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July 17, 2020

Outsourcing or Insourcing?

Is Outsourcing or Insourcing right for you?

Many large organizations are taking advantage of outsourcing and insourcing and using it as a growth strategy. However, many small business owners are still very hesitant and not clear about what tasks or processes they can remove from their to-do list.  

Let’s explore this concept together and see what makes the best sense for your organization.

 

What is Outsourcing?

Outsourcing is a business practice in which services and job functions are given to a third party to perform.  This can be accomplished with a local or foreign vendor but most organizations will use foreign vendors because the cost reduction opportunity is higher. This concept is also known as on-shoring or off-shoring.  Resources are hired on a needed basis.  You can easily scale your head count up or down.

It’s very important for your organization to determine what processes they want to give to a third party to perform. Outsourcing is an excellent idea for repetitive processes, non-value added tasks like accounting,payroll processing, logistics management, call center services, recruiting services, IT consulting, etc. However, is it the right solution for you?

Choosing the right company to outsource your business to and choosing the right service to outsource is equally essential.  If you don't look for specific things before choosing to implement this strategy, you may end up with unnecessary expenses irrespective of building your business.

 

What is Insourcing?

On the other hand some people find insourcing a better solution. Insourcing is a practice of hiring employees for the specific services within the office. Insourcing can be termed as the opposite of outsourcing.

Both concepts have its pros and cons.  The main difference is insourcing has a lower cost saving opportunity and you’re housing the third party resources in your office.  Usually large organizations bring technical employees (engineer, developer, etc) from foreign countries on H1B visas and contract them to companies in countries like US, UK and Canada to work technical projects.  This benefits the company as these are temporary employees hired at a fix rate, for a fix time period. Once the project is complete you no longer need to keep them as your overhead. As per the report of Ignitespot, insourcing is a better option if you want to keep control on your processes but may increase your cost.

Before you decide to Outsource or Insource consider the following:

Clear Objective:

What are you looking to achieve by hiring a third party vendor?  Based on your goals you can determine if outsourcing or insourcing is best option for you.  Evaluate the activities taking place in your business. For example, payroll processing, this is one of the most common functions to be outsourced.  This is an administrative task that can be easily picked up by a back office partner.  Consider other repetitive, time consuming activities like this which you need to repeat monthly or weekly.

 

Amount and budget:

Cost shouldn’t be your main driver.  You should focus on improving processes and getting more time back in your day, so you can focus on your core business. However,cost is part of the equation.  So, set a ball park goal around how much overhead cost you’re looking to reduce and how much investment you want to make in outsourcing. At the end of the day you should be improving your business. If a company is providing services at a lower price, but you’re not satisfied with their services it will quickly turn into an expense.

When computing success, weigh in time, money, and quality of work.  This will help you pick the right third party partner.

Research and Analysis:

Do your market research. There are so many companies around the world offering to provide these services.  Research which country and company is right for your business. Test their services with easy small projects before signing a large contract. Social media is a good review source, check what others are saying about them.

Choose an Expert:

Search for vendors that are expert in the area you want to outsource.  For example if you want to outsource your payroll.  Look for companies that focus on payroll, it doesn’t make sense to hire a IT outsourcing company to handle your payroll.

 

Flexibility of Services:

It is imperative to get the flexibility of services while you outsource.  This is a big plus point when Outsourcing to foreign companies.  Your company can run around the clock.  For example,your outsourced employees in India can work while you sleep.  This is the reason a lot of corporations outsource their call centers, your providing 24/7 customer service to your clients.

 

In conclusion:

We have outlined some important points through this article to be concerned while searching for a third party partner.  Beyond Outsourcing can help address any further questions or concern you may have.  

If you are looking to outsource your business, connect with us for a FREE CONSULTATION.

 

Additional Resources:

Why Outsourcing

Origin and Development of Outsourcing

By: Ankita Bhadauriya - Accounting Analyst

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