Barclays Bring IT In-House

Posted by Kevin Brady on Sun 24th January 2010 at 08:14 PM, Filed in OutsourcingIndustry News

I heard recently that Barclays Bank is going to bring its IT Application Development in-house after deciding not to renew its £400m IT Outsourcing Agreement with Accenture.

This means that some 230 staff who moved to Accenture as part of the original outsourcing deal struck in 2004 are now on their way back to Barclays. I understand that the reasons for Barclay’s refusal to renew the contract were “entirely commercial”.  However, it is important to note that this in source decision comes on the back of a strategic review of Barclays and the adoption of the best model to support their strategic needs going forward. This perhaps suggests something wider was taken into consideration when deciding not to continue their IT outsourcing partnership with Accenture.

I have to say IT insourcing seems to be a more common trend these days. Only recently Prudential insourced it’s IT development back from Cap Gemini. However, one thing seems to be a common thread to all these insourcing arrangements is the reasons for doing so are always vague and benign to all involved.

No mudslinging allowed!

Perhaps if it was allowed we would all know more conclusively why IT outsourcing compared to other forms of outsourcing (BPO) arrangement just don’t deliver the expected benefits.

So why is mudslinging not allowed?

Well in my view when things go wrong neither side is going to throw rocks at each other when the outsourcer is in charge of a major and strategic business organ such as IT, which is very often key to the smooth running of “Business as Usual” let alone the strategic future of a clients business.  Many businesses these days are almost entirely dependent on IT, which is becoming more and more strategic as a revenue generator rather than the more traditional service /cost centre.  In my view the reality of IT outsourcing can be akin to outsourcing the use of your legs.  Can you imagine instructing your legs to walk or kick a football through a third party brain, which has different objectives, constraints and very often decides rather than follows your exact instructions? Well this is how many businesses who are considering insourcing feel. Under these conditions it is always going to be difficult when the love affair comes to an end to shoot your middle brain and potentially risk a loss of feeling in your legs. In my experience the whole matter is handled delicately on a “Mutually Assured Destruction” basis for as long as the outsourcer has control over the use of your legs.
So what are the possible underlying reasons why IT outsourcing might be failing to live up to expectations:-

(1) Management overhead greatly increases costs beyond what was originally expected. For every outsource manager an opposite number is required on the client side to make decisions. In the trade this is known as “Two in the box management”

(2) Management overheads can mean responses to business needs taking longer.

(3) If the outsource is offshore (in most cases) you have cultural issues to contend with which can cause delays and lack of focus on quality.

(4) Despite what outsourcers tell clients, communication is an issue not just because of the “Two in a box” management, but because projects are often delivered off-shored and managed via conference call. Rarely do such projects have enough best practice process and documentation to compensate for the lack of close communication between users, clients and project teams. Failure rates sky rocket.

(5) Also outsourcers get to know all your strategic plans, issues and where the skeletons are kept. These can despite confidentiality agreements be a real problem from a competitor and a management point of view. Knowledge of such things can make outsourcers less like partners and more like “Blood Brothers” and managing such embedded partners can be become a sensitive and
difficult undertaking.

(6) IT Outsourcing involves too much strategic project work for it to work well in reality. Fail at the delivery of a strategic IT project as an outsourcer and your days are numbered. Bearing in mind 70% project failure rates this is inevitable. Perhaps much of this trend in IT sourcing is to do with IT project failures and the need for client line managers to find someone to blame. 

For a more enlightened analysis of the pros and cons of IT Outsourcing please see Disadvantages & Advantages of IT Outsourcing.

So what’s the potential lesson from all this?

Outsourcers need to stick to what they are best at, which is the outsourcing of non strategic low tech business services (BPO). Businesses need to value their IT services more and approach the problem of getting more value from their IT departments through the development and adoption of other alternative IT strategies such as package driven software development which carries far less delivery failure risk.

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