Insourcing vs. outsourcing. Which is best for your type of company?

Insourcing or outsourcing, what is the right model for your company? This is one of the most fundamental questions to consider when growing your business structure and, as with everything, the right choice for you will depend on your needs. The truth is that many companies prefer to have control over what is being done in-house and do not allow third-parties to do their work. This is called insourcing and we tell you all about making the most of your internal resources in this post.

What is Insourcing?

Insourcing is a strategy companies use where the work, whether a specific project or a specific task, is carried out by one person or department within the company, in order to obtain the best cost-benefit ratio for the execution of tasks.

Insourcing allows you to have more control over the tasks you have to do. It often involves adding more people to the company’s workforce or investing in training for people already in the company. It also requires new technologies that would otherwise have to be outsourced.

It is the opposite of outsourcing, where services or job functions are contracted from a third party, this is, a company or freelance outside of the organisation.

For example, it is very often that companies outsource some activities, like those related to payroll or accounting.

Outsourcing is also a very good strategy for speliasied rols, like HR or technology and IT, which usually are not the core business for companies, but rather a need to keep business going.

Outsourcing vs insourcing. What is best for your company?

Knowing whether an activity should be carried out externally will depend on the type of activity it is and the characteristics of the company. 

There are activities that the company must carry out, but due to a lack of capacity, it cannot do them. These are not part of the company’s strategic activities. In this case, it would be a good option to outsource these activities, because the knowledge to solve them is not already in-house and it would take too much time and effort to learn it, compared to hiring it outside.

On the contrary, if it is a strategic activity for the company and it can be less costly to carry it out by people from the inside, it is advisable to carry it out by trained workers within the company. This allows the knowledge to solve it to stay in-house and be able to reuse these resources if the need comes up again in the future.

Another important factor is the size of the company.

Usually, larger companies have the advantage of having more trained staff and financial resources. Therefore, is easier to use an insourcing strategy.

If, on the other hand, smaller companies do not have as much capacity and need to perform an activity other than their core business, outsourcing is a good way to get things done fast. 

The reality is that no strategy is the best just because, both have advantages and disadvantages that must be considered.

Reasons for outsourcing

The reasons for outsourcing can be many and different. Here are the most important ones:

  • Outsourcing reduces risks and allows the company to focus more on its core activities. Avoiding large investments in infrastructure or technology, allows companies to put these resources into keeping the business going.
  • Costs can be reduced by not having to purchase equipment, technology, and innovation resources. Likewise, this allows companies to avoid the costs of hiring new people. This includes training, on-boarding, learning curve, salaries, etc.
  • Another aspect is that the activities performed by other companies are more specialized. Therefore, the work performed may be higher in quality and lesser in technical blocks.

At neurons, for example, we work with both strategies and also provide highly specialised resources to other companies that want to get things done with an external team that acts as an in-house one, check it out at Extended Teams.

Reasons for insourcing

But sometimes keeping things in-house has more benefits than hiring external resources, such as:

  • We will have more control over processes and communication. If the staff that is working on the project is inside the company, this will give us more control of the things that are done and this can bring advantages as the proximity and communication can be better.
  • Greater confidentiality and security of information. There is sensitive information that many companies handle and giving this information to third parties is not safe for them or requires the involvement of legal teams. By keeping thins in house. security and information leakage risks are reduced.
  • Improve the current human capital of the company. The exchange of new knowledge and social capital are positive impacts that insourcing can have. With insourcing strategies where people are trained or more people are hired, employees will collaborate with each other, share ideas and provide more support to others. This improves employee loyalty and keeps the knowledge inside the organisation, benefiting a future scenario in which a similar situation repeats.

The reality is, you will hardly find nowadays companies that do not outsource operations that are not key strategies of their business. But, when it comes to core business strategies, large companies prefere to take care of this in-house or with hybrid formulas like extended teams. 

How to make a successful insourcing strategy?

We are often told that it is necessary to choose between outsourcing and insourcing. But the reality is that some companies need both in order to get the right combination to improve their talents and services, and is usually a smarter cost-benefit solution.

If by analysing the above points you realise that for your business you should use insourcing in your company, these are the factors that you should take into account when developing this process in your company:

A good, adapted and solid strategy

It is essential to have a strategy and a value proposition. If you are going to start such process, you must have a strategy in which you consider all the financial and strategic aspects of this plan, brief, project management etc.

You will do this so that you know how to do it and are clear on why you are doing it, before involving everyone.

In this part, it is essential to calculate all the fees and costs associated with this new change. Keep in mind that this will involve a large investment in people, technology and data, even if it’s already your resources.

Strengthen your workforce

This is the most important aspect when integrating an insourcing business model. Here you should make an analysis in financial and logistical terms of whether it is better to hire specialised staff in your company or on the contrary, train your employees. 

If it is the second option, your employees might present some resistance at first, and you are going to have t encourage them to broaden the horizons of their work. To learn more skills or take on more tasks that are less directly related to their previous responsibilities. 

They should also be provided with the necessary tools to achieve this, such as:

  • New technology, like a training platform (LMS).
  • Access training programmes, courses, masterclasses etc.
  • Accept the idea that they might feel a little bit junior or have to be led by some other coworkers in this new field o knowledge, even if they held more manager positions in their other tasks.
  • Hiring new people to even the workload and avoid burnout.

“Insourcing certain roles within a project can help clients build in-house technology capabilities that may be useful as the client continues to invest in these technologies going forward,”

Analyse which activities should be internalised

You should be aware that not all activities that are outsourced can be insourced. We must be able to determine which services are the most strategic to bring back in-house. Jobs that are already aligned with the company’s strategic roadmap are the ripest for full or partial insourcing.

Prepare for the transition

Both leaders and employees need to be aware of this process. Effective communication between work groups is vital. So that this is something that everyone is prepared for. Therefore, we recommend having a change management plan.

As we have seen, deciding to choose between outsourcing or insourcing processes is not a simple task. Several factors about the company, its core business and its projection must be taken into account. Some companies need both in order to get the right combination to improve talent and services at a better cost-benefit. But in reality, a blend of both strategies is usually the winning approach for most companies.