Insource vs Outsource: How to Choose

Before we get into why this decision is so important, let’s make sure that you understand what “insource” and “outsource” actually mean.

“Insource” or “insourcing” refers to the process of having an employee of your company complete a task or business process.

“Outsource” or “outsourcing” refers to the process of having someone external to your company, that is not an employee, complete a task or business process. This could be an outsourcing agency or a consultant.

Say, for example, that you have tons of accounts payable work at your organization. You could hire an employee of your organization to handle your accounts payable, or you could outsource it to a company that specializes in doing accounts payable. This is a great, and very common, example of choosing between insourcing vs outsourcing.

There are many ways to reach this decision. Your business could be doing so phenomenal you could be considering outsourcing to help with volume. Or your business could be going through financial downturn, and you are looking at outsourcing as a tool for containing costs.

Now that you understand the importance of the decision to insource vs outsource, let’s go over the pros and cons of each choice.

Insource vs Outsource: The Advantages of Insourcing

There are tons of really great reasons to choose insourcing in the insource vs outsource debate.

The first being that usually when you insource a a function you have more control of said process.

Take our previous example: if you were to hire a new employee to do you accounts payable, you would have much more say in how they were trained. Meaning that you could set guidelines for how they completed your accounts payable that you may not have been able to when working with an accounts payable outsourcing firm.

An employee will generally feel more pride and ownership in their work as well. This means that they will go the extra mile to make sure that your company’s accounts payable are top notch. They will be more innovative, and likely have less mistakes than an employee of an accounts payable outsourcing firm that feels no loyalty to your business.

Now that you understand the importance of the decision to insource vs outsource, let’s go over the pros and cons of each choice.

Insource vs Outsource: The Advantages of Insourcing

There are tons of really great reasons to choose insourcing in the insource vs outsource debate.

The first being that usually when you insource a a function you have more control of said process.

Take our previous example: if you were to hire a new employee to do you accounts payable, you would have much more say in how they were trained. Meaning that you could set guidelines for how they completed your accounts payable that you may not have been able to when working with an accounts payable outsourcing firm.

An employee will generally feel more pride and ownership in their work as well. This means that they will go the extra mile to make sure that your company’s accounts payable are top notch. They will be more innovative, and likely have less mistakes than an employee of an accounts payable outsourcing firm that feels no loyalty to your business.

(There are obviously tons of different scenarios with this example, such as hiring a part time worker, but we kept it very simple for example’s sake.)

And the bigger your company gets, the more this will become a problem. Let’s say that you need a whole team of accounts payable employees to handle your company’s workload.

Do you then need to hire a manager to lead that team? Will you need to provide ongoing training to make sure their skills are up to date with industry standards?

The scalability of an insourced team is just not as easy or customizable as contracting with an outsourcing company in some situations.

Insource vs Outsource: Advantages and Disadvantages of Outsourcing

You will find that in the insource vs outsource debate, that positives of insourcing are usually the inverse, or the negatives of outsourcing. And vice-versa.

While insourcing lets you have more control, allows your employees to feel more ownership, and allows you to have more customization and flexibility for quick changes, outsourcing firms most likely don’t have those abilities.

The employees of the outsourcing firm won’t have the same pride in the work that they do for your company, because it isn’t your company that they feel loyal too. If you find a really great outsourcing firm that is very focused on customer satisfaction, this might not be the case. But a lot of the time it is.

The outsourcing firm has tons of clients, not just you. So they don’t have the same capacity to respond quickly to change or customize a process just the way your business likes it. Every outsourcing firm is different, but generally this is a problem with outsourcing certain business processes

Outsourcing is a great option for containing costs over the long run. They are capable of scaling much more easily than insourcing because of the amount of resources that they have on hand. Having 20 more hours of work each week won’t phase your outsourcing company, but it would put a huge strain on your internal employees.

Outsourcing companies are also responsible for their own training. So when you need to get something done, you don’t have to worry about a ramp up time to onboard a new person to a task.

Also, since the outsourcing company specializes in said business process or task, they usually have expert level knowledge. Hiring someone(s) with this level of knowledge at your organization might be too expensive for your bottom line, so it makes sense to rely on an outsourcing company that has that type of expertise.

Insource vs Outsource: The Final Say

When your company is stuck on the insource vs outsource debate, it is important to assess all of the options available to you and pick the best one for your business objectives. While insourcing allows for more control and customizability, outsourcing can be more scalable and cost effective.

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