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How do you decide between insourcing and outsourcing?

Within many businesses the question of whether to insource or outsource comes up often. Emerging technologies like mobile and big data are having a significant impact on IT sourcing decisions -  so to make the right choice for your business, it’s important you assess how insourcing and outsourcing has changed.

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Insourcing

When it comes to sourcing talent in house, there’s the question of hiring a contractor or a full time employee. Hiring a contractor works best for project-based work or a skills gap issue, as specific requirements can be outlined and specialised skills can be accessed on demand. However, a short term contractor with a niche skillset is going to be costly.

If there is a long term need for a resource, and there is the budget and capacity for training and development, it makes sense to hire a full time candidate. This is the case for major retailer Target. Its US CIO is in the process of hiring 500 software engineers as he believes keeping the intellectual property in house “preserves competitive advantage”.

However, as we highlighted in our blog, the IT industry is currently facing a skills shortage, making insourcing a challenge. According to Gartner’s 2016 CIO Agenda, this lack of talent is the biggest issue facing IT leaders worldwide, and 22% of CIOs surveyed believe not having access to skills and resources is their main barrier to achieving business goals. As organisations of all types increase their reliance on digital technology, competition for skilled technologists is only going to intensify.

To compete for talent, CIOs need to be more creative in hiring. In a recent report titled IT Talent Crisis: Proven advice from CIOs and HR Leaders, the Harvard Business Review (HBR) highlights the need for IT leaders to develop new ways of attracting and retaining technical talent, and stresses the importance of creating a more progressive, development-focused approach to hiring. One CIO featured in the report states, “We need to flip that [traditional approach] around and instead identify people with interesting and uncommon capabilities and then design the job to get maximum contribution from them.”

Traditionally CIOs have focused on the technical requirements and not on communication skills or culture fit within the existing team. Now, it’s more important to look for the characteristics and aptitudes new hires can bring to an organisation, such as a passion for data and analytics and the ability to creatively problem solve. The key is to have well-defined job requirements but know where they can be flexible to get the right people on the team. As the HBR report states, the CIO’s talent strategy should be to “hire for characteristics and train for skills”.

Outsourcing

However, in many cases, keeping IT in-house and hiring more staff is no longer a viable option if organisations are to stay ahead of the competition. The reality is that most CIOs are spending too much time and money operating existing environments. An alternative to hiring additional staff is to partner with an external IT company. In fact, a Deloitte Global Outsourcing and Insourcing Survey identified a trend towards outsourcing consumption as organisations look to increase flexibility to react to changes in the technology environment.

Thanks to the cloud and digital technologies, outsourcing isn’t what it used to be. What was once a transactional, cost-cutting arrangement now has the potential to be an innovative and proactive business partnership. A 2015 McKinsey & Co article states, “Collaborating with external partners reduces costs and is also a faster route to market. Successful innovators discover they can achieve significant multiples for every dollar invested in innovation by accessing the skill and talent of others … Companies should therefore aim to become the ‘partner of choice’ in the areas where they need to extend”.

Outsourcing also has the ability to create a more strategic role for the CIO. The future for IT leaders sees them moving away from managing an IT department to managing a whole set of external partners, and becoming less internally focused as everything becomes outsourced ‘as a service’. The CIO’s role will still be about aligning the right technologies to the business, but this will be done with the help of external partners.

An external focus

While sourcing decisions are highly specific to each organisation, looking for talent externally appears to be the better option in the digital era. The outsourcing landscape is constantly evolving to better serve customers, and with more and more options available, many CIOs are finding that hiring third parties can be advantageous, particularly as they look to implement digital technologies. And as it becomes increasingly difficult to find all of the necessary talent and knowledge within one organisation, collaboration with external partners is being recognised a crucial ingredient in innovation.

Insourcing talent has its benefits, but any time there is a smaller pool of candidates in a competitive space like IT, there will be hiring challenges. Retaining employees can be equally challenging, especially if they have skills that are in high demand. As one IT leader said in a recent TechTarget article, “We needed a way to stay current with technology and manage our costs. It became clear that a team of experts could do better at both than one person could.”

Contact BigAir or to get started on building a business case for increasing your insouce or outsource budgets, download our free ebook, Build a business case for investment and innovation.

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Topics: Cloud Computing, Investing and Business Casing, Team & Leadership, Budgeting, Outsourcing

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