What is Insourcing? A Comprehensive Guide for Businesses

Insourcing? Outsourcing? With all these terms it's no wonder we need help to figure things out. But do you hire that help in-house? Or do you outsource that help? We wrote this blog to cover the pros and cons of both.

Written by
Alex Stewart
Founder @ Teamtown
Published on:
June 12, 2023

What is insourcing?

Insourcing refers to the strategic business decision that involves bringing tasks, functions, or expertise in-house within an organization, rather than outsourcing them to external entities.

Just like cooking at home, insourcing gives you control over the quality, cost, and delivery of your products and services. Plus, it's a great way to develop the skills and knowledge of your internal workforce. So grab your apron, preheat the oven, and let's explore the benefits, challenges, and best practices of insourcing!

Insourcing vs Outsourcing

If you started reading this article thinking "What is insourcing?", then you probably want to know what outsourcing is and how it relates.

Insourcing vs outsourcing is a classic debate. It's like choosing between baking a cake from scratch or buying one from the store. Both have their pros and cons, and the decision ultimately depends on your business's unique needs and circumstances. An internal team can keep things running smoothly with existing employees, but onboarding new employees is often time consuming.

Outsourcing is a great option if you need to quickly scale up your operations, access specialized skills or technology, and reduce costs. It's like ordering takeout – it's fast, convenient, and can save you time and money. For example, Creative as a Service providers can provide you a wide range of design and creative services through a monthly or annual subscription.

But not too fast! Outsourcing can also come with risks, such as loss of control over the quality and delivery of your products or services, cultural differences, security risks, and potential language barriers that may not be as present with internal employees. For example, French and Spanish speakers may not be able to converse well with English speakers, and vice versa.

On the other hand, insourcing is like cooking a meal from scratch. It may take more time and effort upfront, but it can provide you with greater control, customization, and long-term benefits. Insourcing allows you to develop the skills and knowledge of your internal workforce, foster a strong company culture, and maintain full control over your operations. New employees and their fresh eyes can also give you insights on things that need to be improved in the overall business process that existing employees might overlook.

That being said, insourcing may require significant upfront investments, and it can be challenging to find and retain top talent. You may at some point also need to explore hiring freelancers to manage and contain overflow.

The decision between insourcing and outsourcing comes down to your business's unique needs and goals. So, whether you decide to bake a cake from scratch or order takeout, make sure to weigh the pros and cons carefully before making your choice.

The Pros and Cons of Insourcing

Like everything, insourcing has both advantages and disadvantages. This depends on the specific context and objectives of the business. Here are some of the main pros and cons of insourcing:

Advantages of insourcing

  1. Control: Insourcing allows a company to have control over the quality, timing, and customization of their products and services. By having internal teams and processes, businesses can ensure that their standards and expectations are met consistently and that any issues can be addressed quickly and effectively.
  2. Quality: Insourcing can enhance the quality of products and services by leveraging the knowledge, skills, and experience of the internal workforce. By providing training, coaching, and feedback, businesses can develop a cultural alignment of excellence and continuous improvement.
  3. Cost-effectiveness: Insourcing can be cost-effective in the long run, especially if the business has a steady demand for the services or products and can leverage economies of scale. By reducing the dependence on external vendors or contractors, businesses can avoid fluctuating prices, hidden fees, and delays.
  4. Employee development: Insourcing can provide opportunities for the internal workforce to learn new skills, take on new roles, and advance their careers. By investing in the professional development and the well-being of employees, businesses can improve morale, retention, and productivity.

Disadvantages of insourcing

  1. Higher initial investment: Insourcing requires upfront investments in infrastructure, equipment, personnel, and training, which can be higher than the costs of outsourcing. Companies need to carefully assess the financial feasibility and the expected return on investment before committing to insourcing.
  2. Management challenges: Insourcing can pose challenges in terms of managing the internal teams, ensuring compliance with regulations and standards, and coordinating with other functions or departments. Companies need to have the right leadership, processes, and tools to manage insourcing effectively.
  3. Limited expertise: Insourcing may not always provide access to the same level of technical expertise or specialization as outsourcing. External vendors or contractors may have more experience, knowledge, and innovation in certain areas, which can be difficult to replicate internally.

Factors to Consider Before Insourcing

Before deciding to insource, it's important to consider the various factors that can influence the success and the impact of insourcing. Here are some of the key factors to consider:

The nature of the business

Insourcing may be more suitable for certain types of companies or industries that require more control, customization, or confidentiality. For example, a cereal company may benefit from insourcing to ensure the quality and consistency of their products, while service companies may benefit from insourcing to improve the customer experience with in-house support.

The availability of resources

Insourcing requires a significant amount of resources, such as capital, facilities, equipment, personnel, and technology. You need to assess whether you have the necessary resources or can acquire them at a reasonable cost.

The cost-benefit analysis

Insourcing should always be evaluated based on a comprehensive cost-benefit analysis that takes into account not only the direct costs and savings but also the indirect costs and benefits, such as the impact on productivity, quality, customer satisfaction, employee engagement, and innovation.

The impact on employees and stakeholders

Insourcing can have a significant impact on the internal workforce, the external vendors or contractors, and other stakeholders, such as customers, shareholders, and regulators. You need to anticipate and manage the potential risks and opportunities of insourcing and communicate transparently and respectfully with all stakeholders.

The legal and regulatory compliance

Insourcing may have legal and regulatory implications, such as labor laws, intellectual property rights, data privacy, and environmental regulations. You always need to ensure that you comply with all applicable laws and regulations and that you have the necessary policies and procedures in place to manage the risks.

Examples of Successful Insourcing

Plenty of businesses have successfully implemented insourcing strategies in various areas, such as manufacturing, customer service, IT services, healthcare, and education. Here are some examples:

Manufacturing: Tesla and Apple use permanent employees for many aspects of their manufacturing processes, such as design, engineering, production, and quality control, to gain more control over the supply chain and the product innovation.

Customer service: Zappos and JetBlue have insourced their customer service operations to improve the reduce costs and align the service with their brand values.

IT services: GE and Ford have insourced their IT services to enhance the security, the efficiency, and the innovation of their digital platforms and applications.

Healthcare: Kaiser Permanente and Mayo Clinic have insourced many aspects of their healthcare services, such as medical records, laboratory tests, and imaging, to ensure the quality, the continuity, and the personalization of patient care.

Education: Udacity and Coursera have insourced many aspects of their online education services, such as course design, content creation, and platform development, to provide high-quality and affordable learning opportunities.

How to implement Insourcing

Implementing insourcing requires a structured and collaborative approach that involves multiple functions and stakeholders.

1. Assess the current outsourcing activities

You'll need to conduct a thorough review of their current outsourcing process, including the scope, the costs, the quality, the performance, and the risks. This analysis will help businesses identify the areas that are most suitable for insourcing.

2. Identify the core competencies to insource

You'll also need to identify the core competencies or activities that are critical to their competitive advantage or their value proposition. These are the activities that businesses should prioritize for insourcing.

3. Develop a business case and a roadmap

It's important to develop a business case that outlines the rationale, the objectives, the benefits, the costs, and the risks of insourcing. This case should be supported by a roadmap that details the timeline, the resources, the milestones, and the metrics of insourcing.

4. Allocate resources and establish a governance structure

Businesses need to allocate the necessary resources, such as capital, facilities, equipment, personnel, and technology, to support insourcing. They also need to establish a governance structure that defines the roles, the responsibilities, and the decision-making processes of insourcing.

5. Communicate with stakeholders and manage change

It's necessary to communicate transparently and proactively with all stakeholders, such as employees, vendors, customers, shareholders, and regulators, about the insourcing strategy and its impact. They also need to manage the change effectively by involving and engaging the internal workforce, addressing their concerns and feedback, and providing the necessary training and support.

Best Practices for Insourcing

To maximize the benefits and minimize the risks of insourcing, you'll need to follow best practices that foster collaboration, innovation, and sustainability! Here are some of the best practices for insourcing:

Engage employees and stakeholders in the decision-making process

Insourcing should not be a top-down decision but a collaborative effort that involves the internal workforce, the external vendors, and other stakeholders. By involving them in the decision-making process, your business can gain valuable insights, build trust, and promote ownership.

Develop a culture of continuous improvement and innovation: Insourcing should not be a one-time event but a continuous process of learning, experimentation, and innovation. By fostering a culture that encourages feedback, experimentation, and risk-taking, businesses can generate new ideas, improve processes, and enhance the value proposition.

Monitor the performance and the impact of insourcing

Insourcing should be monitored and evaluated regularly to ensure that it delivers the expected results and benefits. By measuring the performance, the quality, the customer satisfaction, and the employee engagement, businesses can identify areas for improvement and make adjustments accordingly.

Foster collaboration and knowledge sharing

Insourcing should not isolate the internal workforce from the external vendors or contractors but foster collaboration, knowledge sharing, and learning. By leveraging the complementary experience, and perspectives of both parties, businesses can enhance the innovation and the value creation. This is a huge benefit that insourcing has over outsourcing.

The hidden expenses of labor costs

When exploring the hidden expenses of labor costs, sometimes referred to as phantom costs, it's essential to delve beyond the surface. Labor costs extend well beyond salaries and hourly rates, often encompassing various additional expenditures that tend to elude initial consideration.

These may include employee benefits, payroll taxes, insurance contributions, training expenses, equipment and software maintenance, office supplies, and even the occasional unplanned overtime. These sneaky expenses, much like chameleons, cleverly camouflage themselves until they leap out from the shadows, challenging your budget's equilibrium.

Understanding and accounting for these hidden labor costs is vital for a comprehensive financial assessment and prudent decision-making for any business or project.

Are you ready to go in house?

Determining whether one is ready to bring talent in-house and embark on the journey of insourcing requires careful consideration of several factors.

Firstly, evaluating the volume and consistency of work is crucial. If there is a steady and significant workload that requires specialized skills, insourcing may prove advantageous. By having a dedicated team within the organization, there is greater control, streamlined coordination, and a deeper understanding of the company's objectives. That said, some outsourcing options (like a few of these Graphic Design as a Service providers) offer your own dedicated design team through a monthly subscription, perfectly suited to handle high volumes of work and consistently perform tasks.

Secondly, financial analysis plays a pivotal role. If the long-term costs of hiring, training, and retaining talent in-house are manageable and justifiable, insourcing becomes a viable option. Having proprietary or sensitive information that requires confidentiality and internal expertise may also lean towards insourcing. The other side of the coin? Outsourcing usually comes with a lower cost, leaving it as the better option for companies looking to save money.

Finally, assessing the available resources, infrastructure, and support systems is vital. If the organization has the necessary physical and technological infrastructure to accommodate an in-house team, it can pave the way for successful insourcing. Careful evaluation of these valid reasons can determine whether the time is right to bring talent in-house and embark on the insourcing journey.

Not ready? Here's how to find the perfect outsourcing company hires

When searching for the perfect outsourcing partner to handle your needs, thorough research and assessment are key.

For example, when outsourcing design services you might immediately think: "I need to spend time finding a reliable freelancer designer to work with on a consistent basis. But doing so is hard, and who has time to bounce back and forth between designers, which often creates brand inconsistency? Industries like design have evolved for outsourcing, and the options stretch far beyond freelancers and Upwork. One such notable company in this realm is Teamtown.co, an unlimited design service that offers a convenient monthly fee structure. We'll use design for this example.

To begin the process, clearly define your design requirements and expectations. Next, evaluate the company or freelancer's portfolio and client reviews to gauge their expertise, quality of work, and ability to meet deadlines. Transparency and open communication are vital, so consider the provider's responsiveness and willingness to collaborate. Look for a team or freelancer that possesses the necessary skills, experience, and creativity to align with your brand vision. A reliable freelancer or company will have effective project management systems in place, ensuring efficient workflows and timely delivery.

Also, consider the scalability and flexibility of the service to accommodate your evolving design needs. By keeping these factors in mind, including the easy to use services like Teamtown.co, you can find the perfect outsourcing partner that aligns with your requirements and helps unlock the full potential of your design projects.

Final word

Insourcing is a strategic choice that businesses can make to gain more control, quality, and cost-effectiveness over their products and services.

That said, insourcing also poses challenges and risks that businesses need to anticipate and manage carefully. By sticking to best practices and considering the factors that influence the success and the impact of insourcing, you can make informed decisions that align with your businesses' values, goals, and stakeholders.