Don't trust a third party? Try internal outsourcing

19 July 2006
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20 July 2006 | Rebecca Ellinor

Companies that are suspicious of outsourcing to a third-party could benefit from "internal outsourcing".

Rick Simmonds, partner at consultancy Alsbridge, made the case at a seminar for buyers in London this month which explored the pros and cons of different outsourcing methods.

Simmonds said for those opposed to outsourcing for political or emotional reasons, the "next challenge is to match the outsourcers by adopting their best practice to become an internal outsourcer". This removes some of the perceived disadvantages of outsourcing, such as lack of flexibility and reliance on a third party, he said.

Simmonds, one of five presenters, argued that most "captives" - company-owned offshore operations - are unsuccessful.

He said this is because they are rarely governed by the same discipline expected of outsourcers.

"You need rigour in an internal relationship to fairly compare it with the rest of the market," he said. "It's no good if you have a contract for external providers and just a wish list for internal ones."

To get the best of both worlds, internal outsourcers would be a separate legal entity with incentives to drive profits, he said. They should report to the board, have service and operating level agreements and build long-term relationships with customers.

Tim Lloyd, managing partner at Alsbridge, also at the seminar, told SM he wasn't aware of any firm that currently uses this form of outsourcing.

"It depends what the company is trying to achieve but an internal outsourcer is better than an internal shared service centre if you don't want to outsource to a third party. Many firms don't outsource because they don't believe in it, but I don't know any organisation for which internal outsourcing would be unsuitable."

Pierre Leroy, head of European Shared Service Centre for Kimberly-Clark Europe, said his firm uses a combination of its existing captive operation with that of an outsourced provider. It enables them to retain expertise built up in-house and expand on it without any further direct investment.

SMjul2006

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