Outsourcing vs. Insourcing: An Overview

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 primary variation between outsourcing and insourcing is the method in which work is divided between various companies or departments for strategic purposes.

Outsourcing

Outsourcing is usually done as a cost-cutting measure. It can affect jobs ranging from customer support to manufacturing, as well as technology and the back office. Outsourcing uses the developed workforce of an outside organization to perform tasks. Outsourcing uses the resources of an outside organization for services and manufacturing products. Companies can use outsourcing to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency and productivity.

The organization's control over operations and decision making differs while using outsourcing and insourcing. Organizations that use outsourcing for a particular service or manufacturing process have minimal managerial control over the methods of an outside organization. For instance, an organization that is renowned for friendly customer service does not have the ability to enforce or manage how an outside support center interacts with customers.

In 2017, some of the most out-sourced jobs included those in telecommunications, travel, transport, media, and retail.

[Important: The organization's control over operations and decision making differs while using outsourcing and insourcing.]

Insourcing

Assigning a project to a person or department within the company instead of hiring an outside person or company to do the work is considered insourcing. The cost associated with insourcing is different from the cost associated with outsourcing. Insourcing is typically more expensive for an organization as a result of implementing new processes to start a different division of the organization. Insourcing utilizes developed resources within the organization to perform tasks or to achieve a goal.

For example, an organization may insource technical support for a new product as a result of already having technical support set up for another product within the organization.

Further, insourcing generally places new operations and processes on-site within the organization, while outsourcing involves an outside organization often away from the primary organization's operations.

Example: Law Firms

While outsourcing jobs and work are often a major discussion regarding the U.S. economy, there is also still a great deal of insourcing that occurs and is increasing as well.

Examples of businesses which increasingly practices insourcing are law firms. In 2018, results of a survey in a Legal Benchmarking Report indicated that law firms are currently conducting at least 75 percent of their work in-house, an increase from just 17 percent the year before. Further, 20 percent of those surveyed said they conduct all such work internally, and another 20 percent bring in at least half of litigation and e-discovery work in-house. Thirty-one percent insourced less than half.

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.
  • Insourcing generally places new operations and processes on-site within the organization; outsourcing involves an outside organization often away from the primary organization's operations.