Outsourcing is a process of hiring another entity to perform certain functions, or service, on the company’s behalf, instead of undertaking them in-house. On the contrary, insourcing refers to the delegation of a project to an individual or department within the organization, instead of an external supplier.
In the last few decades, outsourcing has gained a lot of attention and popularity in the business world. There are a number of activities or services which are outsourced nowadays from manufacturing to human resource, from customer support to back-office and from marketing to design.
Insourcing is a trending term these days, which is adopted by many companies, to accomplish the task effectively using their own facilities and resources. It is like an investment, to develop your own staff for performing those activities which could otherwise be outsourced.
In this section, we will discuss the difference between insourcing and outsourcing.
Content: Insourcing vs Outsourcing
Comparison Chart
| Basis for Comparison | Insourcing | Outsourcing |
|---|---|---|
| Meaning | Insourcing, is the internal sourcing of business operations, i.e. allocation or reallocation of the resources within the organization, irrespective of the place, which was outsourced earlier. | Outsourcing refers to the allocation or reallocation of the non-core business operations to an external or say outside source. |
| Location | Insourced activities are performed separately within the company-owned premises. | Activities which are outsourced are performed at the company to which the activities are outsourced. |
| Costs | As the existing resources of the company are used, cost is low. | Cost savings can be enjoyed due to economies of scale. |
| Confidentiality | Sensitive and confidential information will not be at risk. | Sensitive and confidential information may be at risk. |
| Control | Full fledged control over the operations and employees. | Lack of control over the operations and employees. |
| Objective | To have great level of control and oversight. | To cut the cost and also to focus on the core business activities. |
Definition of Insourcing
Insourcing means to bring or add certain efficiencies to meet the short term needs or to invest in the training and development of existing employees to perform varied tasks which may be outsourced. It is basically a business decision of undertaking the functions, processes or projects with company-owned resources, so as to tap and cultivate in-house talent.
Simply put, it is the process of bringing back the outsourced processes, functions, and departments, to perform them domestically.
The biggest advantage of insourcing is that it facilitates a high level of control on the quality of work and the people performing them. Moreover, adding competent team members in the business or training the existing personnel to perform the insourced activities can help in reaching new heights. Hence, it helps in building a team of capable personnel.
Why Insourcing?
Many companies use this technique when it is not satisfied with the services provided by the outsource provider, the company can choose to insource that task or function which was outsourced and assign it to an individual or department, who has a better understanding of that task/function.
Limitations of Insourcing
Insourcing has certain limitations also, in the sense that it requires huge investment in rebuilding an entire team and provide them with the required resources and facilities. As well as it can be a bit time-consuming process.
Definition of Outsourcing
Outsourcing implies the delegation of non-critical business operations or jobs, which were traditionally carried out internally to an external entity (usually a foreign supplier) which specializes in that service. It can be done domestically or internationally.
In other words, it refers to subcontracting any part of the company’s value chain to the outside supplier who has got expertise in that field.
The company which looks for outsourcing their internal business functions is termed as the client firm whereas the company delivering the outsourcing services to the client organization is called as outsourcing provider or service provider. In this, the two companies sign a contract for a specified term.
Outsourcing not just allocates a particular operation, but the risk and responsibility associated with that operation are also allocated to that entity.
Why Outsourcing?
It is used in the industries where there is a lack of labour for a specific position or work and also when the cost of hiring labour for a particular function is high. The main reason behind outsourcing is that it reduces the expenses of producing a product, resulting in an increase in the profit margin. In addition to this, outsourcing free up funds, personnel, time and facilities too.
Limitations of Outsourcing
Outsourcing has certain limitations also such as lack of control over the work quality and the people performing them. Further, there is a lack of relationship and communication with key employees.
Key Differences Between Insourcing and Outsourcing
Upcoming points will discuss the difference between insourcing and outsourcing:
- Insourcing is a practice of delegating the project to an individual or department within the organization, rather than contracting with an external entity. On the flip side, outsourcing is a technique of hiring an external organization for performing specific business functions, instead of performing it, in-house.
- In insourcing, the activities are performed separately within the company, irrespective of its location. As against, outsourced activities are undertaken in the company to which they are assigned. Outsourcing can be done domestically or internationally.
- Insourcing uses the resources and facilities of the company, so the cost can be low, however, investments are made by the company in building a team and developing the staff which tends to increase the overall cost. In contrast, outsourcing results in cost savings due to economies of scale.
- When it comes to confidentiality, there is no such risk in case of insourcing of the activities, but in outsourcing, a certain degree of risk might be there.
- In insourcing, there is complete control over the company’s operations and employees. As against, in outsourcing, there is little to no control over the way in which external organization operates.
- Outsourcing is mainly used by the companies to cut costs, such as overheads, labour cost, equipment and technology. It is considered as the best option when the cost of buying goods or services is comparatively lower than to manufacture the goods or render services internally. On the contrary, insourcing is suitable when you want to control the business activities instead of entrusting the same to an external party.
Conclusion
Insourcing is appropriate when the business requirement is only for the short term, as well as there is a need for building a talented and capable team for it. As against outsourcing is a great alternative when the businesses need to reduce the costs, but require expertise in the work.
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