Insourcing refers to the assignment of a project to an individual or a department within the organization instead of hiring a third party or outsider. In other words, it is the use of internally developed resources of the company for performing vital projects rather than the use of someone from outside the company. Typically, insourcing is used to set-up new operations and processes within the organization.
Generally, insourcing offers a company better control over its decision-making process, while it also enhances the speed and precision of execution. However, in some cases, it may prove to be more expensive than outsourcing because often it involves teething issues of setting up a new process or a different division within the organization.
How Does Insourcing Work?
The implementation needs to go through the following steps:
- The management needs to understand the different aspects/ factors of the existing contract. Some of these factors include – whether the contract is expiring or it has to be terminated, its pricing and other similar post-termination implications of the contract.
- The management should take into account all the financial and non-financial factors associated with the transition from outsourcing to insourcing. It is to be noted that building a business case for introducing insourcing is not just a comparison of the costs of outsourced resources and internal resources.
- The management should ensure that the existing staff has what it takes to successfully do the tasks internally. Hence, the staff has to be trained for developing their operational capability to make them ready for the upcoming challenges.
- In some cases, the company may need to change the organizational structure to support the new internal delivery. The structural change primarily includes re-defining of the job description, sizing and training.
- A detailed transition plan has to be prepared because the transition from outsourcing to insourcing represents a significant risk to the business.
Now, let us take the example of a soft drink manufacturing company that is planning a new brand of soft drink. Its marketing strategy primarily involves reaching out to a larger audience through social media campaigns. The company has its own team that has the technical expertise required to run the social media campaign. However, this team has never worked on social media campaigns for a new product launch. So, should the company outsource the project or hand it over to the internal team?
Given the high stakes of a product launch, the company may hire a third party for the social media initially for its new brand of soft drink. However, once the social media campaign is up and running, the internal team can it back, and that will be the process of insourcing in the end.
Reasons for Insourcing
- In today’s world, business expansion, coupled with the need to reduce cycle time, has necessitated the increased use of an agile workforce. Outsourced contracts usually slow down the process, and hence such time-sensitive projects are better handled internally.
- In some cases, it has been observed that the poor quality of the outsourcing resulted in problems that, in turn, led to huge losses. Such instances can be avoided through insourcing as it offers better control.
- It has also been noticed that social capital and knowledge sharing are stronger when employees are in relationships within the organization. It is because trust plays a vital role in social capital and knowledge sharing.
Why is Insourcing better than Outsourcing?
- Insourcing saves a lot of time and facilitates speedy delivery, whereas it is not possible in outsourcing as it invariably requires a longer time.
- The employees get opportunities to learn something new and simultaneously hone their skill, while the employer gets to access the best internal talents.
- Internal employees can understand the project quickly and in a better way as they work closely (physical presence) with the project leads. This is not possible in the case of outsourced projects.
- It provides the opportunity to work closely with the team members.
- It significantly lowers the cost of employment.
- It offers the advantages of easy and smooth communication.
- In some cases, the newly appointed internal team may result in higher cost as compared to offshore resources.
- It is not easy to identify a set of people appropriate for the new project at such short notice.
This has been a guide to insourcing and its definition. Here we discuss how it works along with an example, reasons, benefits and limitation. You may learn more about financing from the following articles –