When searching for professionals to handle a particular aspect of work in an industry, the difficult decision of choosing between outsourcing and insourcing comes up. Both methods can be effective and can take preference depending on the situation at hand. They both have pros and cons, and so must be carefully considered before making a choice, especially when it pertains to crucial sectors like the IT sector.
Here, we will weigh both methods and discuss what you should consider before making the decision of outsourcing or insourcing in your IT sector.
An Overview of Outsourcing and Insourcing
Outsourcing involves hiring an individual or an organisation that is external to handle specific specialised tasks in your company.
Insourcing involves allocating a specialised task within your company’s operating infrastructure.
In insourcing, an in-house professional who happens to be a professional in a particular field is required to carry out the job, while in outsourcing, an external professional is brought into the organisation to handle the task. Both practices are healthy and have their applications.
Before the Covid-19 pandemic, the global outsourcing market was very unstable, and before the pandemic, the outsourcing market reached an average of $92.5 billion. However, post-pandemic, the global outsourcing market has experienced a huge increase, with businesses expected to spend over $700 billion on outsourcing globally by 2022, and the IT sector alone expected to spend over $500 billion on outsourcing by 2023.
Also, research has shown that the global business process outsourcing market is expected to reach $525 billion by 2030, with the financial services, IT, and telecommunications sectors leading this growth.
There was a time when insourcing was given the highest preference. Companies preferred to use their in-house staff for every operation. However, that practice is outdated, and more organisations are open to outsourcing. In fact, according to research, 92% of G2000 companies use IT outsourcing.
Outsourcing in Business
B2B practices are very common now. For instance, a construction company in need of upgraded power systems to run its processes can simply reach out to a power systems consultant firm and request specialists to help them with the upgrade. This is what outsourcing looks like.
In outsourcing, an organisation hires the advanced workforce of an external organisation to perform certain tasks. They can equally use the resources of an external organisation for services and products. Most times, the key motive for outsourcing is to save money on costs.
Also, when organisations need professional skills for a certain service, they usually need to hire these professionals from a specialist organisation, and outsourcing happens.
Businesses also use outsourcing to save time and increase productivity by focusing on the core aspects of the business. For instance, outsourcing non-core activities will give them more time to focus on their core responsibilities and become more efficient.
One major problem with outsourcing is that during the period of completion of the outsourced work, the organisation loses control over the management of certain practices to the external organisation. This means that some of the personal touches they might already be known for by their customers might be absent in the service while it is being handled by another organisation. For instance, a fashion house known for its conversational and fun tone on social media, if this organisation has to outsource its content creation on social media to another company with a different tone, this can easily be spotted by the customers and can affect the interaction.
Insourcing in Business
In insourcing, the organisation allocates the project to an in-house professional instead of using external bodies. Insourcing uses developed resources within the organisation to accomplish projects. For instance, an organisation that handles system software may attract other system software-related projects.
Insourcing can be expensive because the personnel required to complete the project might not be skilled enough to do it and, as such, might require more training and courses, which will cost money. If the in-house engineers in a manufacturing firm are required to write technical manuals for the equipment, they might require more time to fully learn how to do technical writing as opposed to hiring a technical writer to do the job.
Another thing about insourcing is that the organisation might need to buy extra equipment or tools to perform the task.
With insourcing, companies have more managerial control over their operations. Also, insourcing might be a worthy investment in the IT sector as in-house personnel will now have enough knowledge and skills to take on such projects, and subsequently, there will be no need to look for external professionals for such projects.
IT Outsourcing vs. Insourcing: Pros and Cons
Benefits of outsourcing:
By outsourcing, the cost of purchasing new hardware and software to complete the task or paying for in-house staff to take courses to learn the expertise of the skill required is eliminated. Complex tech platforms are quite expensive. When you need to pay for the equipment, licensing, security, maintenance, shipping fees, and other related bills, the cost of outsourcing might be cheaper.
Outsourcing also removes the cost of employee turnover, sick leaves, and other expenses that might accompany using in-house staff.
Before an organisation or individual is hired for outsourcing services, that organisation must be adept at the particular task. There are high chances that the individual has completed such tasks previously, and so there are records of results that can be leveraged.
With an expert, you can predict the result of a current project from reviews and past projects.
With external hires, your options are more flexible. You can always make necessary changes to meet changing requirements. You might require a particular service as a one-off process and not need it again for the remaining period. In this case, you can always outsource the project and stop the process when it is not needed. When insourcing, you might have to buy several pieces of equipment and tools that you may never need again.
By outsourcing the non-core aspects of your business to professionals, you can focus on the core aspects and maximise the available time for higher productivity.
Cons of Outsourcing
The moment you outsource a particular aspect of your job to another organisation, you lose control over the aspect. The service provider will be in charge of compliance and oversight of IT project management. This can be quite risky, especially if it is a new provider you have hired.
When outsourcing, you will have to entrust some of your organisation’s sensitive data to the company. With the increasing rate of data breaches in the world today, this can be risky.
- Unforeseen circumstances:
When it is your company, you know what to expect at any given point. However, this is not the case with outsourcing. External problems might occur in vendor management; the other company might run out of resources and even go out of business. These factors will consequentially affect your business.
Benefits of Insourcing:
Project management is easier when the team is in-house. They have access to existing data and information about the company, so they can always use that information to improve the efficiency of the work. Both the software and hardware can be effectively managed.
The insourcing team will have better communication with other departments in the organisation. This will help them understand the processes better and produce faster results.
If the in-house team needs to learn a skill to carry out that project, that knowledge will be beneficial in the long run for the organisation. If similar needs arise in the future, you can always reach out to your in-house team and get the work done.
Cons of Insourcing:
Insourcing might cost more than outsourcing in some cases. The cost of sourcing, hiring, training, onboarding, purchasing new hardware and software, taxation, and other processes might be high.
You can invest a lot of money into the acquisition of skills for your in-house team, and then they decide to leave the organisation after a while. In this case, you can no longer make use of these skills as insourcing when you need them, or you might have to train another set of employees, who are also indispensable.
Which of the Strategies Should Your Organisation Use?
So, with all the knowledge gathered, which strategy should you use? Now, there are factors to consider when determining this. Factors like;
- Your needs and requirements
- Your budget for the project
- The skills you need and the skills your company currently has.
- The long-term goals: Do you need a quick fix, one-off service, or is it a permanent solution that might be required several times?
- Which strategy fits your company’s culture better?
IT services are the main objects of outsourcing. After considering your options, it is a good idea to handle some solutions and let a third-party service provider handle other solutions. In the long-run, outsourcing is a great business tool for better productivity and efficiency in an organisation.
Want to find out more about how AMO can help with your project management capability? Have a look here (https://agilemanagementoffice.com/consult/) how our team can help yours reach their full project management potential. If you want to know more, contact us on email@example.com