Insourcing is the new outsourcing

Banks which outsourced their IT functions needn't have bothered. A new report finds in-house can be cheaper - while outsourcing produces insignificant productivity advantages.

In the 1980s, no IT manager lost his job for buying IBM. In the 1990s, no IT manager lost his job for outsourcing IT functions - only his staff did. But now it seems the tables have been turned. A report from Compass Management Consultants claims insourcing is in and outsourcing is out.

Simon Scarrott, Compass's head of business development and marketing, says there is a surprising lack of due diligence by financial services purchasers of outsourced IT. Contracts start with savings of, say, 18% but end with 'back-end loading' that makes them 45% more expensive than in-house.

He says a global bank, which he declines to name, has in-house IT costs which are 35% lower than its peers.

Scarrott adds that the problem for some banks is that to repatriate their IT business in-house means starting an IT department from scratch.

Firms offshore IT on contracts that come in on time and on budget but deliver measly productivity advantages of 5% or 10%. Scarrott cites JPMorgan's repatriation of IT outsourcing from IBM in India to an in-house operation.

Nigel Roxburgh, research director at the National Outsourcing Association (NOA), says outsourcing benefits are nothing to do with the price of technology. In-house and outsourced operations benefit equally from falling prices of software and hardware, he says, but outsourcing companies can do the job cheaper because of market competition and because they run technology more efficiently.