What Is Insourcing And Outsourcing: A Comprehensive Guide
Insourcing is the practice of relying on internal employees to conduct a business function within your company rather than hiring an external company or contractor to perform the same task.
In opposition to insourcing is outsourcing, which relies on an external company or contractor to take care of your business’s functions.
Whether your business needs to insource or outsource its functions will rely on many factors that we will discuss further in this blog.
The Advantages And Disadvantages Of Insourcing
Advantages
One of the most important advantages of insourcing is having the ability to control the quality and timing of the work that needs to be done. This is because insourcing involves using employees already aware of a business’s processes, standards, and culture.
Insourcing also allows you to control sensitive information.
This is critical for businesses that handle extremely sensitive data, like IT companies or companies with important proprietary information and intellectual property. Control over sensitive information allows you to protect your company’s interests and well-being.
Insourcing can increase employee morale by increasing job security and career opportunities for employees. This increase in employee morale often leads to employees that are more motivated and that work harder.
Disadvantages
While insourcing has several advantages, it also comes with a few disadvantages.
Insourcing requires you to train and equip your employees to do the required task. This often means making a significant upfront investment. This makes insourcing a less attractive option for companies with limited budgets or resources.
Speaking of limited resources, insourcing can further strain a business because when a company insources, it assumes greater responsibility for the work needed. This includes hiring and training employees, managing the work environment, and providing benefits and support.
This can result in insourcing requiring higher costs than outsourcing. This increase in cost can ultimately negatively impact a company’s competitiveness in the market and make it more difficult to compete on price.
The Advantages And Disadvantages Of Outsourcing
Advantages
Outsourcing can result in significant cost savings for a company, as external providers can often perform tasks more efficiently and at a lower cost than internal employees.
Outsourcing also gives companies access to specialised expertise and resources they may not have in-house. This often results in companies improving their overall performance and staying competitive within their market.
Outsourcing subsidiary business processes often means that the business can pump more resources, like time, energy, and money, into more important core business functions. This leads to a further increase in the business’s overall performance.
Most importantly, outsourcing gives companies access to global resources that might not exist as readily available within their country. This can give companies access to new markets abroad, increasing their competitiveness.
Disadvantages
Even though outsourcing has a plethora of advantages, it also comes with its disadvantages.
When a company outsources its work, it also loses control over it. This can have negative consequences for companies whose work relies on sensitive information. This puts the company in a risky position as critical information about business operations can be at risk.
This loss of control can also lead to reduced quality of work that does not meet the company’s standards and expectations.
Companies often outsource their work abroad, so there are often communication difficulties between the company doing the outsourced work and the company that is outsourcing the work.
This can be due to differing time zones, work ethics, or even language barriers. This can make it more difficult for companies to coordinate and manage the work, often resulting in delays and misunderstandings.
Outsourcing can result in dependence on external providers, making it difficult for the company to switch providers or bring back the work in-house if such a time arises. This makes it difficult for the company to be flexible.
In some cases, outsourcing can result in the exploitation of workers or other unethical business practices, as the company may not have direct control over the conditions and practices of external providers. This can lead to the company’s reputation being damaged.
What Is The Difference Between Outsourcing And Insourcing?
Although they might sound similar, many differences set them apart. Outsourcing hires companies from outside the business to do their projects for them. In contrast, insourcing operates within the business.
Conclusion
Businesses have different strategies to keep their operation flowing. Whether they use methods of insourcing or outsourcing, there are always advantages and disadvantages connected to them. No matter what they are, these methods have been practised for quite some time, and they’re not going anywhere soon.
FAQs
What is the process behind deciding whether businesses should use outsourcing and/or insourcing?
Many factors are considered when a company decides between outsourcing and insourcing.
They consider the skills needed within their company and whether current employees can fill the skill gap within the company. If they are unable to, then they will look to outsourcing as a solution to that problem.
If a task is complex, the company will need to see whether or not it can risk diverting in-house resources in order to take care of the task. If in-housing the complex task would mean limiting much-needed resources from other core business functions, then the company will decide to outsource.
These are but two factors a company needs to consider before deciding whether they should outsource or insource.
Are there any functions within a business that should not be outsourced?
Yes, there are quite a few.
Businesses should never outsource roles that have a direct impact on the success and longevity of the business.
This means that the following important roles and processes should not be outsourced.
Executive and administrative leadership roles
Employee training and development
Termination management
Core business competencies
Risk management and problem-solving tasks
Company financing
Is insourcing a new trend?
No. Insourcing has been a practice for many years, and it has been used by businesses of all sizes and in various industries.
The trend has seen a resurgence due to growing concerns related to data privacy and security and a desire to have more control over critical operations. The COVID-19 pandemic has accelerated this resurgence, as businesses have been forced to reevaluate and reduce their dependence on external vendors.