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Outsourcing vs. Insourcing: An Overview
Outsourcing is the process of hiring an outside organization that is not affiliated with the company to complete specific tasks. Insourcing, on the other hand, is a business practice performed within the operational infrastructure of an organization. The main difference between outsourcing and insourcing is the methods in which work, projects, or tasks are divided between various companies and departments for strategic purposes.
Key Takeaways
- Outsourcing enlists the help of outside organizations not affiliated with the company to complete specific tasks.
- Insourcing is a business practice performed within an organization’s operational infrastructure.
- The organization’s control over operations and decisions differ depending on whether the company uses outsourcing or insourcing.
- Insourcing generally places new operations and processes on-site within the organization, while outsourcing involves an external organization separate from the primary organization’s operations.
Outsourcing
Outsourcing allows companies to use the developed workforce of an external organization to perform tasks and its resources and services to manufacture their products. Companies usually outsource their workforce or manufacturing to save money.
Companies can better focus on the core aspects of their business by outsourcing non-core activities to improve efficiency and productivity. This practice can affect jobs ranging from customer support to manufacturing, as well as technology and back office positions.
Outsourcing may require sacrificing managerial control. For instance, an organization known for friendly customer service cannot enforce or manage how an outside support center interacts with its customers. This may, therefore, impact its customer service.
Industries like healthcare, travel, transport, energy/utility companies, retail, and even government rely on outsourcing. Many IT companies also use outsourcing, especially for their support services. Outsourcing is criticized for displacing jobs, posing security risks, and lowering workplace standards.
Fast Fact
While outsourcing requires giving up some managerial control, companies that insource need effective management. This could push their resources.
Insourcing
Insourcing assigns a project to a person or department within the company instead of hiring a third party or external company. It utilizes developed resources within the organization to perform tasks or achieve a goal. For example, an organization might insource technical support for a new product because the company already has existing technical support for another product within the organization.
Insourcing generally places new operations and processes on-site within the organization. This can make it more expensive for a company because it often involves the implementation of new processes to start a different division within the organization.
Insourcing is being used by companies that want more control of important projects and tasks. Law firms are an example of companies that use insourcing. In 2023, the results of a survey in a Law Department Management Benchmarking Report indicated that the majority of law firms are still completing their work in-house.
Key Differences
| Outsourcing | Insourcing |
|---|---|
| Contracts external organizations | Uses internal employees |
| Relies on skilled expertise from external providers | Relies on skilled expertise from internal team |
| Provides flexibility and ability to focus on core aspects of the business | Often less flexible than outsourcing |
| Outsourcing tasks and/or production can save money | Can be costly to place new operations and/or process on-site |
Which Countries Have the Most Outsourced Services?
India is considered the world’s outsourcing capital because of its skilled labor and software development among other things. The Philippines is also seeing a boost in outsourcing as are Malaysia, Vietnam, and Thailand.
What Are Some of the Most Common Types of Insourced Services?
Are Outsourcing and Offshoring the Same Thing?
No. Outsourcing and offshoring are two different concepts. Outsourcing refers to contracting out business processes to an external organization domestically or internationally. Offshoring, on the other hand, involves relocating a company’s business operations to a different country. This allows the offshoring company to take advantage of cheaper labor, access to skilled talent, and reduced overhead among other things.
The Bottom Line
Outsourcing involves hiring a third-party company to handle certain tasks while insourcing relies on a company’s own resources and talents to execute those processes. Each comes with its own benefits and drawbacks and companies often use them in conjunction with one another. What works for one company won’t work for another—it all depends on the circumstances and the business.
