In an industry full of jargon, there is one word that is becoming more popular: insourcing. Defined as the process of bringing a contract back in-house, which had first been outsourced, it is a phrase that telecoms giant Cable & Wireless (C&W) now knows well. One of the pioneers of HR outsourcing, the company surprised the industry last October by announcing that it would not be renewing its five-year contract with Accenture, but that it would be bringing its HR processes back in-house.

For an industry that mainly sees one-way traffic, the news was a shock. But C&W has not been the first company to do this: US computer firm Gateway terminated a $400m seven-year deal with outsourcing firm ACS in 2004, a year after signing the deal, when the two reached a mutual decision to end the relationship.

The two deals have something in common: a huge change in the client company’s business model. For C&W, its UK workforce had shrunk from 10,000 to 3,500, while Gateway had also slashed the size of its workforce, making the deal unprofitable.

C&W’s international HR director Ian Muir was sanguine over the about-turn. “The company had changed so much that the reasons for doing it in the first place had disappeared,” he told trade magazine People Management. “Every outsourcing provider is wanting to make a profit and the economics are not so compelling now we are a different kind of enterprise.”

Industry observers say that this kind of activity is only going to increase as the market matures. “I think there are going to be more companies going through this kind of reversal,” says HR expert and author Martin Reddington.

“C&W is not isolated, but is one of many. Companies are taking this course simply because the factors on which these projects are based change over time.”

Encouraged by the technology available, some larger organisations are swimming against the tide and bringing their payroll back in-house.

Before the Cancer Research Campaign and Imperial Cancer Research Fund merged in 2002 to form Cancer Research UK, both companies outsourced their payroll and HR. The new organisation took the decision a year ago to buy an integrated system, called Chris21 from Frontier Software, to process its 3,700 monthly salary payments. Cancer Research UK’s HR staff process the payroll via their PCs.

“We run two payrolls, one on the 25th of each month and another for late starters and adjustments on the 5th. When we outsourced, we were unable to correct mistakes, if errors were made, without incurring costs from the supplier,” says the charity’s payroll supervisor Kresh Veerasamy.

But insourcing can be a complex procedure. The initial period of transition can be rocky, and bringing processes back in-house may herald yet another period of instability, possibly not long after things have settled down from the change to the outsourced system.

To mitigate the effects, companies should prepare an exit strategy at the beginning. Before signing the contract, it is important to agree with the supplier on how to bring everything back so operations can continue. There must be a clause in the contract allowing for this eventuality — it’s not good enough to have the standard wording saying that the exit will be decided later. As outsourcers have no incentive to make it easy for the client to leave, the client must insist on this.

More than 90% of HRO contracts are reawarded to the same suppliers, which could be an indication of high customer satisfaction — or the sheer difficulty of switching companies or moving processes back in-house. Returning data, systems and even staff to their original company can be a complex process, so client companies should always get back-ups of all data. Then, in the worst-case scenario, if you fall out with your supplier or it goes bust, at least you have all the latest information about your company.

Times Recommends

• Inspirational leadership
• How to get a new job
• The reluctant CEO