What is Insourcing? How does it differ from Outsourcing?

Last updated on 

November 25, 2021

by

The VA Reviewer
What Is Insourcing And How Can It Benefit Your Business

Insourcing is a business model where an onsite team completes a previously outsourced project to a third party. This adaptable paradigm entails integrating new individuals, activities, and procedures into the organization while adhering to a set of specific deliverables. It could also entail retraining and upskilling current staff to take on outsourceable tasks.

Insourcing is an insightful, strategic choice for science, technology, engineering, and math (STEM) companies since it allows jobs to be executed within an organization’s existing operational infrastructure while also giving your company complete control.

In a nutshell:

  • Insourcing entrusts a project in the hands of employees who are most familiar with the company and its products.
  • Outsourcing allows a company to gain access to expertise that may not be available in-house and potentially lower costs.
  • Since the 1990s, American businesses have outsourced more than they have insourced to take advantage of lower labor costs abroad.

Insourcing Defined

Insourcing is the practice of assigning a project to an individual or department within an organization rather than hiring a third party or outsider. 

In other words, it is the method of using the company’s internally developed resources to complete critical projects rather than using someone from outside the company. 

In most cases, Insourcing is used to establish new operations and processes within an organization.

In general, Insourcing gives a company more control over its decision-making process while improving execution speed and precision. 

However, it may prove to be more expensive than Outsourcing because it frequently involves the teething problems of establishing a new process or a different division within the organization.

For a comparison, you can check our comprehensive discussion on Outsourcing.

How Does Insourcing Work?

Companies have increasingly outsourced rather than insourced since the 1990s, seeking lower labor costs in developing countries. Insourcing can result in higher expenditure as logically, the employees are domestic hires. The company pays them based on the prevailing wage levels. 

In contrast, Outsourcing to foreign countries results in the company getting the same services for a third of the domestic cost. But some companies don’t want to cede control of a business function, which led now to workforce solutions like Insourcing.

Before implementing Insourcing, here are some essential things that an interested company needs to consider:

  • The management team must comprehend the various aspects/factors of the existing contract. These factors include whether the contract is about to expire or must be terminated, the contract’s pricing, and other similar post-termination implications.
  • The management should consider all financial and non-financial factors associated with the transition from Outsourcing to Insourcing. It is worthy to note that developing a justification for introducing Insourcing entails more than just comparing their costs.
  • The management should ensure that the existing employees have the necessary skills to complete the tasks internally. As a result, there must be adequate staff training to improve their operational capability and prepare them for the upcoming challenges.
  • In some cases, the company’s organizational structure may need to be changed to support the new internal delivery. The structural change consists primarily of redefining the job description, sizing, and training.
  • Preparing a detailed plan is a must since Outsourcing to Insourcing poses a significant risk to the business.

A significant influence in the decision-making is the need for the best allocation of resources across a set of tasks. Employees who perform those tasks are now better deployed on other departments or projects when you decide to outsource.

Examples of Insourcing

As an example, a cosmetics company is launching a new lipstick brand. Its strategy includes a social media campaign that it hopes will help spread the word about its brand.

The company has a marketing department, which is knowledgeable about the product and the industry. Although it has never launched a new product on social media, it already implements the rest of the company’s social media strategy. Should the company delegate the project to its marketing team or outsource it?

If the marketing team is overburdened with current projects, the company may hire an outside social media firm to launch the lipstick’s social media campaign. Outsourcing may be the best option for the initial phase. Once the campaign is up and running, the company may reconsider and Insource it.

Why Consider Insourcing?

Business expansion, combined with the need to reduce cycle time, has necessitated the increased use of an agile workforce in today’s world. Outsourced contracts typically slow down the process. Thus, it becomes a necessity to hand internally time-sensitive projects.

In some situations, poor outsourcing quality may result in problems that can lead to massive losses. You can avoid such situations by Insourcing, which provides greater control.

Advantages of Insourcing

Insourcing allows businesses to direct and control the entire procedural process. It enables close monitoring of quality throughout the development and implementation process. The company can quickly test projects and correct defects.

One advantage of Insourcing over Outsourcing is that intellectual property can be adequately protected, such as knowledge, skills, or technology. The organization gains greater control over its resources, employees, privacy, and intellectual property by Insourcing. 

As a result, the organization generally faces a lower risk of intellectual property loss or theft. There are many ways to safeguard the company’s intellectual property:

  • The company can register its trademark. When a company registers a trademark, other organizations are no longer permitted to use it. It is valid as the trademark is in use.
  • Copyright is a second method of protecting intellectual property. In most countries, copyright is a legal form of protection. Copyright protection applies to tangible products that have been recorded or published. It includes paintings, literary works, software, photographs, films, and live performances.
  • The third and final method of protecting intellectual property is to designate confidential business information as a trade secret. This method of protection is especially effective when combined with Insourcing.

Outsourcing has a reputation for posing a danger to effective communication. Because the project and the project owner are in separate locations, the chance of misunderstanding and noise is higher. 

When it comes to Insourcing, the difficulty is much smaller. Employees speak directly, typically face to face, in this environment.

Certain costs, such as intermediary costs, are avoided when you Insource. 

Another advantage of Insourcing is that consumers tend to support local products and services. With Insourcing, organizations create jobs for residents, who form an emotional bond with the organization in their neighborhood due to this business activity.

Cultural differences, time zones, currency differences, and climate issues can all complicate outsourcing activities. On the other hand, organizations that outsource are less likely to be exposed to such risks because of such differences.

Disadvantages of Insourcing

Most of the time, the newly assembled internal team may be more expensive than offshore resources. Further, it is not easy to find a group of skilled and competent talents for the new project on such short notice. Another disadvantage of Insourcing is that it requires extra work to be completed, which may divert from core activities.

Instances where Insourcing better than Outsourcing

With Insourcing, some businesses can gain a competitive advantage by having a more consistent and superior customer service made possible through their in-house team, even if it costs a little more.

Insourcing also saves time and allows for faster delivery, which is not possible with Outsourcing because it takes longer due to the geographical disparity. However, Outsourcing firms have now minimized these delays due to drastic improvements in technology.

Moreover, employees learn new competencies while honing their skills if companies choose to hire internally. Likewise, the employer gets to maximize the potential of its internal talents.

Another reason we found as an advantage of Insourcing is that internal employees can better understand the project because they work closely (physically) with the project leads. They get to interact with them and can ask queries during breakout sessions. It is not possible with outsourced projects.

Lastly, Outsourcing entails several risks and additional costs that may prove disadvantageous in the long run. Allowing non-employees access to systems, particularly back-office systems like accounting, raises security concerns. When a company allows unknown employees of a third-party organization access to its systems, it exposes them to additional risk even with a strong cybersecurity profile.

Takeaway

As globalization gains traction and workforces become more diverse, big organizations seek alternative talent solutions to meet their business requirements.

Ultimately, choosing between traditional solutions, an outsourced supplier, or an insourced model is a case of horses for courses. It will depend on your business objectives and your expectations for the specific project requiring additional personnel.

Insourcing is frequently the best solution for companies that value work culture, security, and compliance with access to the resources to attract the talent they require for a specific project. The non-availability of the needed talent makes Outsourcing more viable.

Insourcing makes a lot of sense when you consider how it can reduce recruiting challenges, direct employment liability, and the responsibility of ongoing HR administration such as payroll.

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