Insourcing and outsourcing are the two models that companies worldwide use to handle their business requirements. Organizations use them to distribute software development work among individuals that are not part of their regular workforce. There are many situations where insourcing is considered better than outsourcing. But at the same time, the global ITO revenue for 2019 was 66.5 billion dollars – which means that a lot of people find outsourcing beneficial.
So, which one is the best? There are several differences between insourcing and outsourcing. Similarly, there is a difference between good software outsourcing vendors and bad ones. To understand all this, first, you have to understand what insourcing and outsourcing are.
What is insourcing
Insourcing is completing a project or task through the help of internal resources and consultants. Often, insourced workers are not part of your regular employees – you hire them for particular business needs that might arise from time to time. Insourcing is based on the internal organizational structure, i.e., work is done internally instead of externally.
Insourcing key features
- Insourcing uses temporary workers based on the needs of the project.
- Insourcing makes use of underutilized but developed resources within the company. For example, a consultant that was working on a different project but has knowledge for another.
- With insourcing, the company sets time and cost restrictions. It also sets procedural regulations for workers.
Insourcing has several advantages, such as:
- It helps to keep control inside the company. You can shape the project exactly the way you want it as well as monitoring the day-to-day progress.
- You can provide the required training to ensure quality work.
- You can set guidelines according to your needs. Since the workers are inhouse, they take ownership of the work you assign them.
- It also reduces the risk of leaking intellectual property (IP) as all the data, and IP is contained within the company. And since it’s your own company, you don’t have to worry about faults in security compliance.
Naturally, insourcing also has disadvantages you have to consider. Some of the most notable ones include:
- Insourcing is expensive since trained resources are not always available for the project. You might need to engage in knowledge transfer before they can work on the project.
- Insourcing might be inefficient as workers may have to do extra work, which affects their productivity.
- If the project isn’t completed on time, it may affect relations with customers. You might also suffer issues related to reputation.
What is outsourcing
Outsourcing means sharing the workload or functions with a third party vendor. The people working on the project are your provider’s employees. Some time ago, only big firms used outsourcing, but that has changed in the last decade, as many companies are using outsourcing models today
Outsourcing key features
- Outsourcing means sharing and allocating workload with vendors that don’t work in your company.
- It allows you to access resources and skills you’re lacking to complete your business requirements.
- Based on your needs, you can outsource specific tasks or the whole project.
- In outsourcing, the client provides the business logic and direction while the vendor provides the expertise.
- Processes like manufacturing, tech support, and customer care are typically outsourced.
Some of the advantages of outsourcing include:
- It’s significantly cheaper than insourcing or handling the project yourself, as outsourcing means you won’t have to pay for some of the costs associated with insourcing.
- It gives you access to skills not available in the company at a fraction of market price, since you don’t have to hire permanent staff.
- It increases efficiency as people working on the project are experienced.
- You can work around the clock as outsourcing companies offer 24-hour support.
There are some disadvantages to outsourcing, too. Some of them include:
- You lose some control over the project as you can’t monitor day-to-day operations for the project
- Outsourcing poses a challenge to security as you are providing company information and IP to outside vendors.
- You have to make sure that vendors have all the security and data compliances.
- If the project goes out of scope, there may be certain hidden costs.
Which one should you choose for your business?
There are many conflicting opinions in the market regarding this. Insourcing makes sense for a company that doesn’t have that much of a workload. It can be used for temporary projects that don’t affect day-to-day operations.
Insourcing also makes sense for companies that already have the people with the required expertise, but are yet to tap into that potential. Insourcing can also help you create a group of expert people and a product whose quality you control, even though you may spend more time on building the right team.
If you’re looking to complete your project at the earliest possible time and don’t feel the need to employ individuals in long term contracts, outsourcing is the way to go. Through outsourcing, you can get contract labour for flexible rates. The most significant advantage of outsourcing is getting experienced and skilled resources at a more affordable price. You also save time, since you won’t need to vet and interview people. You just have to sign a contract, and the vendor will provide the expertise.
Outsourcing is basically for companies who want to focus on core competencies without handling all the extra work. But it may have problems such as hidden costs, loss of control, and quality issues. What’s better is to have a solid contract and trusted vendor in place so that you don’t have to worry about these problems.
Outsourcing and Insourcing both have their pros and cons. They are both necessary in today’s world, and businesses around the world use both. Insourcing is the way to go if you want to hire people for your company’s needs so that you control the quality and data. But if you want to save time and money, you might want to consider outsourcing.
It all depends on the need of the organization and the project. You need to ask the following questions from yourself: what exactly do you want to focus on right now, what problem do you need to solve? Are your needs short term or long term? That’ll give you the right answer, whether you need insourcing or outsourcing. Or you can use a combination of both. That works fine too.