Outsourcing vs. Insourcing: What's the Difference?

Outsourcing is the process of hiring an outside organization that is not affiliated with the company to complete specific tasks. Insourcing, on the other hand, is a business practice performed within the operational infrastructure of the organization. The main difference between outsourcing and insourcing is the methods in which work, projects, or tasks are divided between various companies and departments for strategic purposes.

Outsourcing

Outsourcing uses the developed workforce of an outside organization to perform tasks and also the resources of an outside organization for services and manufacturing products. Saving money on costs is typically the motivation for outsourcing work to another company. Industries such as healthcare, travel, transport, energy/utility companies, retail, and even government often rely on outsourcing to complete important projects or tasks.

Key Takeaways

  • Outsourcing enlists the help of outside organizations not affiliated with the company to complete specific tasks.
  • Insourcing, on the other hand, is a business practice performed within an organization's operational infrastructure.
  • The organization's control over operations and decisions will differ depending on whether the company is using outsourcing or insourcing.
  • Insourcing generally places new operations and processes on-site within the organization, while outsourcing involves an outside organization that is separate from the primary organization's operations.

Companies can use outsourcing to better focus on the core aspects of the business. That is, outsourcing non-core activities can improve efficiency and productivity. At the same time, outsourcing can affect jobs ranging from customer support to manufacturing, as well as technology and the back office. 

The organization's control over operations and decisions will differ when using outsourcing and insourcing. Organizations that use outsourcing for a particular service or manufacturing process have minimal managerial control over the methods of the outside organization that was hired for the project. For instance, an organization that is known for friendly customer service does not have the ability to enforce or manage how an outside support center interacts with customers.

Insourcing

Insourcing assigns a project to a person or department within the company instead of hiring an outside person or company. It utilizes developed resources within the organization to perform tasks or to achieve a goal. For example, an organization might insource technical support for a new product because the company already has existing technical support for another product within the organization.

Further, insourcing generally places new operations and processes on-site within the organization. For that reason, insourcing can be more expensive for a company because it often involves the implementation of new processes to start a different division within the organization.

Law Firms Example

While outsourcing jobs and work are often a major discussion regarding the U.S. economy, insourcing is relatively common and is seeing greater usage by companies seeking better control of important projects and tasks.

Law firms are an example of companies that use insourcing. In 2020, results of a survey in a Legal Benchmarking Report indicated that 20% of law firms are currently conducting at least 76% of their work in-house, a decrease from the 29% the year before. Further, 33% of those surveyed said they have an informal e-discovery team in the legal department.

Article Sources

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  1. TWAI. "Travel Outsourcing: 8 Benefits of Outsourcing Your Travel Business Tasks."

  2. Datamark, Inc. "What Industries Outsource Most & Why They Do It."

  3. Exterro. "2020 In-House Legal Benchmarking Report," Pages 9, 12.

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