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Insourcing, Outsourcing, Cloud, Offshore, Nearshore,...

The tag line about clients focusing on their business and letting someone else focus on IT is losing it's appeal in the digital world. However, this doesn't mean companies are going back to the way it was either. 

AstraZeneca, a $ 26 billion global pharmaceutical company, outsourced their IT services to IBM with a $1.4 billion contract in 2007. Around 2011, AstraZeneca decided to exit the contract and transitioned IT services to a mix of six to eight different best-of-breed-type service providers. They were outsourcing about 70% of their IT to external firms. In 2013, David Smoley joined the company as CIO and soon after began the unconventional process to insource the IT services back under AstraZeneca. 

Upon arrival, Smolley found himself in a situation where AstraZeneca, like other large pharmaceuticals, was facing some headwinds. Blockbuster drug patents were expiring, allowing generics to take away marketshare while new drugs were still in the experimental phase.  He came up with five pillars of the strategy that would help AstaZeneca move forward and that his IT team would build on: customer focus, operational excellence, technology leadership, collaboration and simplification.  

Delivering on these pillars became very difficult with their current approach, however. The collaboration and hand-offs needed with so many key service providers slowed progress while increasing costs. AstraZeneca felt they had very little control of IT when IT was becoming central to every company in every industry.  The days where IT could just be an order taker were gone, replaced by a need to strategically guide the business in acquiring and keeping customers, increasing revenue, providing new products to customers, as well as increasing the effectiveness and productivity of the business operations.

So Smolley decided to begin reversing the outsourcing of IT and bring it back in house. They built their own offshore capabilities in India and Mexico. They developed the process for agile along with management to ensure the insourced resources and technology remained highly effective and productive. The result was lower costs, improved performance and improved customer satisfaction compared to the previous structure.

 

But Not Back to the Way It Was

AstraZeneca is not bringing all people, software and hardware back to on premises and inside the company. Smolley has a cloud first strategy.  His methodology is to identify the business problem and then find proven tools that solve the problems first. There are many innovative companies that focus on a specific business problem, having developed proven, cloud-provided software designed to solve those problems much better than in-house. AstraZeneca now uses Box, Concur, Office 365, Workday, ServiceNow, Docusign and other platforms to solve various business problems.  In addition, they are using Amazon Web Services for infrastructure when their scientists need computing power for intensive research objectives.


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Trends

There are some other large companies like AstraZeneca which are transitioning from outsourcing to insourcing. The aggregate FTE type of outsourcing seems to not work as well in an IT-centric world. Outsourcing is still a valid solution, but rather than being "the" answer, it's part of the answer and one which may change over time like it did for AstraZeneca.  Startups and smaller companies would not be able to complete large insourcing initiatives like large global corporations.  So initially outsourcing could be the right solution, but may be less so over time as the company grows. 

The trend that I am seeing is that software and hardware is increasingly being moved to 3rd party clouds, but people may be moving back into the companies. Key capabilities like agile development teams, analytics, data science and business analysts, along with strong IT leadership are critical for digital transformation that keeps changing. So IT leaders need to determine what the right mix of outsourcing, insourcing, offshoring, cloud, etc will be, as each have their own benefits and disadvantages which can change based on the company's size, market and direction. The reality is that each of these may be part of a total solution for both large and smaller companies.

 
 
Lessons Learned

American Football is one of the sports where a game plan and strategy is critical to success more than individual players making extemporaneous in-play decisions.  Even the right game plan may not be working in the first half due to a multitude of variables that come into play during the game. A great team and coach has to make adjustments to the game plan for the second half to be successful. The value of doing right is much higher than being right, so coaches don't spend much time trying to be right by continuing with the same game plan.

Outside of sports, especially in politics and business, being right, unfortunately, is quite often valued over doing right. AstraZeneca decided to go against convention and made a major adjustment, even transformation, from their original move into outsourcing. The change of their game plan in the second half has become very successful. It wasn't necessarily that they made the wrong decision initially, but rather that they made the right decision later on. 

Smaller business may need a larger mix of outsourced and cloud services as they grow.  Partnering with providers that can deliver specific business solutions or a set of tasks as services, will be more valuable than larger FTE aggregate outsourcing contracts. Ultimately there is not a single right solution and the right solution today may not be the correct one tomorrow. IT is a central part of every business now, so finding the right mix of people, software and hardware solutions and whether they are inside, outside, onshore, offshore or in the cloud is a critical strategic decision with a variety of answers.

 

Breaking Free From The Flat-Rate Managed Services Model