What is insourcing versus outsourcing?
You’ve probably already heard these terms. They refer to the staffing choices you make. When you hire in-house staff, you have a team, even if they work remotely, available to handle whatever you need, day-to-day, during working hours, or as agreed. Hiring staff positions means you have several responsibilities to them, but that also means they are responsible to you in a number of ways that outsourcing doesn’t offer.
When you outsource, you are hiring someone outside your organization to provide services on an as-needed basis. You don’t have the added costs brought on by keeping an in-house staff, plus additional benefits, but there are a few important downsides worth considering.
Let’s take a look at the differences, including some specifics relevant to IT teams.
Pros and Cons: Why Companies Choose In-house IT teams
In-house IT teams are pretty standard for larger organizations. But small- and medium-sized organizations sometimes also need someone who is dedicated to their company’s IT needs.
When thinking about maintaining an in-house team, there are several pros. For one thing, you have a staff that is going to work as employees, or contracted employees, which means they have to be reliably available during specific hours.
Most companies who hire in-house, have their IT teamwork on-site. Having your professionals right there for face-to-face conversations can end up solving problems more quickly, and can quell challenges as they arise. For example, a pressing need can be prioritized by the IT team, while a freelancer will often work on projects on a first-come, first-serve basis.
Offering a stable, reliable source of income creates trust and loyalty among employees. It also makes your people less of a flight risk when times get tough. In-house employees are often vested and become a long-term voice for the team and the company.
An in-house team is more likely to respect company boundaries and policies. For example, confidentiality, non-compete contracts, and intellectual property are more likely to remain in-house when your people are in-house, even if they eventually leave.
When raising capital, investors often weigh in-house teams as having more value, particularly in-house technology and marketing teams. For those looking to grow with investment money, hiring in-house can be a consideration.
Pros of in-house technology summary:
- Staff must be available during the working hours you set according to what’s best for your company.
- Face-to-face conversations can yield more ideas and collaborative problem-solving.
- Projects can be prioritized, as needed.
- Being a stable, reliable source of regular income often leads to more loyalty and better protection and confidentiality in competitive markets.
- Investors are likely to assign more value to in-house teams.
As good as some of those benefits of an in-house team may sound, there are significant downsides every business owner should consider. For example, in-house teams cost money. You have to cover overhead. Whether that means keeping an on-site office available or maintaining tech and office needs for remote work, it’s up to the employer to cover office costs.
When you hire staff, you get more control, such as schedules, how teams work together, and how they work. However, you also have to pay taxes, workman’s compensation, and more. Plus, onboarding new employees is a process that takes time and money. The cost of hiring and maintaining an in-house workforce is higher than outsourcing, every time.
Finding talent for in-house work can be tough. Bringing someone to your business location means you are not only selling the job and benefits, but the nearby neighborhoods, school districts, and a life that may or may not be near the staff member’s family. Even hiring in-house staff to work remotely means you have to be prepared to offer the hours and salary of a full-time position, as well as competitive benefits.
Finally, a staff position will only be attractive to people looking for that type of job. When you open your search to include freelancers, you include a broad range of world-class talent.
Cons of in-house technology summary:
- The cost of overhead can be prohibitive.
- Finding, hiring, and onboarding an in-house staff is time-consuming.
- You will have to offer competitive benefits packages to bring someone on, in-house.
- Opening up the job search to include freelancers means you have a bigger pool of talent.
Pros and Cons: Why Companies Outsource IT
Even though hiring in-house teams is a traditional approach favored by many, there are some significant pros, as well as a few cons to consider that may make outsourcing IT the best choice for your business.
One of the biggest, most important benefits of outsourcing is how much money employers save. You don’t have to pay overhead, payroll taxes, worker’s compensation insurance, and related costs. Overhead is significantly decreased when you outsource.
Access to a world-wide hiring pool. When you go with freelancers, you are able to access world-calls talent. You can find the best person for the job and often hire them quickly, compared to the lengthy onboarding process more companies have for in-house staff.
Hiring can be for one-off projects versus for ongoing work means you can save money and hire specialized talent, as needed. When hiring in-house, you have to know your needs in advance and have ongoing work planned.
Plus, outsourcing means you generally have a better ability to scale your business. If growth is the current goal, the time and money savings, the freeing up of internal resources will allow scaling your business to be realistically prioritized.
Pros of IT outsourcing summary:
- Outsourcing is less costly than hiring in-house.
- Get access to a world-wide talent pool.
- Hire specialized talent for the work you need to get done, rather than hiring a generalist for all IT work.
- Ability to scale improves.
Even though the cost savings is attractive, it can be more difficult to instill loyalty, manage intellectual property, and enforce non-compete contracts. For competitive markets, this can be an area of concern worth considering.
The distance between a company and its freelancers can weigh on productivity. Working across multiple time zones, multiple communication channels, and multiple cultures can prove challenging for oversight, and especially for collaborative groups.
Some IT functions are not as easily outsourced as others. IT is a department that affects the entire organization. It can be challenging to know how to oversee a dispersed team, and even more difficult to rely on crucial, complex functions from outsourced persons.
While freelancers want to make a living, they also want to be trusted and build their portfolio. Most freelancers are glad to be useful and provide a vital service. However, because the barriers to entry are rather low in the freelancing world, there are some bad actors who may inflate their ratings and may even lock you into proprietary software. This can limit flexibility and cause interruptions.
Cons of IT outsourcing summary:
- Loyalty and protection of intellectual property can be difficult in highly competitive markets.
- Managing dispersed teams can be challenging.
- Some IT functions are easier to outsource than others.
- Finding exceptional freelancers is easy, but it is also easy to come across the few bad actors that can cause challenges.
Examples of frequently outsourced services
Even though you can outsource almost your entire technology department, there are a few IT functions that are more commonly outsourced than others.
- Web hosting. Most companies outsource hosting as a service and don’t even think about it as outsourcing.
- Web development is a commonly outsourced service because it is often required on an as-needed basis.
- Software or the development of applications are also project-based and are well-suited for freelancers.
- Website and application maintenance is one of those tasks that doesn’t require a lot of oversight or an in-house office, making it ideal for a reliable, autonomous freelancer.
- Technical support can take up a lot of in-house physical space, yet it doesn’t require a lot of in-person oversight, making it a good choice for outsourcing.
- Database development and management is something that doesn’t require a lot of collaboration, and it can be completed on a fairly independent schedule, making outsourcing an ideal choice.
Famous companies that leverage IT outsourcing and why
There are countless companies that keep their tech services in-house and countless who choose to outsource. It can be surprising to many just how common outsourcing is, not only for small businesses looking to scale but for large companies as well. Take a look at this list of well-known companies who have outsourced their tech services.
- Alibaba, similar to eBay with headquarters in China, has one of the highest IPOs. It was built on development outsourced to the U.S. and still relies heavily on outsourcing today.
- AppSumo is a tech-focused marketing giant valued at about $2 million. This company was built on outsourcing and still relies on outsourcing for online courses, app development, software development and maintenance, hosting, and other projects.
- Basecamp is a web development and communication tool that helps teams with project management. They implemented outsourcing because it would allow them to focus on their core business and generate more revenue. To this day, they outsource to 50 people across 32 countries.
- Google, a tech giant famous for protecting its in-house company culture, is also a big supporter of outsourcing. They have and do outsource extensively. Currently, IT specialists, developers, virtual assistants, phone and email support are all outsourced. AdWords is their biggest outsourced department with over 1,000 customer service specialists and reps.
- Slack is one of the most popular communication tools for teams of all sizes across companies in many sectors. Development, app, website, logo, and testing were all outsourced. The company continues to rely on outsourcing for tech, marketing, and more.
The future of IT outsourcing and you
The shortest answer to the future of IT outsourcing is that it isn’t going away anytime soon. As more and more products, services, and solutions are made available in digital format, more companies will need an array of teams supporting their efforts. Companies will rely increasingly on outsourced talent.
Even companies that have no digital offerings will continue to be in need of fundamental IT services, such as website development and maintenance, basic security, and point of sale management.
When deciding whether maintaining an in-house staff or outsourcing your IT is best for your company, there are a few prime considerations to make. Think in terms of scope, timelines, budget, any special considerations, and overall goals for your company.
Project-based work is ideal for outsourcing. Companies that are trying to scale or lower overhead costs should consider outsourcing. And those companies who want to attract the best talent from around the world can only do so with IT outsourcing.
If the work needs to be on-site or requires face-to-face collaboration, relying on an in-house team is probably best. You may also want to consider hiring in-house if you are functioning in a highly competitive market and need to know your people are vested solely in your organization.
Most larger companies use a blended strategy, combining outsourced IT services along with in-house teams. Every company needs to decide, based on current and future goals, what will work best for them.