Outsourcing/offshoring may be staying closer to home these days to take advantage of plentiful surplus talent. Meanwhile, overall outsourcing growth will slow due to reduced spending and global uncertainty, according to the International Association of Outsourcing Professionals. Outsourcing vendors, however, continue to rack up big wins in 2009. For example:

• IBM will handle the management and storage of most of Kaiser Permanente’s data.

• Wipro Ltd. won a 9-year outsourcing contract from Unitech Wireless.

• HP won a 10-year, $1 billion data center services contract from Aviva, a large U.K. insurer, to retool and operate data centers there.

Outsourcing is not a surefire way to reduce IT spending, as we noted here previously. Before you consider outsourcing, which can demoralize and disrupt your organization and still not produce the results or savings you want, try the five steps below to revitalize your current IT operation and make it competitive with outsourcing vendors.

Start by understanding the true cost of outsourcing. There are costs involved in outsourcing, particularly offshore outsourcing, which make it considerably more expensive than just the low hourly rate paid to IT workers. The costs of developing and managing the outsourcing relationship, of application and system testing, of integration, and of user training are not trivial.

You also will want to measure and benchmark your current IT performance and costs to understand where you can make changes that deliver the biggest payback. Once you have done that, you are ready to implement some or all of the steps below:

1. Standardize, simplify, consolidate the IT infrastructure — use virtualization and standards to reduce the complexity of your IT environment, which will improve performance and reduce operating costs.

2. Automate system management — deploy automated system and storage management tools to lower labor costs and improve performance and reliability and boost utilization.

3. Automate application development — deploy automated development tools and model-based methodologies to reduce the amount of developer labor required while delivering more consistent results faster. Also consider SOA and pursue component and services reuse.

4. Deploy SaaS and open-source products — use open-source equivalents for commercially licensed software wherever possible to reduce license costs; use SaaS to eliminate reinventing the wheel altogether.

5. Selectively out-task through the cloud — specific tasks can be efficiently out-tasked to managed services and cloud computing providers that will do the task better for a lower overall cost and with no or minimal capital investment.

By taking these steps, you can reduce your overall IT spend, lower the cost of owning and operating your IT infrastructure, and increase the speed and responsiveness of your IT group and, in turn, your business. And you do it without big restructuring charges and long flights to India or China. It’s a win all around unless you’re just dying for those frequent flyer miles. ###