8 Reasons Why Insourcing is the New Outsourcing in Innovation

Insourcing and outsourcing each have their own benefits which can be used to your advantage

by Rod Dunne on July 24, 2011

in Creative, Entrepreneurial, Innovation

Is your company considering insourcing IT or other services? Well, you’re not alone! the heady dot-com days when outsourcing seemed to be the panacea for every business problem are now long gone however. The growing number of insourcing advantages are leading companies back to developing their skills in-house.

You also find that the corporate culture of many companies these days is completely dependent on whether work is outsourced are not. Simply put, insourcing/outsourcing increases the capabilities of your firm.

And before you decide to flame me in the comments section, these observations are as a result of 18 years working in IT & consultancy and experiencing dozens of near-shore/far-shore outsourcing companies, none of whom were ever able to deliver solutions and services which were previously being better done, more economically by in-house staff.

Insourcing vs Outsourcing – Where insourcing wins out.

1. Insourcing protects your intellectual property

Insourcing IT solutions is often done to protect your intellectual property. The goal is to maintain the capabilities within your in-house staff regarding key technologies or products you develop.

So many companies have found this out the hard way by outsourcing key development work on to realize it forms a key differentiator to their customers.

2. Faster speed of execution when work is done in-house

Another one of the insourcing advantages is speed of delivery. You can more rapidly develop systems/solutions in-house using your own staff who are keenly aware of the business requirements for your product.

By outsourcing this work you end up having to set out highly detailed use cases, specifications, business requirements, test procedures, etc. All of which and to cost and time required (and will have been second nature to your in-house staff).

3. Better monetary cost savings in the long-term

You might think that outsourcing work is going to save you money. Insourcing jobs results in more financial outlay on a day-to-day basis for individual salaries – on the face of it.

However, outsourcing work invariably results in a greater need for documentation, more rework, more need for testing and more micro-management which adds to your increasing costs over time.

4. Reduced cultural differences

Cultural differences can often result in confusion and a lack of certainty about deliverables and expectations. Good management procedures can effectively manage this if they are conscientious of these cultural differences.

However insourcing benefits from the fact that you have a single cultural mindset at work in all development, testing, sales, marketing, etc. so can work from the same set of principles.

5. Your management requirements decrease

When comparing insourcing versus outsourcing, your senior executives often miss out the additional needs for managing your subcontractors. If the corresponding outsourcers have a good management system then this may not be extensive.

However, one of the insourcing advantages is the ability for your management teams to have greater control over the productivity and effectiveness of team members, something which is often lost with outsourcing.

6. You can be more certain of skill levels

The simple fact is that insourcing jobs allows you to hire and train up employees to the levels you would expect. When dealing with outsource companies you often have little control over team setups (outside of your service level agreements).

7. You have more control over attrition of staff

Insourcing companies often realize that a high level of attrition (losing staff members) may be due to key problems with the project or management levels. With this visibility you can start implementing changes to improve the situation.

Once this work is outsourced then you have reduced supply chain visibility and less insights into why staff are leaving are changing so frequently in your outsourced teams.

8. You can insource more complex systems/solutions

By the time you have explained your systems, completed analysis, testing, integration and re-factoring when dealing with outsource companies, you could well have delivered the same solution using in-house staff.

One of the main insourcing outsourcing dilemmas comes back to how complex the body of work is.

The more complex the system is the more likely insourcing will be able to deliver it on budget, on time and to a higher level of quality. The strange thing is that the business requirements just need to be sufficiently novel for outsourcers not to  ‘grasp’ it. So the level of complexity could actually be quite basic (i.e. not that complex to your internal staff).

You always need to do more explaining and end up experiencing more rework when outsourcing complex systems.

Main takeaways regarding insourcing outsourcing decisions

There is light at the end of the tunnel. Outsourcing versus insourcing is not as clear-cut as I’m making it out to be. There are in fact scenarios and contexts where outsourcing could actually be the better choice. Which ones – you ask? Simply revert each of the eight insourcing advantages above to identify where outsourcing really becomes useful:

  1. You can always outsource projects containing no intellectual property. The prime sample of this is often the outsourcing of payroll services which is quite standardized and easily done off-site.
  2. Slow-moving projects or projects with predictable timelines don’t need to be insourced. The more predictable the time-line is the more capable you are of controlling and project managing the outsource partners.
  3. Low-cost solutions are often risk free and therefore easily outsourced.
  4. Projects where cultural insights do not play a part in the work activities are easily outsourced. Outsourced help-desks are often outsourced even though some cultures may prefer to speak to phone support individuals from the same cultural background. By comparison, outsourcing payroll has no cultural implications so is a prime candidate for outsourcing.
  5. Projects were no management is needed. If you have a well-defined system that needs to be outsourced then all you really need is a thin management letter and the ability to test the solutions that are produced.
  6. Low skilled work is easily outsourced. Transcriptions, quality control and document administration (for instance) are key elements which do not require great level of skill to implement correctly.
  7. Leading on from #6, if a role can be performed by any number of outsourced partners due to the low level of skill required then you’re less concerned about attrition rates.
  8. Finally, simple projects are easily outsourced. Insourcing IT projects when they are complex is fairly apparent. However, a simple IT project (e.g. to translate a website) can easily be codified and outsourced given the right integration with your in-house teams.


Author Rod Dunne...

Blog owner and sole writer Rod DunneI am the owner and sole writer on Product-ivity.com. This is my personal blog detailing troubleshooting tips for small businesses. Posts are based upon 2 decades in consultancy & innovation management within startups/maturing companies.

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