Today we will be comparing outsourcing vs in house operations. We’ll tackle their definitions, pros and cons, things to consider when choosing and how mixing both methods might be ideal.
Understanding Outsourcing and In House Operations
Definition of outsourcing and in house operations
Outsourcing is a hiring practice where you partner with a third-party to perform a task or take over a business process. This can be an agency, company, or freelancer. You can source third-party remote help from within your country, close-by countries, or internationally.
In house operations refers to getting something done internally without third party help. Here, a task, project or process is accomplished by regular workers within an organization.
Historical context and current trends
The history of outsourcing dates back to when companies would source raw materials from other countries. The processing and manufacturing of certain parts were also done elsewhere. This drove down costs while simultaneously maintaining quality.
As travel evolved and technology developed, so did outsourcing, and the outsourcing trends we see today continue to mirror these advancements.
Pros and Cons of Outsourcing
Cost efficiency and savings
- Rates vs Salaries – The cost of hiring from an outsourcing agency or hiring independent freelancers is lower than an in house hire. For one, you can do project-based hiring and seek outsourcing help as needed.
- Location – Because the cost of living varies from country to country, you can hire someone just as talented for less.
Access to a wide pool of talent and specialized expertise
Outsourcing allows you to expand your search. You get more options and a higher likelihood to find the best fit for your needs. It’s much easier to find people who focus on a particular niche. You don’t need to settle for what’s available locally.
Flexibility in scaling, team dynamics, and project management
- Scaling – Outsourcing allows you to expand or contract your team as needed. You can scale to your needs relatively easily and meet demands or a lack thereof.
- Team Dynamics – You can blend outsourced services and in house staff in various ways to meet specific needs. (More on that later)
- Project Management – You can assign an internal project manager to oversee an outsourcing task or outsource project management entirely.
Drawbacks such as communication challenges, less control, and security concerns
- Communication Challenges – Communicating with remote teams can be one of the biggest challenges. If you hire internationally, you have to consider time zones. There’s also the possibility of messages being seen late and delaying project movement. Then, of course, you have the potential language and cultural barriers.
- Less Control – Even if hiring from a reputable company, quality control is limited. You can’t know all the steps of the process. Unless you have a project manager taking the lead, it can be challenging.
- Security Concerns – Data privacy concerns are a real outsourcing risk. There’s always a risk of a data leak whether intentional or accidental. This ties in with the previous point because you can’t always guarantee both your data security policies or procedures align.
Pros and Cons of In House Operations
Greater control over projects and internal processes
When handling things internally, you are able to supervise a lot more closely. If a problem occurs you are more likely to catch and solve the problem quickly without halting production. Internal communications can also be more manageable.
Enhanced security, especially for sensitive information
You can know who has access to what information and control how information is shared. You choose what applications to use to send and receive information.
Long-term support and team familiarity
In house workers typically have long-term contracts. As such, they typically have more experience working with each other. They are likely to be familiar with each other’s way of thinking, work habits, even strengths and weaknesses. That working relationship and chemistry is already established where it may take time with a remote team.
Higher costs and potential limitations in expertise
Maintaining an in house worker or team is pricey and sometimes inefficient cost-wise. Not only do you have to consider benefits, but you might actually be paying for time they aren’t working. That’s why short-term hiring and hiring as needed is more cost-effective. You only pay for the hours they’ve spent on the tasks.
Sometimes location limits the candidates. That isn’t to say that local candidates aren’t skilled or talented. Rather, sometimes it’s education and opportunities that limit the possibility for expertise and specialization. Outsourcing with its wider talent pool gives you access to skills that may not be popular in your area.
Key Considerations for Decision Making
Cost
Comparing outsourcing vs in house operations can sometimes look like comparing short-term savings and long-term investments. Outsourcing can be cheaper if you’re looking for expertise you don’t have the budget or time to learn or train. Conversely, investing in equipment, tech infrastructure, and training might yield a bigger return.
Think also about how you choose outsourcing partners. Are you looking for someone to finish a job or are you looking for partnerships and joint growth opportunities? Cheaper in the short-term can also mean cheaper in the long term with the right strategies.
Quality control and maintaining standards
What’s the best way you can maintain a consistent standard with what you offer to customers and clients? How can you establish quality control guidelines? It’s possible to outsource quality assurance and quality control, but can they work well with the outsourced company or team? If you outsource both, you also need to consider the fact that you’ll need to manage two third party entities.
Scalability and meeting fluctuating business demands
Can you handle busy months completely in house? Do you have the budget or manpower? A company with a limited workforce cannot take advantage of seasonality demands. In that situation, you need to decide if hiring more in house workers is better than temporarily outsourcing some work.
Focus on core business activities and resource optimization
When comparing and contrasting outsourcing vs in house benefits and drawbacks, it may help to ask this question:
“How much time am I spending on secondary tasks and how much time am I spending on growing my business?”
These secondary tasks can be back-office related like payroll, administration and other tasks that help maintain business operations. Some non-core activities can also help you with growth in combination with core activities. For instance, while you focus on product development, another company can handle marketing said product or service.
Special Situations: When to Choose Outsourcing
For short-term projects or specific skill requirements
Outsourcing is great for one-off projects, seasonal scaling, and when in need of niche skills. It’s also great if you’re seeking expert advice and guidance. For example, you might hire an SEO expert to help you rank on search engines and teach your content writers keyword integration.
Scaling team size in response to project demands
Think of a time you would have benefited from a larger team. Maybe you’ve racked up customer service tickets or need more editors for marketing material. Whatever the case, a bigger team can help you temporarily meet heavy project or seasonality demands.
Rapid project completion under tight deadlines
When you need speed and quality, the solution is never to overwork existing staff. When deadlines and demands are high, consider the long-term benefits hiring more people will yield.
Take the animation industry, for example. Companies have come under fire for overworking their animators to meet deadlines. Outsourcing animation can help maintain quality and still keep working conditions healthy.
Special Situations: When to Opt for In House
Projects requiring complete control and real-time oversight
You might have projects where you would prefer closer supervision. Maybe you want tighter control of speed and deadlines. Maybe you want real-time insights and more frequent updates and reporting. Based on the results of these reports, some may want the freedom to terminate certain projects to avoid wasting resources.
Long-term projects with continuous updates and support
For some tasks or operations that may require long-term support, it makes more sense to maintain an in house team. For example, it may be wiser to keep an in house IT department if you need website maintenance, app development, or general technical support.
Handling sensitive or confidential information
There are certain tasks, operations, or projects where you might want information to remain internal. For instance, some prefer to have an internal accounting team handling their financial information. Other data, like customer information or supplier details, might also be better handled internally.
Blending Outsourcing with In House Operations
Strategies for integrating both models
Our goal is not to pit outsourcing vs in house operations against each other to find a clear winner. They each have their advantages and disadvantages. The good news is there are ways you can combine both methods to achieve the best results.
For example, you can blend outsourced and in house staff to create a system of checks and balances. Remote workers and internal staff can go over each other’s work, creating a kind of vetting process. You might see this in accounting and bookkeeping, where failure to detect the smallest inconsistency can lead to big problems.
Your company might excel at planning, research, and data gathering, but lack the manpower or equipment to execute. You can outsource to teams, product manufacturers, and other companies that can turn that data into physical products, services, and more. Balance out your expertise and knowledge with theirs to collectively bring forth great offerings in a timely fashion.
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Conclusion
The comparison of outsourcing vs in house is more than selecting one ultimate solution for everything. Some things are better managed within an organization where they need a certain level of control, quality, and security. Other things are better delegated to an outside team of people when time, expertise, or manpower are lacking. Learn to maximize the benefits and mitigate the risks of both. Striking the between the two for your unique need is essential for growth.
