In-House vs. Outsourcing – Which One to Choose and When?
Last update: 22 March 2024 at 11:48 am
4.67/5Are you looking to progress with a project but don’t know where to start? Or is your company missing the right in-house team members to do so? It must have crossed your mind more than once to outsource the project to a different company or entirely.
But which outsourcing options do you have? Which one is the most suited to your project? This article tells you everything you need to know about outsourcing and gives you a front-row seat to the ultimate in-house vs outsourcing battle.
Key Takeaways
Choosing the Right Approach:
- The decision between in-house and outsourced teams depends on your specific needs, budget, project scope, and long-term goals.
- Consider factors like project complexity, required skillset, scalability, cost-effectiveness, and access to talent before deciding.
Advantages of In-House Teams:
- Greater control: Maintain direct control over project development, communication, and quality standards.
- Deeper brand understanding: In-house teams better understand your brand’s values, goals, and target audience.
- Improved team culture: Foster a more robust company culture and build better employee relationships.
Disadvantages of In-House Teams:
- Higher costs: Hiring and managing internal teams can be expensive, including salaries, benefits, and infrastructure.
- Limited skillset: Finding and retaining employees with specialized skills might be challenging.
- Scalability Issues: Scaling up or down an in-house team quickly can be difficult and inflexible.
Advantages of Outsourcing:
- Cost-effectiveness: Access expertise and talent at potentially lower costs than hiring full-time employees.
- Access to specialized skills: Leverage the expertise of external agencies with experience in specific areas.
- Scalability and flexibility: Easily scale your team up or down based on project needs.
Disadvantages of Outsourcing:
- Loss of control: Relinquishing some control over project development and communication.
- Potential communication challenges: Effective communication and collaboration with external partners require effort.
- Finding the right partner: Identifying and vetting reliable and qualified outsourcing partners is crucial.
Outsourcing – what is it?
“Outsourcing refers to the use of external sources for specific tasks that require expertise that is not (yet) available internally or is too expensive.”
The term outsourcing is a compound of the terms out (outside) resource (source) and using (use).
Many companies were already using external resources long before outsourcing existed. For companies, there are several reasons why a project or an entire department area is outsourced. Often, brands outsource projects for which it is not worthwhile to build an in-house team or which are far removed from the core business functions within the company. We will look at the individual reasons for outsourcing later in more detail.
Joint projects that companies outsource time and time again are, for example, IT, accounting, design, content creation, but all in all, any area of a company can be outsourced – if it makes sense and contributes to the company’s success.
Let’s look at an example of a small fashion brand focused on the design and production of clothing. Even though small businesses (especially) like to do everything themselves, it would not be advisable for this company to build up internal resources, e.g., IT department or accounting, for several reasons as there are many cost-effective providers for these issues.
Forms of outsourcing
From sending out small projects to outsourcing entire departments, outsourcing can take many different forms in which a company is more or less involved.
Due to the many possibilities, we will limit ourselves to the essential forms where we see an advantage for your company.
The following forms of outsourcing are ranked according to how much control the company retains over the expertise, starting with the most control:
Application Service Providing (ASP)
With ASP, external providers make programs available to the company for individual tasks. These are installed on the computers and integrated into existing processes. As a rule, the providers offer the company additional services such as workshops, maintenance, or data backup.
Out-Tasking
The next level of outsourcing is outsourcing a specific and usually time-limited task—a classic example of creating a website or web design. External agencies can create an internet presence for a company in a short time, which only needs to be maintained and possibly optimized.
Business Process Outsourcing (BPO)
If a company needs increased expertise in a sub-area without directly hiring in-house employees, it can be worthwhile to outsource the accounting or recruiting process, for example. In this case, the third parties take over the sub-area completely but remain in close contact with the parent company.
Managed services
With managed services, the outsourcing partner takes over a department within the company either as a long-term commitment or for a specific time. For example, in PR (Public Relations), this can be worthwhile if the core company either wants to concentrate on its own processes or needs experts in this area due to a special situation.
Complete Outsourcing
As the name suggests, complete outsourcing involves outsourcing an entire company department (which means less control). This is worthwhile if the department is not directly related to the company’s core activity but requires a high level of expertise.
A classic example is the outsourcing of IT for companies that do not know or do not want to deal with this department. However, as these areas are often crucial for many processes, the provider to whom complete control is handed over must be carefully selected.
Offshoring
When a company outsources departments, contracting them out to companies in another country or continent can often be worthwhile, mainly for cost-related reasons. Many countries now offer highly skilled work at a lower price.
However, much control is relinquished especially with outsourcing work internationally, as communication is more difficult due to distance, time zones, and possible language barriers. So here, you must take special care and make an informed decision when choosing your partner.
Reasons for outsourcing
One of the most important reasons many companies decide to outsource is the cost aspect. Did you know you could save almost $200,000 when outsourcing a project? Often, external providers offer lower costs for specific tasks than if they were to be implemented in-house. In particular, building a team and the associated costs may not be worthwhile for specific projects.
The second reason builds precisely on this: Many projects that are outsourced are time-consuming but need to be completed in a short time horizon.
Outsourced projects by specialised agencies can be completed in a much shorter time than would by a less experienced, internal team. Especially if the expertise for the project is not yet available in the company, it would often take too long to build the required skill set.
This is also the case with projects or departments where the company is uncertain whether the skill set will be needed in the long term. Consider external solutions before investing in internal team building.
Often, one reason against outsourcing is the lack of quality control. However, outsourcing projects can make this very thing easier for you. Many agencies provide you with a quality you would probably not achieve if you kept it in-house. So, if you find the right partner, it can have a positive impact on your product or service.
Problems with outsourcing
Even though outsourcing brings many advantages for the companies involved, there are some problems and mistakes that often arise and that you should therefore be aware of:
Underestimation of the process
Outsourcing is a complex process for which not every project is suitable. The outsourcing of an activity must be well prepared and planned in advance. It is essential that, throughout the duration of the project, there is the main person in charge who stays in contact with the partner and is the internal contact person on the project’s status.
Poor/Precipitated selection
Time pressure is one of the main reasons many companies outsource (parts of) their work, and often, it is faster to outsource a task to an external agency. However, this should not come at any price. When choosing an outsourcing partner, you should take as much time as necessary.
In doing so, you will find which agency fits you best. This is especially important for long-term relationships, as the advantage of implementing a project quickly becomes a disadvantage in the long run.
Arbitrary outsourcing
Not every project is suitable for outsourcing. There are topics that you can and should do yourself.
In-house for cost or know-how, outsource for flexibility.
Communication
An important point when choosing a partner is the excellent communication and atmosphere between you and the external company.
Otherwise, problems may be addressed too late, deadlines may be missed or ‘know-how’ may be completely lost from the company because no employee understands what precisely the partner does. Share project, culture, and strategy for aligned partner work.
Contract design
Define key terms upfront to avoid long-term cooperation issues. This includes the requirements for the project, the outsourcing partner, and the mutual tasks.
Loss of ‘know-how’
As mentioned, some mistakes or problems in outsourcing can cause knowledge to be lost within the company. This is especially true if you do not work closely with the partner and, for example, outsource an entire department completely to the other company.
In some cases, where the knowledge is far away from the core topic of the company, this is not a bad thing. However, you should make sure that for relevant topics, you have permanent knowledge about them and understand what precisely the partner is working on.
In House vs Outsourcing
So, which activities should you outsource? The following chart shows you the typical trade-offs when deciding for or against outsourcing:
Find your outsourcing partner now – With Sortlist!
You have decided to outsource a marketing project but don’t yet have the right partner for the job. We have the right agency for you for almost every project!
