The Secret to Insourcing vs. Outsourcing: What’s the Difference & Why Does it Matter?

- Entrepreneurial Skills

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by Adrian Agawin

The business landscape has evolved tremendously over the past few years. New and innovative business models are continuously being introduced, work arrangements have become more flexible, and companies are discovering ways to make their operations more efficient. If you’re a business owner on a never-ending quest to improve your bottom line, you may be wondering how you can boost the productivity of your company.

To take business to greater heights, organizations of all sizes and industries may insource or acquire outsourcing services to ease their workload. When compared head-to-head, it’s safe to say that both methods are viable options that can address any organization’s needs.

However, it’s important to know that there are instances wherein one sourcing solution may turn out to be more effective than the other. Whether you’re planning to insource or outsource, know that the success of your investment may depend on several factors. To help you out, the guide below will define and discuss their key differences.

Defining Insourcing and Outsourcing

Insourcing: The sourcing method of assigning a person or department within a company to handle a specific project or process. Insourcing is commonly acquired for business functions such as supply chain management, quality control, and sales.

Outsourcing: Acquiring the services of a third-party organization to handle certain tasks. Outsourcing is commonly acquired for business functions such as manufacturing, marketing, finance, IT, and customer service.

Insourcing makes use of a company’s internal resources to perform a new business function, while outsourcing requires business owners to transfer some responsibilities to an outside organization and sometimes hire people. Both options can make your company more efficient, as well as help you in the process of building an offshore company. To edge out competitors, you need to figure out which sourcing approach can bring more effective solutions to your business. Weighing the pros and cons of both options is a must.

Insourcing Pros and Cons

Pros: Insourcing allows you to work with people who know your company by heart. Since the employees are part of your organization, they are already familiar with your company’s identity, values, and way of doing things. After all, a sense of familiarity directly improves collaboration among team members and makes project execution a lot smoother. Aside from having a team that’s already assimilated with your company culture, it also means that you will be able to manage things directly. If you’re the type of leader who wants to be on top of everything, insourcing gives you complete control over management.

Cons: Choosing to insource will mean more expenses. Other than paying for more salaries, you’ll be shelling out more money for paid leave, health benefits, and new equipment. At the same time, you will also need to give new hires time for training so that they can perform their tasks with confidence.

Starting a new division can also be very overwhelming for your staff. Since they’ll be shouldering multiple responsibilities until your new department can function on its own, your team’s attention will be divided. Ultimately, this means a decline in productivity.

Outsourcing Pros and Cons

Pros: Outsourcing’s main benefit is that it allows you to focus on your core competencies at a cost-efficient price. If you’re an engineering company that doesn’t have any form of expertise when it comes to marketing or customer service, having a specialist from outside your organization can provide effective and affordable solutions. Since outsourcing providers have a large talent pool to utilize, you can expect that they have capable employees that can deliver results. Other than saving you a ton of money, it also gives you more time and energy to focus on matters you’ve set aside. Since your provider assumes complete responsibility for the tasks you’ve outsourced to them, you can even use the extra hours you’ve gained to revamp your whole organization’s processes.

Cons: If you’re a business owner who wants complete control over everything, you might have a difficult time partnering with another company. Since you’ll delegate a specific business process to another organization, you can expect them to stick to their way of doing things. If your chosen agency has a different approach than yours, this may result in a counter-productive partnership.

Aside from differences in methods, you’ll also have to deal with geographical barriers and take extra measures with security. If you’re planning to partner with an outsourcing company that’s in another country, you’ll have to learn to work as a remote team and deal with cultural differences and different time zones. With data breaches increasing in number, you’ll also need to stay vigilant with respect to privacy. Since you’ll be passing on important information regarding your company or customers, you may be at risk of a cyberattack.

Which Option Is Best for You?

Given the pros and cons of both sourcing options, it’s understandable to still feel undecided about the method you should invest in. Take the time to reflect on your organization’s long-term goals while assessing its current capabilities and resources. To make the best decision possible, here are some questions you should ask yourself.

#1: Do I want to stay in charge, or do I want to lower my costs?

If you prioritize the need to stay on top of projects, insourcing is a must. But, if you’re looking for ways to ease your company’s expenses, outsourcing will greatly trim down your costs.

#2: Can I adjust my organization’s structure?

Outsourcing will require you to make adjustments to your organizational structure. Since you’ll technically be adding a new arm to the company, you may require a total revamp and prepare for big changes. With insourcing, it’ll be easier to make adjustments since things can be handled internally.

#3: What are the main requirements of my project?

Ask yourself, which skill-sets and practices will I need to conduct this project? If your tasks require certain competencies that don’t fall into your company’s main skillset, it’s best to let the experts handle things.

#4: Are my needs urgent?

If a project is urgent, outsourcing will give you a quick and easy option. But, if you have the luxury of time, insourcing will eventually prove itself as a lucrative investment.

#5: How do I see things in the long-term?

Outsourcing is the best option for relatively new businesses. In the long run, the best course of action to take is to partner with another agency until you’re ready to transition to insourcing.

Photo credit: Freestocks via Unsplash

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