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Backsourcing

Definition

Backsourcing is the business practice of reabsorbing functions or tasks previously outsourced to a third-party company. It involves a company deciding to bring outsourced operations back in-house either due to dissatisfaction with the outsourced service provider’s performance or a change in strategy. Usually, this process aims to reduce costs or regain control over key production processes or services.

Phonetic

The phonetic spelling of “Backsourcing” is: /bækˈsɔːrsɪŋ/.

Key Takeaways

Backsourcing is a complex process and involves certain crucial aspects. Here are the three main takeaways:

  1. Better Control Over Processes: Backsourcing allows a company to regain control over their business processes or activities. This can lead to improved performance, better quality of work, and increased efficiency as control is no longer in the hands of the outsourcing provider.
  2. Cost Savings: Although the initial cost of backsourcing might be high including the transition costs, in the long run, it can be a practical strategy for cost reduction. When managed effectively, backsourcing can save substantial overhead and operational costs that were previously being paid to the outsourcing provider.
  3. Business Continuity Risms: Backsourcing can introduce business continuity risks if not managed properly. Ensuring smooth transition of business processes back to the company from the outsourcer is crucial to avoid interruptions and maintain business operations.

Backsourcing should be considered as an option when the company isn’t satisfied with the service provided by the outsourced provider, or when it doesn’t align with the company’s strategy and goals.

Importance

Backsourcing is an important term in technology because it refers to the process of an organization taking back control and management of IT services from an outsourced third-party vendor. This is usually due to a variety of strategic reasons like improving operations, reducing costs, maintaining competitive advantage, gaining better control over IT assets, or dissatisfaction with the vendor’s services. Backsourcing ensures that mission-critical operations remain within the organization and promotes improved flexibility and adaptability in response to changing market trends and business priorities. Thus, backsourcing plays a crucial role in optimizing organizational efficiency and effectiveness.

Explanation

Backsourcing is a strategic business practice primarily used to regain control over key business functions that have previously been outsourced to third-party companies. The main purpose of backsourcing is not only to regain control, but also to increase flexibility and efficiency in the operations, reduce costs, and mitigate risks facing the organization. It is generally seen when an organization realizes that the outsourced service is not realizing its anticipated value or when the business priorities and strategies have shifted. The use of backsourcing often varies widely across industries and companies. For instance, an IT company might backsource its customer service operations if it believes direct control over this function would result in better customer satisfaction. Or, a manufacturing firm might backsource its product design process if it believes that controlling this critical function in-house would lead to better innovation and quality. The overall goal of backsourcing is to improve the quality of service, reduce long-term costs, regain control of company assets, and protect proprietary information. Overall, backsourcing can be a strategic tool for organizations to remain competitive and adapt to changing business environments.

Examples

1. British Telecom (BT): BT, one of the largest telecommunications companies in the UK, decided to backsourced its IT services from their IT partner, Accenture, in 2005. The strategic move was aimed at regain full control of their IT operations and improve the capability of their internal resources. They believed in-house expertise would be more beneficial for their specific needs.2. Sainsbury’s: In 2005, UK supermarket chain Sainsbury’s terminated its $1.8 billion IT outsourcing deal with consulting firm Accenture after only 3 years of a 10-year contract. The company decided to bring their IT operations back in-house citing issues with the quality of service as the main reason for backsourcing.3. Procter & Gamble: Procter & Gamble outsourced its IT and employee services operations to IBM in 2003. However, they decided to take back these services in-house in 2013. They believed it would allow better integration of services and provide the flexibility to adapt to changing business needs. This return to in-house operation was considered backsourcing.

Frequently Asked Questions(FAQ)

Sure, here’s an FAQ section for the technology term ‘Backsourcing’Q1: What is Backsourcing?Ans: Backsourcing is the process where a company takes back the IT function they had previously outsourced to a third party company and starts managing it in-house.Q2: Why would a company decide to choose Backsourcing?Ans: Businesses typically choose backsourcing when the service provided by the outsourcing partner fails to meet expectations, when there’s a requirement for greater control over critical processes, or when the business’s strategy or objectives have changed.Q3: Is Backsourcing a complicated process?Ans: The process can be complicated as the business has to transition the responsibilities from the third party provider back to its own team. This may involve hiring new employees or retraining existing employees, which can be time-consuming and costly.Q4: What are potential pitfalls of Backsourcing?Ans: The main potential pitfalls include transitional difficulties, costs associated with rehiring or retraining staff, potential loss of knowledge or skills acquired by the outsourced team, and disruption in business operations during the transition period.Q5: What are the benefits of Backsourcing?Ans: The main benefits of backsourcing include improved control over critical processes, potential cost savings over long-term compared to outsourcing, the ability to directly manage and train the IT staff, and improved alignment with the company’s current objectives.Q6: Does Backsourcing always mean that an outsourcing relationship has failed?Ans: No, backsourcing doesn’t necessarily mean the outsourcing relationship has failed. It could mean that the company’s strategy has changed, requiring more control over the outsourced IT function.Q7: How can a company ensure a smooth backsourcing process? Ans: Companies can ensure a smooth backsourcing transition by defining clear goals, developing a comprehensive transition plan, involving all stakeholders, and investing in training to upskill in-house teams.

Related Technology Terms

  • Outsourcing
  • Information Technology (IT) Services Management
  • Service Level Agreement (SLA)
  • Vendor Management
  • In-house Operations

Sources for More Information

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