Harvard Case - Understanding the process of backsourcing: two cases of process and product backsourcing in Europe
"Understanding the process of backsourcing: two cases of process and product backsourcing in Europe" Harvard business case study is written by Julia Kotlarsky, Lars Bognar. It deals with the challenges in the field of Information Technology. The case study is 8 page(s) long and it was first published on : Oct 23, 2012
At Fern Fort University, we recommend a comprehensive approach to backsourcing, considering both strategic and operational factors. This approach should involve a thorough analysis of the current outsourcing situation, a clear understanding of the motivations for backsourcing, and a well-defined plan for the transition process. We also recommend a focus on building internal capabilities, leveraging technology, and fostering a culture of innovation to ensure successful backsourcing and long-term competitiveness.
2. Background
This case study examines two European companies, 'Company A' and 'Company B,' that have decided to bring back previously outsourced processes and products. Company A, a large telecommunications company, is backsourcing its IT infrastructure and applications development, while Company B, a manufacturer of consumer goods, is bringing back its product design and development. Both companies are motivated by a desire to regain control over their core competencies, improve efficiency, and enhance innovation.
The main protagonists of the case study are the decision-makers within each company who are responsible for driving the backsourcing initiatives. These individuals need to navigate complex organizational and operational challenges while ensuring a smooth transition and achieving the desired outcomes.
3. Analysis of the Case Study
The case study highlights several key factors influencing the backsourcing decisions of Company A and Company B:
Strategic Considerations:
- Loss of Control: Both companies experienced a loss of control over their core competencies due to outsourcing. This resulted in reduced flexibility, difficulty in adapting to changing market demands, and a lack of transparency in the outsourcing partner's operations.
- Innovation and Differentiation: Outsourcing can hinder innovation as it limits access to internal expertise and knowledge. Bringing back critical processes and product development allows companies to foster a culture of innovation and develop unique solutions.
- Cost Optimization: While outsourcing initially promised cost savings, both companies realized that hidden costs and a lack of flexibility in the outsourcing model eroded these benefits. Backsourcing offered the potential for long-term cost optimization through improved efficiency and control over internal operations.
Operational Considerations:
- IT Infrastructure and Applications Development: Company A's backsourcing strategy involved migrating its IT infrastructure to the cloud and building internal capabilities for application development. This approach aimed to leverage the benefits of cloud computing, including scalability, flexibility, and cost-effectiveness.
- Product Design and Development: Company B's backsourcing focused on rebuilding its internal product design and development team. This involved attracting and retaining skilled talent, investing in new technologies, and fostering a collaborative environment.
- Organizational Change Management: Both companies faced significant organizational change management challenges. This included overcoming resistance to change, retraining employees, and ensuring effective communication throughout the transition process.
Framework:
The analysis can be further enhanced by applying a framework like Porter's Five Forces, which examines industry competition, buyer power, supplier power, threat of new entrants, and threat of substitutes. This framework can help understand the competitive landscape and identify potential opportunities and threats for backsourcing initiatives.
4. Recommendations
Based on the case study analysis, the following recommendations can be made for successful backsourcing:
Strategic Level:
- Define Clear Objectives: Establish clear and measurable objectives for backsourcing, aligning them with the company's overall strategy and vision.
- Conduct a Comprehensive Assessment: Conduct a thorough assessment of the current outsourcing situation, identifying the strengths, weaknesses, opportunities, and threats associated with backsourcing.
- Develop a Strategic Plan: Create a detailed plan outlining the scope, timeline, and resources required for backsourcing. This plan should address key aspects such as talent acquisition, technology investments, and organizational change management.
- Build Internal Capabilities: Invest in building internal capabilities and expertise in the areas being backsourced. This can involve hiring new talent, training existing employees, and leveraging knowledge management systems.
Operational Level:
- Leverage Technology: Utilize technology and analytics to streamline processes, improve efficiency, and enhance decision-making. This includes implementing enterprise resource planning (ERP) systems, customer relationship management (CRM) solutions, and data analytics platforms.
- Foster Innovation: Encourage a culture of innovation by providing employees with the necessary resources, tools, and support to develop new ideas and solutions.
- Manage Change Effectively: Implement a structured change management process to minimize disruption and ensure a smooth transition. This involves clear communication, employee training, and support mechanisms.
- Monitor and Evaluate: Regularly monitor and evaluate the progress of the backsourcing initiative, identifying areas for improvement and making necessary adjustments.
5. Basis of Recommendations
These recommendations consider the following factors:
- Core Competencies and Consistency with Mission: Backsourcing aligns with the companies' core competencies and mission by regaining control over critical processes and product development, enhancing innovation, and improving efficiency.
- External Customers and Internal Clients: Backsourcing can improve customer satisfaction by providing more responsive service, faster turnaround times, and greater flexibility. It can also enhance internal client satisfaction by empowering employees with greater autonomy and control over their work.
- Competitors: Backsourcing can help companies stay ahead of the competition by fostering innovation, improving efficiency, and reducing costs.
- Attractiveness ' Quantitative Measures: Backsourcing can be assessed through quantitative measures such as return on investment (ROI), net present value (NPV), and break-even analysis. These measures can help determine the financial viability and attractiveness of the initiative.
Assumptions:
The recommendations are based on the assumption that the companies have the necessary resources, commitment, and expertise to successfully implement backsourcing. It also assumes that the companies have a clear understanding of their core competencies and the strategic benefits of bringing back previously outsourced processes and products.
6. Conclusion
Backsourcing can be a strategic decision for companies seeking to regain control over their core competencies, enhance innovation, and improve efficiency. However, it requires careful planning, execution, and ongoing management. By following the recommendations outlined above, companies can navigate the challenges of backsourcing and achieve their desired outcomes.
7. Discussion
Alternatives:
- Continuing Outsourcing: Companies could choose to continue outsourcing, potentially negotiating better terms or exploring alternative outsourcing providers.
- Partial Backsourcing: Companies could choose to backsource specific processes or products while maintaining outsourcing for others.
Risks:
- Increased Costs: Backsourcing can lead to higher costs if not managed effectively.
- Talent Acquisition Challenges: Companies may face difficulties in attracting and retaining skilled talent for the backsourced processes.
- Disruption to Operations: Backsourcing can disrupt existing operations and require significant organizational change.
Key Assumptions:
- The companies have a clear understanding of their core competencies and the strategic benefits of backsourcing.
- The companies have the necessary resources, commitment, and expertise to successfully implement backsourcing.
- The companies have a well-defined plan for the transition process and can manage the associated risks.
8. Next Steps
- Develop a Detailed Backsourcing Plan: Outline the scope, timeline, resources, and key milestones for the backsourcing initiative.
- Build a Strong Internal Team: Recruit and train employees with the necessary skills and experience to support the backsourced processes.
- Implement Technology Solutions: Invest in technology and analytics to enhance efficiency, improve decision-making, and streamline operations.
- Monitor and Evaluate Progress: Regularly assess the progress of the backsourcing initiative, identifying areas for improvement and making necessary adjustments.
By taking these steps, companies can successfully navigate the challenges of backsourcing and achieve their strategic objectives.
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Case Description
Backsourcing, defined generally as bringing services outsourced to a third party back in-house, is now a growing phenomenon. The decision to backsource has several significant implications for an organization, as it requires the organization to manage organizational change, reintegrate knowledge, and develop new capabilities and competences. Taking into account there is very limited empirical evidence of how to successfully accomplish the backsourcing process, two case studies included in this teaching case offer additional insight into the process of backsourcing. To prepare students for case analysis, this teaching case starts by describing the backsourcing phenomenon, followed by an overview of the backsourcing trend, and includes a brief review of the relevant literature that mainly focuses on backsourcing decisions and touches on critical success factors for implementing a backsourcing initiative. This is followed by two case studies that describe two essentially different examples of backsourcing. The first case study (MediaCorp) deals with the example of backsourcing IT hosting services, which is considered a business process, whereas the second case study (ITServCorp) talks about bringing an IT product development back in-house. However, regardless of the nature of the backsourced activity, analysis of these two cases allows deeper understanding of the process through which the backsourcing initiative has been implemented. Therefore, while each case can be used separately to analyze different aspects of backsourcing, they also can be analyzed in a comparative manner to better understand the process of backsourcing.
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