Outsourcing vs insourcing: Is there a difference?

Sometimes, companies tend to lack the right resources, skills, infrastructure, or workforce in their daily operations. This is especially true with regards to startups and small businesses, sometimes it can stem from insufficiencies when it comes to funds. 

These challenges may also arise to medium and large sized corporations. In countries like Germany, they experience gaps in terms of IT manpower as the country does not have enough IT professionals within the country. 

As a solution to these organization dilemmas, companies turn to outsourcing or insourcing.    

Outsourcing vs insourcing: Defining both terms

While everyone is familiar with the outsourcing practice, it is quite the opposite when it comes to insourcing. 

What people need to know is that, throughout the years, companies have practiced various ways to distribute parts of their work to aid with their development. This is also as a result of the ever changing business landscape of the entire business industry. 

Both outsourcing and insourcing serve as viable solutions for organizations to source out third parties to help with their operations. 

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Outsourcing vs insourcing Defining both terms

What is outsourcing?

Outsourcing is when a company farms out a part or several parts of their daily tasks or projects to a third party. The outsourcing services have continuously evolved over the years – from manufacturing services, customer service, IT services, marketing and finance. 

Further, outsourcing has its own classifications according to the specific location where the outsourced tasks will be transferred.

Offshore outsourcing

Offshore outsourcing is when outsourcing providers are based in another country that is far away from the company’s geographical location. One example for this is when a US company offshores IT services in India or in the Philippines per se. 

Nearshoring

Nearshoring is when companies contract out services to outsourcing vendors that are also in another country but commonly within the same continent.

In most cases, locations may only have a few hours of time zone differences. Due to the proximity, travelling in between locations is less of a hassle.

Onshore outsourcing

Also known as domestic outsourcing, this strategy is the process where companies outsource to third parties that are within the same country. 

What is insourcing?

Insourcing is the opposite of outsourcing. This practice refers to when a company delegates a task or a project within the in-house staff rather than having it outsourced.

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Employees that are given the opportunity to partake in the task or project may also have the chance to be deployed on other projects. 

Outsourcing vs insourcing: Advantages of outsourcing

The outsourcing industry has been one of the fastest-growing industries around the world. It has always been a strategic practice for companies in all types of industries and sizes.

More so, part of its numerous advantages are: 

  • Cost effectiveness. A lot of organizations mainly outsource to be able to save much on their costs compared to having to hire in-house staff. 
  • Wider talent pool. Outsourcing providers usually have a large talent pool of well skilled and experienced professionals. 
  • Access to technologies. Outsourcing companies invest in the tools and technologies they utilize to perform their offered services effectively. They always make sure that they are up-to-date with the latest in technological advancements. 
  • Working hours. Offshoring to a country with hours of time zone difference allows organizations to fully function over extended hours. 

Outsourcing vs insourcing: Advantages of insourcing

Insourcing also grants businesses a competitive advantage in the market industry through these benefits: 

  • In-house employees all the ins and outs of the company. Like when it comes to marketing efforts, there’s no better person who knows a certain brand, products or services than its employees. 
  • Business leaders retain control over their employees and tasks. They also have the freedom to make certain decisions or implement certain processes. 
  • Both employees and leaders share the same vision, work values and standards that are within the company’s culture and environment. 
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Outsourcing vs insourcing: Advantages of insourcing

Outsourcing vs insourcing: Which is a better option for you? 

In deciding whether to outsource or insource, it is best to consider these following factors: 

  • Priority – if companies prefer to have control over the project then insourcing is the right option. While if the priority is to save costs, outsourcing is a viable option. 
  • The kind of project or task – critical functions of the organization is most likely to be kept in-house. However, if a certain task or project isn’t within a business expertise, then it is best to outsource. 
  • Willingness to adjust organizational setup – outsourcing companies have their own way of doing things. Compared to insourcing where it is much easier to augment or modify certain practices without having to entirely remodel a business structure. 

For some businesses, it may be hard to weigh in whether to outsource or insource a certain project or task.

However, everyone should also always take into consideration the costs, skills, expertise and flexibility required for the project or task. 

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