In today’s competitive business environment, owners want to increase margins by cutting costs but are generally uncertain on how to go about it. Sometimes such decisions lead them to compare cost differentials, process efficiencies, quality of staff, etc. between outsourcing and in-sourcing. The giant leaps taken in process efficiencies through the use of technological innovations, automation and cloud services have really added value to the concept of outsourcing and moved it ahead of insourcing in many aspects of the efficiency, cost, and staffing scale. Now one finds many companies consider the route to outsourcing as the way to generate business efficiencies, cut costs, save valuable time and concentrate on core business functions.
However both outsourcing and in-sourcing have their own pros and cons.
Outsourcing:
These days’ companies outsource their operations from data entry to handling email security, medical billing, customer care, budgeting and forecasting. Need of specialized skills, equipment, lower cost solutions and quality customer care are some of the main reasons companies outsource. Some benefits of outsourcing services to third parties include:
- It allows companies to hire skilled staff for defined period of time without any long term commitments, payroll taxes, and high generally high wages.
- Multi-regional businesses can hire customer care agents to ensure 24/7 support.
- In-house staff can concentrate exclusively on core business operations by outsourcing non-core functions to outsourcing firm.
- Outsourcing leads to improvement in efficiency, accuracy and effectiveness of business operations.
In-sourcing:
In-sourcing to run a business and to try and improve process efficiencies is a path normally practiced by most companies. Security issues, lack of communication and lesser control over team activities are some of the main reasons that drive the company’s decision to stick with in-sourcing. Some advantages of in-sourcing over outsourcing include:
- Managing operations in-house gives greater control over daily operations, time utilization and quality.
- Goals and targets can be more effectively communicated to in-house team.
- In-sourcing allows greater interaction between in-house team and management leading to increased level of motivation in workers.
- Managing all functions in house, allows decision makers to better understand market trends and enable company to create backup plans.
Which is better?
While choosing between in-sourcing and outsourcing companies first need to be very clear about their business goal. If management is not clear about its objectives neither insourcing nor outsourcing will be beneficial.
In-sourcing results in greater control over business functions but increases the annual budget of a company’s business as insourcing adds up cost of expensive local staff, machinery, software, hardware costs, and other technology needs. On the other hand, outsourcing cuts cost of staffing (currency valuation, lower base salaries, and abundance of educated population), staff training, and maintenance of hardware and software systems.
Recent statics appearing in Bloomberg Business, suggest that a majority of companies are considering outsourcing over in-sourcing. These statistics suggest:
- 50% of companies outsource production or delivery of core products and services
- 33% of companies outsource sales and marketing operations.
- 32% of companies outsource R&D activities.
- 70% of companies outsource strategic functions.
No doubt both outsourcing and in-sourcing offer good and bad results. Based on the achieved industry wide results through outsourcing, it is clearly a trend that is worth considering to get a competitive edge over your competition in your industry. Smart businesses are earning huge dividend – in cost, process efficiencies, educated staff, and quality customer care by utilizing outsourcing concept intelligently.
