Anush Bichakhchyan

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January 13, 2023

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10 min read

Outsourcing vs. Insourcing; key differences to consider

Outsourcing vs. Insourcing; key differences to consider

Outsourcing and insourcing are the major topics of business processes amid global changes, mass layoffs, global inflation surges, and more. If you are new to the “insourcing” term, “in-house” may sound more familiar. Hereafter, you will often see "insourcing" refer to the same notion as "in-house," but first things first. In this article, we will try to figure out which type of talent acquisition is more profitable for your business. 

What is outsourcing?

What is outsourcing.jpg

Why to choose outsourcing?

Outsourcing literally means looking for sources and talents out of your staff that can handle your work. There are several types of outsourcing, and we will definitely talk about them soon, but for now, let’s stick to the general meaning. Outsourcing is already a common practice worldwide, and hundreds of thousands of companies benefit from the advantages of outsourcing.

Check out the popular types of outsourcing to find the best match for your business.

Why outsourcing?

There are a number of reasons why a company might choose to outsource certain business functions or services. Some of the potential benefits of outsourcing include

  1. Cost savings: Outsourcing can help a company reduce its costs by taking advantage of lower labor or production costs in other countries. Check out outsourcing rates and opt for a country comparison to find the best price-quality ratio. 
  2. Improved efficiency: Outsourcing certain functions or services to specialized companies or contractors can allow a company to focus on its core competencies and improve its overall efficiency.
  3. Access to specialized expertise: While a company might need to cover various roles to get a complete actionable team going, they may not need the full team capacity. On the other hand, the agency covers the function with the right combination of team involvement as per need.
  4. Improved flexibility: Outsourcing can help a company to be more flexible and responsive to market changes or its business environment. When the need for a service is not relevant, it's easy to demand a new type of service from a vendor or shift between agencies for best-fit services and operations.
  5. Risk management: Outsourcing certain functions can help a company to manage risk by transferring some of the responsibility for those functions to a specialized provider.

It's important to carefully consider the potential benefits and drawbacks of outsourcing before making a decision, as it can have significant implications for a company's operations and workforce.

global IT outsourcing market size 2020-2030

Global IT outsourcing market size 2020-2030

Limitations of outsourcing

Outsourcing often becomes a lifesaver for many companies, but this business technique also has limitations that cannot be ignored. 

  1. Communication barriers: Working with people in different countries or time zones and facing a language barrier can lead to communication difficulties, which can impact the quality of the work and the speed at which it is completed.
  2. Cultural differences: Working with people from different cultures can lead to misunderstandings or conflicts due to differences in business practices or values.
  3. Lack of control: When you outsource work, you are relinquishing control over the process and quality of the work to the outsourcing company or contractor. This can lead to unexpected results or delays.
  4. Loss of institutional knowledge: Outsourcing work can lead to the loss of institutional knowledge as the company or contractors who are completing the work may not have a deep understanding of the company's goals, processes, or customers.
  5. Legal and regulatory issues: Working with external companies or contractors can lead to legal and regulatory issues, especially if the work is being completed in a different country with different laws and regulations.
  6. Loss of job opportunities: Outsourcing work can lead to the loss of job opportunities for people within the company or in the local community.

What is insourcing?

What is insourcing?

Why to choose insourcing?
 

Insourcing refers to the practice of performing a task or function in-house rather than outsourcing it to an external provider. It can involve hiring employees to perform the work or reallocating existing staff and resources to handle the task. Insourcing can be a useful strategy for businesses that want to maintain control over critical functions, keep sensitive or confidential information in-house, or build expertise and institutional knowledge. However, it can also be more expensive, less flexible, and time-consuming than outsourcing, as it requires the business to invest in the necessary resources and infrastructure to perform the work. It is important for businesses to carefully consider the costs and benefits of insourcing versus outsourcing before making a decision.

Why insourcing?

There are a number of reasons why a company might choose to insource certain business functions or services, rather than outsource them to external contractors or companies. Some potential benefits of insourcing include

  1. Greater control: Insourcing allows a company to have greater control over the processes and activities that are being performed in-house. This can be especially important for activities that are critical to the company's operations or that are closely tied to its brand or reputation.
  2. Improved quality: Insourcing can allow a company to have greater oversight and control over the quality of the work being performed, which can be especially important for tasks that require specialized expertise or that have a high degree of variability.
  3. Increased innovation: Insourcing can allow a company to more easily share knowledge and ideas across different departments or functions, which can lead to increased innovation and collaboration.
  4. Greater accountability: Insourcing can allow a company to hold its employees more accountable for their work, as they are directly employed by the company and subject to its policies and procedures.
  5. Enhanced employee morale: Insourcing can help to improve employee morale by providing them with more stable employment and greater opportunities for career advancement within the company.

It's important to carefully consider the potential benefits and drawbacks of insourcing before making a decision, as it can have significant implications for a company's operations and workforce.

Limitations of insourcing

Insourcing refers to the practice of a company completing work in-house rather than outsourcing it to external companies or contractors. Some of the limitations of insourcing include

  1. Limited resources: A company may not have the necessary resources or expertise in-house to complete certain types of work, leading to delays or subpar results.
  2. Higher costs: Insourcing work can be more expensive in some cases, as the company must pay for the salaries and benefits of its employees rather than paying a flat fee to an external company or contractor.
  3. Less flexibility: Insourcing work can be less flexible as the company is limited to the skills and availability of its own employees, rather than being able to bring in and get rid of external expertise as needed.
  4. Longer lead times: Insourcing work can take longer to complete due to the need to coordinate with internal teams and processes.
  5. Decreased efficiency: Insourcing work can lead to decreased efficiency if the company lacks the necessary systems and processes in place to handle the work effectively.
  6. Risk of over-reliance: Insourcing work can lead to a risk of over-reliance on a limited number of employees, which can be problematic if those employees leave the company or are unable to handle the workload.

Factors to consider between outsourcing and insourcing

outsourcing vs insourcing; which one to choose

Both business techniques have their benefits and disadvantages, and copying another company’s practice with outsourcing is not the best way to succeed. There are dozens of factors that should (or even must) be considered.

 

Types of activities
InsourcingOutsourcing
In-house is more optional if the position or the service is critical for the business (risks, corporate culture, compliance)Non-core business processes that can be outsourced to save money and cover the expertise gap

 

Scalability and flexibility
InsourcingOutsourcing
More suitable for long-term projects. Businesses may feel more comfortable having in-house teams for deep-rooted partnershipsOutsourcing is a fast solution for delegating services as support to core in-house processes

 

Quality control
InsourcingOutsourcing
Insourcing is suitable for businesses who seek more control over quality and decision-makingLow level of control is compensated with a reliable vendor but still remains a concern in the first stages of onboarding the outsourcing team

 

Security risks
InsourcingOutsourcing
Insourcing is chosen when security concerns are critical for managing business processes in-houseData security and compliance are reached through professional onboarding taking care of the risks that may occur

 

Knowledge sharing
InsourcingOutsourcing
Insourcing is important for retaining talent within the organization. In-house teams have a culture of sharing knowledge, collaborating, and supportingTime zone, online communication, and less personal approaches may not enable the desired level of knowledge sharing among teams

 

Budget management
InsourcingOutsourcing
Insourcing requires additional expenses aside from service costsWith clear dates, objectives, and rates, outsourcing is more effective for business

 

Outsourcing vs. insourcing; what is best for your company?

Outsourcing may sound great for saving resources, and insourcing may feel more trusted, but which one is actually more suitable for your company and business needs? There are criteria to consider. 

Stage of the company

The early stages of company development are critical for the future, which is why integrating talents and expertise is also critical. Still, not all businesses are ready to contribute resources to hire teams. Often, startups offer different partnership terms, like complex funding and ownership arrangements, to attract skilled talent. In this regard, outsourcing is a viable option for addressing critical business processes in their pre-seed or seed stages. 
 

Check out the guide to learn how you can implement digital marketing initiatives in the business development lifecycle.

In its growth stage, a company may want to keep core processes in-house and think about outsourcing the ones where the core team lacks competence, which will help facilitate company expansion. 

Choose insourcing whenChoose outsourcing when
there are resources to cover business needs without relying on outside talentsthe company is at the early stages and needs immediate support from skilled talents


 

Speed of service delivery 

If the company is rapidly expanding, the local labor market and traditional insourcing may not be able to meet its talent requirements. In similar situations, it is possible to cover the gap with outsourced talents in the short term. 

Choose insourcing whenChoose outsourcing when
there are suitable candidates and no tight deadlines for onboarding and delivering the project you need a full team of specialists to handle the project and complete it in a certain period


 

Quality control requirements

Quality control is the main concern of companies considering outsourcing as an option for facilitating business processes. Some companies think insourcing that is heavily supervised is the only way to support quality control. On the other hand, if quality hasn’t been the business priority from the beginning, it will be difficult to implement it afterward. Whether it is insourcing or outsourcing, the company should adopt a quality control culture from the beginning, and if there are clear requirements, both options will be successful. 

Choose insourcing whenChoose outsourcing when
you care about total control over the quality and the processesthe company already has a quality control culture and measures and is ready to hold third-party service provider accountable


 

Relationship owner

Both in-house and outsourced teams need a manager or responsible person to handle communication, project alignment within the team and with stakeholders, keep track of project implementation, and more. While the management of in-house teams is quite straightforward and aligned, outsourcing requires a dedicated person to handle onboarding and ongoing communication.

Choose insourcing whenChoose outsourcing when
there is no committed responsible relationship owner to manage outsourced teams The company has a competent person eager to own relationships and handle the required level of communication with the outsourced service provider


  

The takeaway: Help your business benefit

Outsourcing and insourcing are two business techniques to consider when deciding how to perform a task or function. Any of these two options has advantages and disadvantages, and the one that outweighs them may become efficient enough to use the fewest inputs to produce the most output. 
 

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FAQ

What is outsourcing?

Vector

Outsourcing is the process of hiring a company or individual outside of a business to perform tasks that would otherwise be completed by in-house employees. It is often used as a cost-saving strategy, but can also provide access to specialized expertise and technologies.

What is insourcing?

Vector

Insourcing refers to the practice of performing a task or function in-house rather than outsourcing it to an external provider. It can involve hiring employees to perform the work or reallocating existing staff and resources to handle the task. 

What to consider when choosing between outsourcing and insourcing?

Vector

There are several factors to consider when choosing between outsourcing and insourcing.

  • Types of activities
  • Scalability and flexibility
  • Quality control
  • Budget management
  • Knowledge sharing
  • Security risks