Choosing The Right Option : Insourcing vs Outsourcing

Outsourcing

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In the 1970’s, large scale manufacturing companies were seeking ways to improve efficiency through outsourcing (Asatiani et al., 2019).  Almost all the organizations at the time believed that only non essential tasks (non-core work) should be outsourced for better organizational performance.

Outsourcing is defined as the act of obtaining semi-finished products, finished products or 

services from an outside company (Simchi-Levi et al ., 2004). 

As Michael F. Corbett (2004) describes, the importance of a strategic approach in outsourcing,  which is the primary driver in the global economy.

Insourcing

Insourcing is defined as a project whose aim is to include processes that have been carried out so far outside the borders of the organization, internally. Insourcing as an economic phenomenon has been the subject of research for many years (Damanpour et al., 2020) on organizational performance and there is a positive relationship in insourcing and organizational performance as well.

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Which is better for your Business?

Today, most organizations outsource even the critical back-office functions of the company.  HR activities, IT related work, administrative functions, marketing activities, customer service operations and even manufacturing tasks are outsourced at a larger scale by companies such as IBM, Accenture, Infosys, Gorilla Logic, HCL, Nike, Alibaba Group and Neusoft.

Outsourcing saves time, reduces the operational, technological, infrastructural and labour costs at the same time. Which is hugely beneficial for the company. Access to a pool of talent in the outsourced team will assure efficiency and less risk to be handled by the company. Higher degree of outsourcing could carry higher potential for efficiency gains (Weigelt and Sarakar, 2018).

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On the other hand insourcing can be an important

for managers when looking for opportunities to

improve the stability of the Supply Chain (both in

terms of delivery time and price).Especially in the

event of problems with the supply of key

components (Grela and Hoffman, 2021).

Insourcing still remains as a bid to improve operational excellence. Insourcing would ultimately cut down transport costs and labour costs as well. Projects will be delivered on time and quality control can be assured with a control of intellectual property. That can also mean that responses to changes can be done quickly and also the process can be customized accordingly.

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Insourcing however does has its cons. Cost of insourcing can be much more expensive in the long term considering the recruitment, hiring and training costs. This process is time consuming and the company may have to invest in time as well.

On the other hand when the organization is outsourced, the employees of the outsourcing firm will not bear the same pride at work in the work that they do for the organization as the in-house staff. They may have tons of clients. However the loyalty to the company would be less than that of an in house employee.

Conclusion

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When organizations are stuck with the question whether to outsource or utilize in house employees, it is critical to assess all the options available to the company and pick the most ideal option that matches the short term and long term business objectives.Insourcing can be beneficial with the control and the customizability that offers while outsourcing assist with cost effectiveness and scalability.

References

Asatiani, A., Apte, U., Penttinen, E., Ronkko, M. and Saarinen, T., 2019. Impact of accounting process characteristics on accounting outsourcing- Comparison of users and non-users of cloud-based accounting information systems. International Journal of Accounting Information Systems, 34, p. 100419

Corbett, M., 2004. The outsourcing revolution. Chicago: Dearborn Trade Pub.

Damanpour, F., Magelssen, C. and Walker, R.M.  2020, “Outsourcing and insourcing of organizational activities: the role of outsourcing process mechanisms”, Public Management Review, Vol. 22 No. 6, pp. 767-790, available at: doi.org

Grela, G. and Hofman, M., 2021. Does insourcing of processes pay off?. Journal of Global Operations and Strategic Sourcing, 14(3), pp.477-501

Simchi-Levi, D., Kaminsky, Ph., Simchi-Levi, E., 2004, Managing the Supply Chain. 

McGraw-Hill

Weigelt, C., Sarkar, M. B ., 2012, Performance implications for outsourcing for technological innovations:  Managing the efficiency and adaptability trade- off. Strategic Management Journal, 33, 189- 216