We're only halfway through the year, and the world is in turmoil. There is widespread social unrest in the United States and elsewhere, as America reels from a landmark racial event that has finally tipped the precarious balance of the tolerance scale. Meanwhile, Covid-19 has taken a solid grip almost in every corner of the planet. The economic prospects for the next 24 months or so are far from good. And we've only just past the six-month mark of 2020. What disaster might come next is anyone's guess.
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Covid-19. The microbe from the east has laid waste to economic activity the world over, and the prospects are less than favorable. But the novel coronavirus outbreak has had an unexpected effect: Millions of businesses the world over have had the chance to press the Pause button and take stock of their situation. Remote work, a practice often frowned upon or discouraged altogether, has become the new normal for millions of workers. Many will be asked to return to their workplace when the danger is perceived to be over, but a great majority will still enjoy the relative freedom or working from the comfort of their own homes.
This new employment paradigm has also cast new light on a quandary that has significant ramifications for both the company and its staff: Outsourcing vs in-sourcing.
This piece dissects the intricacies and repercussions of outsourcing vs in-sourcing, including its social and financial impact, which option is more (or less) environmentally friendly, the difference between managed services and outsourcing. It also explores the social and economic factors that influence a company's decision to choose either route and the main reasons for outsourcing.
Definition of Outsourcing
The word outsourcing is a portmanteau of the term 'outside resourcing'. From a business perspective, the definition of outsourcing is quite simple. It is an agreement whereby a company hires one or more firms to work on its behalf. This could be for a single, specific, and short-term project (creating a software development program, for example), or on a more permanent basis (call center duties, payroll services, marketing services etc.) Outsourcing often involves the transfer of staff and company assets between one or more locations, sometimes internationally.
The key syllable of outsourcing is out. When a company engages in an outsourcing process, it is looking outwards from itself.
Pros and Cons of Outside Talent
Definition of Insourcing
Where outsourcing looks out, insourcing is the reverse. The first syllable -In- reveals the clue. The company is looking inwards to have that project done. It could be an individual within the company, an entire team, even freelancers hired to work on a project. In an insourcing environment, work is kept within the company's boundaries.
Pros and Cons of In-house Talent
Why Do Companies Opt to Outsource Work?
There are many reasons why a company might choose to engage in outsourcing, but two reasons stand out: Cost reduction and focus on core goals.
The enhancement of the financial bottom line is probably the biggest driver of outsourcing projects. The use of third parties to handle certain aspects of the work (helpdesk, HR, payroll, etc.) means that the cost burden involved in that work is lifted and transferred elsewhere. The company still needs to pay for those services, but the profits of outsourcing far outweigh its costs.
And by having a third party do more menial, administrative, or labor-intensive work, the outsourcing company can focus on its roadmap to attain core goals. In the long run, outsourcing is a way to streamline the company's business model.
The big question: Outsourcing v insourcing, which is the greener option?
Extreme weather events are becoming more and more commonplace. Devastating bushfires like the recent blazes that raged through Australia during the summer of 2019 and spring of 2020, for example, consumed about 46m acres of land. The last fires weren't fully extinguished until March 2020.
Climate change is undeniable, just as the fact that this change is man-made. Because of this worrying trend, eco-friendly considerations at the workplace are essential.
Outsourcing and insourcing can have implications for the environment, and which is the greener option isn't particularly clear.
Ecologically-friendly work initiatives depend on many factors: Budgets, societal attitudes, political support, etc. Both outsourcing and insourcing can be green, assuming all the elements are there to support green environments.
But generally speaking, insourcing probably tips the balance in favor of more eco-friendly work environments, for several reasons:
Development or production work is done in-house, usually, in one, maybe two, locations, making it much easier to implement greener conditions. Insourcing enables a higher level of regulatory compliance with local environmental laws and regulations in terms of recycling, reducing plastic waste, and the utilization of renewable energy at work.
Qualitative Factors to Be Considered When Outsourcing/Insourcing
The quality of a completed project or product is not necessarily better whether the item or project was done in-house or in a factory abroad. Many factors affect work, performance, and quality, and how the company handles these aspects has great bearing on the final output.
Ongoing business relationships undoubtedly hinge on the quality of work being produced, so high standards of quality are paramount. But for this quality to be maintained, strict controls and protocols must exist to ensure end-to-end monitoring of a project or the manufacturing process.
Quality audits do exist both in outsourcing and insourcing environments, but the key difference is that these audits are often also outsourced themselves, which creates inefficiencies and room for misinterpretation and fraud.
In-house development means that a project can be fully -and easily- scoped out, planned, scheduled, and audited on a timely basis, with no delay or time wasted waiting for the arrival of a third-party auditor. The downside of this is that quality control is more expensive, but the better quality overall offsets this.