Today, businesses operate in globalized markets and have several ways to manage their business processes.
Insourcing and outsourcing are two such sourcing practices, each with its own merits.
But you may be wondering, which one’s the best fit for your business?
Our detailed insourcing vs outsourcing comparison will help you make that decision.
In this article, we’ll give you a head-to-head insourcing vs outsourcing comparison and discuss their pros and cons. We’ll also discuss the three questions you should ask when deciding between insourcing and outsourcing.
This article contains:
(Click on the links below to jump to a specific section.)
- Insourcing vs Outsourcing: a Detailed Comparison
- Insourcing vs Outsourcing: Pros and Cons
- 3 Questions to Ask Before Deciding Between Insourcing and Outsourcing
- How to Manage Your Insourced and Outsourced Team
Let’s get started.
Insourcing vs outsourcing: a detailed comparison
Before we get into the pros and cons of insourcing and outsourcing, let’s find out what they mean.
A. What is insourcing?
Insourcing is a business practice in which you assign tasks and projects to your in-house workforce.
You can assign tasks to an individual or a team of employees that work within your organization’s internal infrastructure. Insourcing also accounts for the new hires within your organization, as long as you include them on your company’s payroll.
These insourced team members usually have a good understanding of your company culture, as well as institutional knowledge about your company.
For example, in a company that manufactures motorbikes, employees who work on core competencies such as manufacturing and engineering are insourced.
B. What is outsourcing?
Outsourcing is a business agreement through which your company can hire another company to take over a specific task or project.
This sourcing method is also called Business Process Outsourcing (BPO). It gives you access to an external organization that specializes in a particular service.
These outsourcing providers take over a project on your company’s behalf.
Companies usually outsource their non-core activities to outsourcing providers.
Non-core activities can include different marketing strategies, such as inbound marketing, social media marketing, digital marketing, content marketing, etc.
It can also include large-scale non-core activities such as outsourcing software development, logistics, manufacturing, and supply chain management.
In our example of a motorbike manufacturer, the company may outsource a non-core activity like designing its advertising campaign.
Now there are three types of outsourcing: :
- Onshoring: Involves outsourcing to a company or an individual in your own country.
- Offshoring: Outsourcing to a company or an individual in a far-away country, usually with a different time zone.
- Nearshoring: Outsourcing to a company or an individual in countries that are close to yours.
Here’s a closer look at the key differences between insourcing and outsourcing:
|Location of Operation||Operations performed within a company’s site.||Operations performed at a site owned by an outside organization.|
|Types of Business Activities||Core activities such as budgeting, investing, etc., are handled by the in-house team.||Non-core business activities such as IT services, HR activities, content creation, cybersecurity, etc., can be handled by an outsourced team.|
|Control Over Operations||Exercise complete control over a specific task or project.||Share operational controls with an outsourcing provider.|
|Cost||Relatively expensive due to hiring and training costs.||Relatively cost-effective but may involve an unforeseen expense or a hidden cost.|
Insourcing vs outsourcing: Pros and cons
Both insourcing and outsourcing can impact time management, resource management, work delegation, and cost saving. Let’s take a closer look to understand where each of these business practices scores and where they’re lacking.
Here’s a breakdown of the advantages of insourcing your workforce, along with its limitations.
1. Better quality control
Insourcing your workforce lets you establish better connectivity with the key members of your project.
Since there’s no intermediary in this equation, you’ll also get crucial insights into your team’s decision-making process. You’ll be able to test and tweak your project as and when it progresses.
Ultimately, you’ll have complete control over the progress of your project, and you can regulate the quality of your finished product.
2. Intellectual property protection
A leak in your intellectual property can put your investments, research, and even your team at risk.
But thankfully, there’s no risk of a leak to a third-party vendor when you work with an insourced team, making managing your intellectual property an easier task.
3. Smooth business communication
While insourcing your team for a project, there’s a minimal chance of having a miscommunication.
Your team is working out of the same location as you, which makes face-to-face communication an everyday possibility.
In addition to verbal communication, you can use non-verbal cues such as gestures and facial expressions to ensure that your team communicates seamlessly.
But this is equally true if the insourced team works remotely. A full-time commitment to your company ensures that your insourced employees are available during all working hours.
4. Positive brand image
Insourcing your company’s workforce creates jobs for locals. Your company’s relationship with the local community improves as a result of this.
Insourcing a team can be especially beneficial if the job requires your company representatives to talk to your consumer base. It’s ideal to hire locals who won’t face cultural barriers while communicating with your customers.
Outsourcing services can impact your brand image negatively if people feel like you’re taking jobs away from locals.
1. Increased costs
Choosing to insource your workforce will push your hiring and labor costs higher.
You’ll have to spend capital on:
- Screening and hiring each new employee.
- Paying them monthly salaries.
- Paying for benefits such as paid leaves, sick leaves, new work equipment, etc.
Insourcing a workforce is typically very time-consuming.
Even after you find the perfect candidate for a particular job role, you’ll have to train the new employee to help them understand the scope of your business functions.
Additionally, implementing a new process for operations or establishing divisions for new projects can be overwhelming for your existing team.
Your team’s focus may be divided between different departments, ultimately hindering their productivity.
3. Lack of workload flexibility
Workload flexibility allows your employees to adjust their workloads based on factors such as project deadlines, unforeseen delays in deliverables, etc.
Taking on a new project usually requires your organization to have this flexibility, as your team will need to take on additional responsibilities.
Workload management is an easy task in the outsourcing world, as an outsourcing partner can provide the capacity you need. The flexibility of this sort is difficult to establish within your internal workforce.
Your existing team will already be engaged in long-term projects, and they’ll most likely lack the flexibility to take on more work immediately. As a result, your in-house team may feel burdened and unmotivated.
Read to know more about how to manage your team’s workload and avoid burnout.
4. Headhunting costs
Hiring an employee is expensive and time-consuming. However, hiring specialists at higher levels is even more challenging and can result in headhunting complications.
Not to mention, the cost to the company for a specialist may far exceed your budget.
The more specialized your job profile becomes, the more your ideal candidate will cost you.
Let’s now take a closer look at the advantages and limitations of outsourcing.
1. Lower labor costs and better scalability
Outsourcing can significantly help you contain labor costs over the long run. Apart from the cost of screening and onboarding an employee, you’d also save on training costs.
Outsourcing also lets you scale much more easily than insourcing because of the number of resources and people you have access to.
For example, let’s say you have to scale up a project, and you need 20 extra work hours per week to achieve your new target. These 20 extra work hours each week won’t phase your outsourcing firm, but it would put a massive strain on your permanent employees.
2. Access to better talent pool
Your internal team may have skill sets in several different areas of business.
However, employees of an outsourcing company usually specialize in a specific task.
Hiring someone with this level of expertise is time-consuming and might be too expensive for your bottom line. But since outsourcing involves a short-term engagement, it’s an easier and cost-effective way to work with experts.
3. Fast-tracked deliverables
Most outsourced projects are strictly time-bound. And because of the availability of many expert employees, an outsourcing vendor can deliver your project needs even on a tight deadline.
Additionally, you can enhance your company’s productivity by having your in-house staff and your outsourced team work on different tasks for the same project. You’ll have two teams working efficiently on the same project in shifts.
And because most outsourcing companies have employees working round the clock, you can usually also get 24/7 technical support without extra payment.
4. Focus on core business activities
Outsourcing non-core business activities is an extensively used business strategy.
It lets you and your team focus on the core competency and the core function of your business. At the same time, an outsourced team can take care of your mundane non-core business activities.
1. Quality control issues
Handing quality control over to an outsourcing partner can be concerning and challenging. You’ll be dependent on your partner to ensure that they carry out your project successfully.
Additionally, if this is your first time working with the outsourcing provider, you’ll have to put in extra effort to build trust and establish a cordial relationship.
2. Security concerns
Data breaches are not new, and even some of the biggest companies worldwide have fallen prey to them.
It’s only natural to be concerned about entrusting your customer data and intellectual property to a third-party service provider.
Sure, contracts can ensure that your service provider takes security measures to safeguard your data. However, you may not be able to keep a close watch to confirm this.
3. Communication barriers
With outsourcing, you may not be speaking directly to all the team members working on your project, and your outsourced team may be doing remote work. There’s little you can do to help them gain uniform understanding.
Additionally, if you’re outsourcing to far-away countries, you may also face challenges due to differences in time zones and cultures.
Your outsourced team may face difficulties while extending customer support to your local audience due to these barriers.
4. Lack of business knowledge
If you’re looking for a highly specialized skill, you may struggle to find a service provider who understands the nuances of your business.
It’s more challenging to find the right support for niche businesses as outsourcing companies don’t usually specialize in them.
3 questions to ask when deciding between insourcing and outsourcing
We’ve gone through the pros and cons of outsourcing and insourcing.
Both sourcing methods can give your business a competitive advantage and ensure your work is efficiently distributed.
But you may still be feeling undecided over what sourcing practice you should choose. So, we’ll discuss three questions that’ll help you make your choice.
1. What’s your top business priority?
While outsourcing your tasks can give you immediate relief from a heavy workload and high overheads, insourcing helps you build a solid set of resources within your organization.
Choosing between the two sourcing options comes down to what your ultimate business goal is.
If you’re looking to get immediate assistance with projects and trim down your costs, then outsourcing would be a good fit. However, insourcing is a better option if you’re looking to expand your organization’s long-term capabilities and resources.
2. How time-sensitive are your business needs?
If your business needs have a tight deadline, opting for an outsourcing solution could be your best option.
Outsourcing service providers work on time-bound projects and can cater to your needs at short notice.
But, if you have the luxury of time, insourcing will eventually prove to be a lucrative investment.
By training and investing in your internal team, you can nurture expertise and scale your organization’s growth from within.
You can also use a combination of insourcing and outsourcing that benefits your business model.
For instance, you can hire an in-house marketing team to market your website. At the same time, you can outsource developers to help rebuild your website.
3. How established is your business?
Outsourcing immediately eases the burden on your expenses. That’s why it’s a great choice for a relatively small business or a startup.
If you’re a new business, you can choose to work with another agency until you’re ready to transition to insourcing.
However, if you’re an established business owner, you have more flexibility to choose between the two sourcing options.
How to manage your insourced and outsourced team
Whether you choose to insource or outsource your team, you may be worried about managing their productivity.
An outsourced team will bill you by the hour, which is why it’s important to ensure they’re productive during their billable work hours.
With an in-house team, you may be working remotely, and team collaboration in a distant work setting can be difficult. Even while working out of the same office, keeping track of every employee’s productivity is challenging.
Don’t worry. We have some useful tips that can help you manage your insourced or outsourced team.
To ensure efficient collaboration, you can use communication tools like Skype, Slack, Jira, etc., and communicate key project information.
Read more on the top online collaboration tools for remote teams in 2021.
Another tip that can help you manage your team is to use a time and performance management tool like Time Doctor to monitor employees’ working hours.
What’s Time Doctor?
Time Doctor is a powerful employee productivity management tool used by small and big companies to enhance their team’s performance.
You can use Time Doctor to:
- Track employee time to accurately calculate billable hours.
- Manage projects and budgets for maximum efficiency.
- Pay your team directly using payment methods like PayPal, Gusto, etc.
- Use detailed productivity reports to determine whether your team is productive or unproductive at work.
- Integrate with your existing business tools like Asana, Trello, etc., using Time Doctor’s robust Chrome extension.
Insourcing and outsourcing are both beneficial sourcing choices.
Insourcing can help you build long-term resources within your organization. On the other hand, outsourcing can help you cut costs and finish your projects on a short deadline.
However, both these sourcing choices have their set of limitations.
The costs of headhunting and training can make insourcing challenging. With outsourcing, you may face difficulties with ensuring data security and exercising quality control.
You can go through the details in this article to understand the right sourcing solution for your needs.
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.