Insourcing

There are a variety of activities that might justifiably be called insourcing. SAGA, the established UK supplier of holidays to the over-50s, realized a number of years back that its database was an extremely valuable asset. In recent years it has benefited from the fact that it contains names and addresses of relatively wealthy people of mature age who are statistically less likely to have car accidents or incur damage to their property than their younger and perhaps less well-off counterparts. SAGA argued that as a group these mature clients ought to benefit from cheaper insurance in these areas. This knowledge has enabled them to take a significant share of both the UK household insurance and car insurance markets. Recently the company extended its new range of services to include credit cards, gas supply, electricity supply, electrical goods, share dealing, investment schemes, savings schemes and dietary supplements.

SAGA is effectively the front for the front office organization, with much of the actual work being done, originally at least, by long established insurance companies, who deal directly with the client from the first telephone call onwards. The temptation will be for organizations that add new services in this way to do more and more of the work in house to maximize its own profit. Whether this would be a wise move remains to be seen and depends to a large extent on the tactics used.

In the same way, supermarket groups such as Sainsbury and Tesco have capitalized on the fact that shoppers increasingly visit out of town stores on a one-shop basis. The large stores and the resulting great range of products and services on sale, together with the out of town factor have all made it difficult to visit more than one shop on a single shopping trip. These supermarket groups are taking advantage of this situation in a number of ways. Perhaps the most startling is the venture into retail banking. The supermarket groups have a number of advantages over the traditional banks in that the customer is already on the premises and can often obtain additional cash without the trouble and cost of writing out a separate cheque. A favoured customer can write one cheque or provide a one card transaction that covers both purchases and any additional cash required. Major and long established banks do the actual banking behind the scenes, but most if not all the customer contact comes via the supermarket employees.

The major banks are being forced to close branches on a regular basis because of new banking alternatives. These banks also have extensive records of individuals and they have added information about real income levels. It is therefore possible that some of these banks may fight back by selling other goods and services via the internet.

Insourcing has been used as a way of safeguarding a marketplace. Imagine a situation where a specialist manufacturer of plastic paint coverings has a long established exclusive contract to supply its product to a major international company that has found increasing benefit from coating more and more of its products in plastic. The contract has gradually become a major part of the plastic company’s business and with this has come awareness that loss of the contract would put its future existence in doubt.

Given this situation, it would be reasonable to try to establish a further long-term arrangement with the customer well in advance of the original contract ending. Knowing that any follow up contract is likely to be decided largely on price, a number of organizations in similar circumstances have adopted the insourcing formula to safeguard themselves. They therefore, offer the customer a number of ’outsourcing’ benefits even though the work continues in the customer’s premises as before. These benefits will probably include a price that will be stable over time, plus a quality and delivery guarantee of some description. In order to provide these guarantees the supplier will probably request that certain employees be transferred to its payroll, even though there is little likelihood of the individuals concerned working away from their current site.

In theory, at least, this type of arrangement can benefit the customer in terms of cost, delivery, quality and peace of mind, whilst safeguarding the supplier’s future.