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Insourcing vs. outsourcing

Insourcing vs outsourcing

Outsourcing seems like the perfect approach for a business looking to increase efficiencies, cut back its overheads and boost productivity, but if poorly managed it can also result in deskilling, cost blow-outs and the loss of competitive advantage for your business. When is it better to outsource your projects, rather than keep them in house?

The basic idea of outsourcing is deceptively simple: you focus on your core business and bring in specialists to do the rest. The challenge most businesses face is picking which operations are fundamental to the business, and which are standard tasks that are better left to the professionals.

It is very attractive to outsource because it removes a lot of the complexity associated with a project or operation, but it also requires a significant amount of ongoing project or supplier management to ensure it all stays on track. There is also the danger of internal deskilling, as businesses are left without accounting, IT or administrative skills, to the point where they struggle to manage the outsourcer relationships.

What’s core?

Deciding what to outsource and what to keep is the first challenge. Generally speaking, it’s a good idea to keep full control over any activities which are unique to your business, anything that’s customer facing, and anything that involves intellectual property associated with your competitive advantage. Insourcing these tasks will ensure you have control over the most important aspects of your business.

Understand costs

Companies that opt for outsourcing based on the idea that it will save money often find themselves out of pocket because they fail to include implementation costs, such as the ongoing transfer of information and the cost of managing the outsourcing relationship. It’s much safer to assess an outsourcing arrangement based on service quality rather than cost savings; in fact, hiring the lowest bidder will usually result in poor service. 

Picking partners

The most fraught aspect of outsourcing is deciding who to partner with, because it requires a very close relationship built on trust and capability. It’s usually a good idea to start with a partner with some experience in or understanding of your industry sector; to begin slowly, transferring discrete tasks rather than whole projects; and then to build rolling reviews into the relationship so that communication is ongoing.

Outsourcing can work well, if it’s limited to non-core, non-customer facing tasks, and so long as you focus on quality service, reliable partnerships, and carefully manage your costs.

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