IT In-Sourcing vs. Outsourcing: Best Bang for the Buck

Situation – Looking to Reduce IT Costs, Need a Disciplined Way to Compare In-sourced IT services to Outsourced:

A Fortune 50 pharmaceutical company was under pressure to find IT cost reductions. Since IT infrastructure was one of their greatest expenses, the executive team felt the need to review IT Outsourcing options, in spite of concerns that outsourcing led to poor service levels and a lack of flexibility in responding to business demands. IT service levels were a mission critical differentiator, so this was not a decision they wanted to make without doing their homework – especially since their internal IT team was delivering industry leading results and their customers were happy. They had to come up with a disciplined way to independently compare their in-sourced IT services and related costs with the world of outsourced opportunities.

Solution – Apply Capto’s Modeling Technique to Develop a Decision Matrix:

Using a unique In-source vs. Outsource modeling technique devised by a current member of the Capto team, the company was able to make an effective IT infrastructure evaluation.

At the outset, it was essential to determine what types of services the business wanted/required before comparing costs for the services delivered.

The model first looked at and verified the service levels provided by the in-house IT team. That was essential so that comparable expected results could be benchmarked against costs.

Secondly, all internal IT infrastructure costs were gathered and categorized by key function and used to create a pro-forma “outsourcing” request for proposal (RFP).

Next, two major outsourcing providers were brought in, and along with the internal IT team, they each presented proposals for addressing needs identified in the RFP.

The modeling technique then took the input from the two outsourcing proposals, plus the in-sourcing data, and combined them into a single decision matrix. That matrix measured the costs and service levels. The results highlighted the strengths, weaknesses, pros and cons for each provider.

By using Capto’s modeling technique, the company was well positioned to compare their internal costs and service levels to those of the premier outsource providers.

The results of the modeling exercise found that the headcount and support costs provided by the internal IT team were slightly higher than those estimated by the outsourcing provider. The outsourcing vendors offered SLA guarantees, which were evaluated against those of the internal IT team which had a proven track record of success.

When the additional cost to successfully manage an outsourcing venture was factored in, there was no meaningful economic advantage to outsourcing and the best “bang for the buck” was to continue with a well managed internal IT team.

The exercise proved a valuable tool for the business leadership and the IT team and is now repeated every three years.