Prudential's decision to benchmark its datacentre outsourcing deal offers a valuable lesson for the many IT directors that use external suppliers to run their technology.

The review will allow the financial services provider to analyse the service and value for money it receives from Capgemini.

Outsourcing remains a booming sector, but few firms have actively explored the potential for bringing IT systems back in-house - a process known as insourcing.

But Prudential's chief information officer (CIO), John Worth, says IT directors would be well-advised to consider the benefits of a benchmarking exercise.

He says more companies will be questioning whether to renegotiate with their outsourcer, or bring services back in-house.

'If companies do begin to think seriously about insourcing, there are some serious implications,' he told Computing.

'A lot of people shy away from it because you have to build your own datacentre and get your staff in place - it will be a big deal.

'People won't necessarily automatically consider it, but it's definitely worth looking at because it only comes round every five years, or even less frequently.'

Prudential's five-year contract with Capgemini, which expires in April 2006, covers about 80 per cent of the company's UK datacentre requirements.

'It's an interesting process to go through, in terms of having made a decision to outsource the datacentre, which was absolutely the right decision at the time,' said Worth.

'When you have a firm checkpoint, you have the opportunity to look at whether you should insource it back again.'

The datacentre deal covers many of Prudential's mainframe and mid-range servers.

The remaining 20 per cent is run in-house, and includes systems and storage - such as Intel servers and Unisys mainframes - not covered by the Capgemini contract signed four years ago.

The outsourced servers run Prudential's applications: the systems on which its data is stored and its processing completed.

Using the benchmarking exercise, the company will be able to judge the kind of service it could maintain if it ran its datacentre internally.

The process began at the end of last year, with a view to making a decision in the next three to six months.

Insourcing can allow the organisation to make use of 'economies of scale' and support more systems, says Worth.

'If we can create a datacentre that supports more than one of the group's business units, there should be substantial savings to be had,' he said.

'We might, for example, be able to create a datacentre that can run the UK's activities and the North American activities.'

Prudential will use the benchmarking to see if such a transition would be worthwhile.

The company is using criteria such as levels of service, risk and cost, to review the datacentre provision.

But Worth says he is yet to see this exercise as part of a larger trend among other blue-chip companies.

'There's nothing to suggest there's a trend back to insourcing - and I don't think we'd necessarily be persuaded if there was,' he said.

'Our decision is driven by economies of scale we see across the group, and it would be silly not to look at the advantages that we might take from those.'

And Prudential remains committed to outsourcing, where it is appropriate.

Last year, Worth decided to outsource voice and data network services to BT, a contract that he says will provide 'big wins' for the company.

Relatively few blue-chip organisations have opted for insourcing (see below), but Worth thinks more CIOs could be tempted.

'A lot of organisations will have their contracts coming up for renewal, and the people who are CIOs now will be different to the people who put them in place,' he said.

'These will be among the most significant expense items in an IT budget, and I think many executives will be asking themselves what they should do.'

Neil Barton, vice president of benchmarking and measurement at analyst Meta Group, says the extent of insourcing is very limited at the moment.

'Not many companies are doing it. It's mainly small businesses that have outsourced certain functions and have then decided to bring them back in-house,' he said.

'There are some mega-deals, where companies look into the abyss. But most businesses step back from the edge and try to make the deal with their outsourcer work.'

But Barton predicts that more companies will start considering the value they receive from outsourcing contracts.

'The services you're getting after three years are often nothing like what you expected at the start of the deal,' he said.

Bringing IT back in-house

Last September, financial services group JP Morgan Chase announced its intention to cancel a $5bn (£2.7bn) outsourcing deal with IBM and reintegrate the previously outsourced portions of its infrastructure, including datacentres and helpdesks. The company aimed to transfer some 4,000 IBM staff and contractors back to JP Morgan Chase.

Cable & Wireless announced in 2003 that it was terminating its outsourcing agreement with IBM five years early. The 10-year, £1.8bn deal, signed in 1998, covered IT infrastructure and customer billing systems.