How to decide between insourcing and outsourcing?

Companies nowadays are adapting various strategies to face the cut throat competition in the business world. The focus of companies has always been to do efficient risk management, keep the costs low and achieve growth. The challenges for the companies grow manifold when they have to look for the apt strategies to sustain at the time of downturn or recession. The dilemma that they often face when looking for growth is whether to go for outsourcing or insourcing. There are many arguments in favour of outsourcing and also insourcing.

Outsourcing has become an extensively well known concept and has become a tool for the organizations to move out their non core activities to BPO’s and thereby focusing on their core activities. Though it has been used as a strategic tool for growth there are voices that because of outsourcing many people are losing jobs in countries like US and Europe. Insourcing meanwhile is a more recent concept and it has been advocated as an alternative to outsourcing. Advocates of insourcing see this activity as a strategic tool for creating more jobs at local level and they also believe that it helps in better management control.

Both outsourcing and insourcing has its own merits and demerits. There are many organisations that have outsourced their activities but there are also some organisations which feel that perhaps they have outsourced too much. In one of his speeches Mr. Jeffrey Immelt CEO of General Electric admitted that GE has outsourced too much in some areas. GE has now announced to open a new manufacturing research center which will create 1000 jobs outside Detroit. There are big companies like Apple who have started insourcing. Apple launched its own processor which is extensively used in i-pads and i-phones rather than depending on a chip manufacturing company like Intel.

Before deciding on whether a company should go for insourcing or outsourcing, what is important is that the company should have clear long term business goal.

Insourcing is advisable,

  • When the business requirements are short and less investments is needed.
  • Ideal for smaller business organisations who have limited experience in outsourcing and also help in building up a team of skilled manpower.

Outsourcing works well,

  • When businesses are look for cutting cost but still they need expert personnel.
  • The outsourcing process helps one to get access to specialized skill sets of processes and resources.

There is no universally correct approach and companies can look for insourcing or outsourcing based on their business requirements. The companies should look at their overall growth strategy and look into how much money they can invest in setting up the necessary resources.

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