5 Differences Between Insourcing and Outsourcing

You have a new project coming, a business expansion in the works, or just some additional tasks that came up. All in all, the workload increased, and so did the need for human resources. Now, you have a choice to make:

  • Distribute new tasks among your current employees and/or hire in-house professionals (i.e. insourcing);
  • Find a freelancer or turn to an outsourcing company and offload those tasks to a third party.

Of course, both options have their pros and cons – don’t let anyone try to convince you otherwise. So, what’s the difference between insourcing and outsourcing when it comes to the nitty-gritty?

Let Develux break down 5 key distinctions between the two for you. But keep in mind: neither of them is 100% better or worse. What’s more suitable for you depends on the specifics of your particular case.

1.  Quality Control & Management

When it comes to outsourcing vs insourcing, here’s the most important question you can possibly ask yourself. How much control do you need and want to have daily?

Typically, when you go to a third party to have a certain need covered, you don’t have a say in how things get done. What’s more, you don’t get to oversee the working process itself. You just get the interim or final result when a lot of work is already done.

That’s not to say that you’re guaranteed to receive a poor-quality result if you outsource. Freelancers and agencies tend to value their reputations, after all.

But when you have someone in-house, this person already is – or learns to be – well-versed in the business’s core activities and products. That translates into a more well-tailored final result.

And, of course, even if your team works remotely, there’s always daily interaction. That makes for plenty of opportunities for avoiding mistakes instead of fixing them.

In a nutshell: insourcing provides more day-to-day oversight and allows for faster and more efficient quality control.

2.  Associated Costs

This is the main reason outsourcing has come to stay – it’s simply less expensive than expanding the in-house team. If you opt for third-party services, there’s more than one reason why it’ll be less of a strain on the company’s bottom line:

  • If you find a person or a team in a country with a lower cost of living, the wages themselves will be significantly lower;
  • You won’t need to provide office space and equipment for the new workers;
  • There’s no need to spend time and resources on the recruitment process;
  • You won’t have to provide health benefits, pay salary taxes, cover the paid vacation costs, etc.

So, yes, insourcing is more expensive. On the flip side, it can be a long-term investment into all those perks described on this list.

In a nutshell: outsourcing allows reducing a variety of costs, which makes it a more affordable option than insourcing.

3.  Communication & Collaboration

The difference between insourcing and outsourcing doesn’t stop at costs and quality control, of course. Communication and collaboration are going to be two totally different experiences, too.

If you hire someone in-house, you’ll be making them a part of your team, essentially. That allows for:

  • Better quality control and productivity management;
  • Mentorship and talent development;
  • Boosting creativity and collaboration;
  • Maintaining unified corporate culture and having everyone on the same page.

Outsourcing comes with some downsides in this area. First, there might be a huge time zone difference, as well as cultural incompatibility, at play. That’s barely an inconvenience for some, though. Second, if in-person interaction is crucial, – like when brainstorming marketing campaign ideas, – it won’t work out.

In a nutshell: insourcing is more suitable for tasks where daily communication and teamwork are crucial.

4.  Talent Pool

If you look for someone to join your in-house team, you’re limited to the candidates in your area. Or, if you’re lucky enough, you can find someone willing to relocate. But you might need to cash in for a relocation bonus.

Outsourcing lifts these geographic limitations. You can literally choose among professionals from all over the world. Besides, you can get more for less. A senior JavaScript developer in Eastern Europe would ask for half the wage a U.S. developer would demand. This is something that can be done through Employer of Record services.

That said, there might be a single advantage to scouting for candidates locally. If the task requires a particular cultural background or navigating local context, outsourcing it can become tricky.

But it’s not impossible. If some research can close the gap, it won’t be an obstacle. Besides, there are plenty of companies and freelancers who specialize in working for particular markets. For them, navigating this kind of context won’t be a problem.

In a nutshell: outsourcing means you can choose from professionals all over the world, while insourcing limits your local talent pool.

5.  Reliability & Security

There’s a widespread misconception when it comes to outsourcing vs insourcing. It typically goes like this. “If you turn to a third party to get a chunk of work done, say goodbye to sensitive data, intellectual property rights, and meeting deadlines. Insourcing is safer on these fronts.”

But this is nothing more than a misconception. Yes, in-house management allows for stricter rules and oversight to ensure deadlines are met and sensitive data is well-protected. But outsourcing isn’t the lawless Wild Wild West – that’s what contracts are for.

When done right, such a contract contains:

  • Penalties for missing deadlines;
  • An intellectual property clause that guarantees the submitted work becomes yours;
  • Guidelines on handling sensitive personal and corporate data.

In a nutshell: insourcing allows for mitigating security and productivity risks, but the same goes for outsourcing when done right.

So, Should You Insource or Outsource?

Unfortunately, there’s no silver bullet that would work in every situation imaginable. If you ever read that you should definitely do this or that, take that outsourcing vs insourcing post with a grain of salt.

That said, it’s possible to generalize when you’re more likely to be better off with either outsourcing or insourcing. For instance, outsourcing is probably a better match for your needs if:

  • You have a specific task or project at hand that has a clear objective and well-defined deliverables;
  • Such tasks aren’t core to your business and are likely to be a short-term need;
  • The workload isn’t large enough to justify hiring a professional on your payroll or may vary significantly;
  • You can’t afford to bring these tasks in-house.

Insourcing, in its turn, is likely to turn out to be a wiser investment if:

  • These tasks are related to the business’s core activities and are essential to its competitive advantages;
  • You want to (and can) make a long-term investment into developing your employees’ talents;
  • You know there will be a constant demand for this particular skill set within your company;
  • The person you plan to hire will serve in multiple roles and have a variety of responsibilities within the company.
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