Insourcing vs. Outsourcing: Pros & Cons
Congratulations! What for you ask? Simple. You have outgrown your capabilities to satisfy your product or service demand, and now you need to expand. That’s awesome! Seriously. What a great problem to have.
Having this problem means the business you built from the dream up has become everything you wanted it to be: Successful, innovative, and impacting the world around you.
While this may be an excellent problem, now you have a big decision. Expand within, also known as insourcing, or outsource your development needs to an outside partner.
To insource or outsource, that is the question. Luckily, we’re here to help you on your quest without all the confusing Old English writing! That was a Shakespeare pun in case it didn’t land well.
Let’s discuss the path of insourcing. Essentially, this path will lead to the most significant degree of control over the various functions of your company, such as management, equipment design, software style, and more.
The Pros of Insourcing
Retain Control Of Management
The most significant benefit of insourcing comes with control retention. Keeping your departments, operations, services, and development projects in-house means making all the decisions.
This is generally never more important than in the area of management. Great managers lift their subordinates, encourage them to become greater than they are and motivate them to become passionate about their jobs. They can take a struggling department and turn it into a performing team.
On the other hand, poor managers can ruin company morale, create attrition issues, cause reductions in production quality, and ruin a team that once performed at peak performance. Choosing to insource means you get to have direct control over managerial functions.
Retain Control Of Infrastructure Decisions
Insourcing means you get to keep control over what infrastructure implementations are made within your company. Instead of being forced to utilize the systems of an outside partner, you get to decide the format and style.
For instance, if you keep your Information Technology services in-house, you can decide which type of servers to use, computers, programs, software, and website platforms.
Additionally, you’ll have complete managerial control over how these systems are organized and implemented and who manages and maintains them.
All successful relationships require solid communication. From marriages to business partnerships, communication either builds or destroys. Keeping your operations in-house means you have the best opportunity to ensure effective and productive communication.
For example, communication depends largely on non-verbal cues. This is why we have emojis for texting because, without them, the intent behind our written messages is lost. Insourcing means you will interact with your team daily.
You can quickly identify when someone is having an issue with this kind of interaction, meaning you can get ahead of any smoldering problems that are about to ignite.
The Cons Of Insourcing
Insourcing means you are at the mercy of market volatility. Pandemics, rising fuel costs, labor shortages, political unrest, public policy, and military conflicts can all impact costs. Due to many of these factors, inflation is higher than in decades.
When you choose to insource, you must be prepared for fluctuations in maintaining your operations in-house. For instance, the price of a computer today is much higher than just two years ago because of chip shortages.
Due to the unpredictable nature of outside influences, your costs will ebb and flow from year to year.
Insourcing means you will hire new employees or redirect existing resources. Due to cost concerns, most companies choose the former. However, adding tasks and responsibilities to your employee’s workload leads to reduced performance, lower morale, and stressful work conditions.
The consequence of all of this is reduced productivity. Moreover, your staff may not be adequately trained or educated for the new assignment. This leads us to our next Con.
Lack of Talent
Unfortunately, insourcing highly technical development projects will require you to attain experts and specialists. If you do not have these experts on staff, you will have to begin recruitment efforts. Recruitment is costly, and there is no guarantee you will find who you are looking for.
Highly trained and experienced experts are often already employed, and your geographical location limits you. This is further complicated if your operation is nowhere near major metropolitans or universities.
Like insourcing, outsourcing comes with advantages and disadvantages. Here are a few examples of both.
The Pros Of Outsourcing
The biggest reason for outsourcing is cost control and savings. Not having to build a new department from the ground up means you can have guaranteed cost control; when you outsource development, you know upfront what the partnership will cost. This effectively insulates you from market volatility.
Instead of purchasing equipment and space and hiring new talent, you can lean on your outsourcing partner to provide all these necessary items. Therefore, you assure that you will not incur startup costs or ongoing maintenance and benefit costs.
If you need expansion due to demand for your product or service, time is of the essence. Doing this in-house means investing time and resources, especially if you hire new employees.
With outsourcing, your partner company already has these systems and the infrastructure in place and is ready at the word go to start providing the help you need to maintain your growth. The benefit of these time-saving attributes cannot be understated.
Whereas insourcing comes with talent availability limitations, outsourcing is the exact opposite. The company you choose to outsource with already has the talent needed to accomplish your goals. Because of the digital and remote work revolution, you can tap into global talent.
Insourcing limits you by location, whereas outsourcing opens up the entire world. This is especially important if you require highly technical or specialized services like website development, software development, or customer service experience solutions.
The Cons Of Outsourcing
Loss Of Control
Losing control over your company is probably the scariest thing you have heard all day. You have far less managerial oversight over a function performed inside the walls of another company.
While you won’t be losing control over your company if you outsource, you will lose a certain element of control over the service or department you outsource.
Losing control is one reason many companies refuse to outsource. While it is a genuine concern, understanding this negative aspect of outsourcing means you also understand how important who you choose to partner with is.
Armed with this information, you can confidently embark on your journey towards outsourcing and find the right fit for your company.
Outsourcing results in communication challenges. As we discussed earlier, intraoffice interactions provide comprehensive communication, whereas virtual and digital communication can leave you with the incomplete transmission.
Communication is the foundation of successful operations and partnerships. It is important to recognize this limitation beforehand and take the necessary steps to mitigate communication barriers by prioritizing building communication bridges.
In other words, for many reasons, you must choose an outsourcing partner that commits to mitigating the negative aspects of outsourcing.
Outsourcing either happens before you expand and develop or after. If it is the latter, then there will be workforce disruption consequences that will need addressing. For instance, if you hired experts to develop, implement, and maintain your new development project and then outsource that project, the purpose those employees were hired for is eliminated. What’s next?
You will reallocate or assign them to perform other functions and tasks or let them go. Neither is a good option. Reassigning them means they will perform a job they weren’t hired to do. This most likely will result in diminished morale and performance.
On the other hand, terminating their employment altogether is also a serious decision. Every aspect of their life will be affected by this decision.
On the surface, this can have the appearance that you prioritize profits over human needs. This will have a cascading effect on your entire company’s morale.
Bringing It All Together
You may have noticed a pattern in this analysis. The Pros of Insourcing are the Cons of Outsourcing, and the Pros of Outsourcing are the Cons of Insourcing. Where one excels, the other struggles, and vice-versa.
With this knowledge, outsourcing or insourcing means taking a look at your company from the outside in. Identifying our strengths over our weaknesses is usually easier, but you will have to flip that. Identifying your weaknesses is the first and most important step you must take in making your decisions to insource or outsource.
Your strengths are your core competencies. These culminate into why you exist and what you exist to create. Focusing on these core competencies is essential to your long-term success and should not be outsourced. However, those functions create the ability to focus on innovation.
Creating this space to innovate is just as important, if not more so, than the cost-saving benefits of outsourcing. The lesson here is that you should be intentional about the process. Taking this approach is what we call Smartsourcing.
We mentioned several times up to this point that choosing the right partner to outsource can mitigate and eliminate many of the negative aspects that are inherently present with outsourcing.
Awesome CX is awesome at doing this. Yeah, we know, cheesy but accurate. We take mitigating outsourcing’s limitations seriously. So much so that we consider it one of our core competencies.
We specialize in enhancing the customer experience with your company and have worked with many eCommerce companies. Our flexible month-to-month service agreements, all-inclusive rates, and teams dedicated to upholding your company’s vision and culture are just some of the steps we take to minimize your outsourcing concerns.
Contact us today and connect with our team to discover how we can help you amplify you're why, innovate your what, and jumpstart your company’s path towards growth accommodation.