What is Insourcing, what are the reasons for it and what are the risks?
Insourcing – the opposite of outsourcing
Insourcing is the opposite of outsourcing. Outsourcing refers to an approach of a company that has products or services produced or provided by external suppliers. Insourcing describes the reintegration of previously outsourced tasks, processes, developments or divisions. Alternatively, the term backsourcing is also used.
Often it is not easy for companies to make strategic decisions regarding outsourcing or insourcing, because depending on the situation, project or development, one or the other approach can be more advantageous. However, after many years of outsourcing in many industries, many organisations are now making efforts towards insourcing.
Reasons for insourcing
The following reasons are often cited:
- Increase in service quality and customer satisfaction. Example: Call center employees sometimes have language problems, come from other cultures or are not familiar with the specific corporate domain.
- Development and expansion of internal competencies in the application of new technologies.
Improving product quality by increasing the reliability and commitment of predictions regarding deliveries, delivery times and product components.
- Consolidation of assets and utilisation of tax benefits.
- Retention rather than dismissal of employees.
Risks associated with insourcing
Companies also repeatedly recognise that the expected benefits of outsourcing cannot be achieved at all or only in part. Nevertheless, companies should also consider possible risks during insourcing:
- External services are often precisely specified in service level agreements or specifications. In internal corporate practice, such means of expression are quickly dispensed with, so that quality could suffer.
- Expert knowledge could be lost and with it the external view of projects, feasibility and risks.
- Methodical knowledge – e.g. in stakeholder analysis, the definition of personas or field observation – may not be sufficiently available and would have to be rebuilt accordingly.
- Are there enough employees available for the activities or could they carry out more important activities at the same time (opportunity costs)?
- Internal processes and workflows must be adapted and possibly supported by tools.
- The clarification of the contractual situation, the observance of notice periods and the handling of common usage rights could be difficult.
There are many aspects to insourcing that need to be evaluated. Similar to outsourcing, it is a strategic corporate decision.
A make-or-buy decision is in itself also a decision between insourcing or outsourcing. You can find information on make-or-buy decisions here »
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