It backsourcing: from 'make or buy' to 'bringing it back in-house'

Since the early 1990's, IT outsourcing has become a popular strategy with contracts valued at billions of Euro, and durations ranging from five to ten years. Stories in the computing and business press together with reports of analyses by consultants highlight that during the lifetime of some contracts, organisations have reconsidered their original decision to outsource. With this rethink, the options available are to continue with the existing vendor and the existing contract, to renegotiate some or all of that contract with the existing vendor; to re-tender the contract or part of the contract and seek new vendors; or to backsource, bringing some or all of the previously outsourced activities back in-house. This last option has major implications for the organisation yet there is little empirical research on this final part of the outsourcing process. This paper introduces backsourcing as a legitimate strategy in the outsourcing process. An exploratory study identifies some recent examples where companies have made the decision to backsource, surfacing the rationale behind those decisions. From an analysis of the data, an end-to-end model for the outsourcing process is presented. The paper concludes with an agenda for future research. 1 INTRODUCTION While organisations have outsourced Information Technology and Information Services almost since the birth of information processing (Dibbern et al, 2004), the beginning of the current era of IT outsourcing is usually linked to the decision by Eastman Kodak in 1989 to outsource its IT services provision to a consortium led by IBM. A landmark paper by Loh and Venkatraman (1992) identified that outsourcing decision as an acknowledgement that total IT outsourcing had now become a serious strategic choice for companies. Since the Eastman Kodak decision, many other organisations have outsourced their IT functions, and, as a result, the value of the IT outsourcing industry has grown rapidly each year. The survey and analysis of the literature on Information Systems outsourcing by Dibbern et al. (2004) quotes various estimates of the value of the IS outsourcing market including a 2003 study by International Data Corporation which, using a narrow definition of IS outsourcing, estimated that actual global IS outsourcing spending was $40 billion in 1996 growing to $71 billion by 2003. Thus, both the scale of the IS outsourcing industry, and its growth rate are significant. Lee et al (2003) described how issues relating to outsourcing have evolved over time, starting from the 'make or buy' decision, …