, you will have to constantly train the outsourced expertise each time you require that special service. That can get very old – and very expensive – quickly.

The bottom line in outsourcing in this B2G market is that a normal business review and decision won’t cut it; you’ve got to be more diligent than ever and, above all, be flexible and ready to act quickly.