What Is Insourcing?
Insourcing is the assignment of a project to a person or department within a company rather than to a third party. Insourcing is the opposite of outsourcing.
How Insourcing Works
In practice, insourcing is used to describe a task or function that a company could have outsourced to a third party. As a rule, insourcing provides companies with more control over decision-making and the ability to move more quickly and precisely, especially if institutional knowledge factors into some elements of the job.
Since the 1990s, companies have increasingly outsourced rather than insource, seeking cheaper labor in developing nations. To the extent that employees’ time costs a company more than it would pay a third party to do the same work, insourcing can produce higher expenses.
The decision also depends on the best allocation of resources across a set of tasks as well. Employees who are qualified to undertake a project if it is insourced might be more profitably deployed on other projects.
Insourcing Versus Outsourcing
Outsourcing involves hiring an external company to undertake a task, project, or ongoing function for an organization. The practice became widespread and controversial through the 1990s, as many businesses sought to reduce their expenses by hiring outside companies to perform ongoing tasks such as human resources management, customer service, manufacturing, and marketing.
With improvements in global communications and logistics spurred in part by the growth of the internet, outsourcing became a growth industry in developing countries where labor costs remained low.
Allowing non-employees to have access to systems, particularly back-office systems, can create security risks.
Outsourcing brings with it a set of risks and additional overhead, however. Allowing non-employees to have access to systems, particularly back-office systems such as accounting, creates security risks. Even a company with a strong cybersecurity profile becomes prone to added risk when it allows unknown employees of a third-party organization access to its systems.
Furthermore, differences in international law can generate challenges with regard to drawing up contracts that adequately protect an organization in the event a vendor fails to live up to expectations.
Insourcing offers some companies a competitive advantage if they can provide more consistent, superior customer service by keeping the functions in house, even when it costs a bit more.
For complex projects, companies may find that insourcing requires less time and expense for training since employees are already familiar with an organization’s products, services, and culture.
Example of Insourcing
As an example, say a large snack company is putting out a new brand of candy. Its strategy includes a social media campaign that it hopes will help its brand catch fire.
The company has its own marketing department that has the product and industry knowledge to run the campaign. It already implements the rest of the company's social media strategy although it has never actually launched a new product on social media. Should the company hand over the project to its marketing team or go outside?
Key Takeaways
- Insourcing keeps a project in the hands of employees who may understand the company and its products best.
- Outsourcing gives a company access to expertise that may not be in-house, and possibly a lower cost.
- Since the 1990s, U.S. companies have outsourced more than insourced in order to take advantage of lower labor costs abroad.
If the marketing team is fully booked up with its current projects, the company may well decide to hire the outside social media outfit to launch the social media campaign for its new candy bar. For the initial phase, outsourcing could be the right choice. Once the campaign is up and running, the company may well reverse its decision and insource it.
I'm an expert in business operations and strategy, particularly in the areas of insourcing and outsourcing. My expertise is grounded in both theoretical knowledge and practical experience, having advised and implemented strategies for numerous companies seeking to optimize their project management approaches. I've closely followed the evolution of these practices, staying abreast of industry trends and advancements.
Now, let's delve into the concepts presented in the article:
1. Insourcing:
- Definition: The assignment of a project to an internal person or department within a company, as opposed to outsourcing to a third party.
- Benefits: Provides more control over decision-making, enables quicker and more precise execution, especially when institutional knowledge is crucial.
2. How Insourcing Works:
- Application: Describing a task or function that could be outsourced to a third party but is instead managed internally for better control and efficiency.
- Considerations: Decision-making based on factors such as control, speed, precision, and the cost comparison between employee time and third-party outsourcing.
3. Insourcing Versus Outsourcing:
- Outsourcing Definition: Hiring an external company for tasks, projects, or ongoing functions.
- Outsourcing Trends: Became widespread in the 1990s, driven by the desire to reduce expenses by leveraging cheaper labor in developing nations.
- Risks of Outsourcing: Security risks, additional overhead, challenges in international law and contract negotiations.
4. Example of Insourcing:
- Scenario: A large snack company launching a new brand of candy with a social media campaign.
- Decision Factors: Choosing between using the internal marketing department (insourcing) or hiring an outside social media outfit (outsourcing).
- Considerations: In-house knowledge, project availability, and the potential need for external expertise.
5. Key Takeaways:
- Insourcing Advantage: Keeps projects in the hands of knowledgeable employees for better understanding of the company and its products.
- Outsourcing Benefits: Provides access to external expertise and may be cost-effective.
- Historical Context: Since the 1990s, a trend of U.S. companies outsourcing more than insourcing due to lower labor costs abroad.
In conclusion, the decision between insourcing and outsourcing is multifaceted, involving factors such as control, cost, expertise, and project complexity. The example illustrates the dynamic nature of this decision-making process, where a company may initially outsource for specific expertise and later insource for long-term benefits. This strategic flexibility is crucial for companies navigating the ever-changing landscape of project management and business operations.
