The Decision: In-House vs. Outsourcing

Date: July 28, 2014

Business and technology trends are constantly evolving around us and tend to influence the direction of large, complex decisions within an organization. In today’s environment of cost reduction, expense scrutiny, and lean/efficient processes, every organization must determine whether a particular function or service should be performed in-house or be outsourced to another vendor.

Through my experience in analyzing numerous clients and prospects, of varying size and structure, around potential business process outsourcing to Confluence, I have seen an inverse relationship between the number of employees and size of the organization requiring services and the potential need for outsourcing. My work in these types of environments and engagements has led me to believe that as the organization grows in size and overall employees, the relative need for outsourcing decreases dramatically. In larger organizations, the increased availability of in-house resources provides a larger pool of individuals to complete the workload as well as provide additional resources available for backup coverage (which tends to be one of the largest issues, along with IT costs, of in-house service offerings).

The decision between insourcing and outsourcing tends to balance along three key themes: (1) Core Competency, (2) Cost and (3) Quality of what is being provided. Any organization making an insource/outsource decision has to ask themselves some introspective questions about the importance of these themes in their organization. Some questions to consider are:

  • Is this truly a core competency of our business or can we outsource this to another organization to reduce our overall staffing requirements?
  • What are the cost savings of moving our IT infrastructure to an outside vendor
  • Can the vendor provide a service that is equal to or better than our existing service today?

These questions, along with many others, are at the crux of the decision to maintain solutions in-house or to outsource.

As additional cost pressures, resource availability and IT infrastructure maintenance are introduced, it becomes critical that the potential outsourcing of key service functions is considered. And ultimately, technology, in combination with a deliberate and effective strategy for rollout, can provide the efficiency, profitability, transparency, and scalability that organizations need to remain competitive and stay ahead of the curve in an ever-changing environment. Some key benefits of an out-sourcing model include:

  • Predictable cost basis – Contracts with outside firms and the reduction and elimination of internal IT overhead and staffing costs enable consistent and predictable cost basis.
  • Consistency in Expertise – IT staff turnover is a major concern of many organizations and can seriously jeopardize the success of projects and consistent ongoing operations. When a project or service is outsourced, the risk of losing knowledge and expertise is significantly reduced. The contracted organization is responsible for maintaining the success of the project and/or ongoing service.
  • Improved resource allocation – Outsourcing key functions and services enables in-house staff to be properly allocated to critical and high priority internal projects. In many instances, the ability to allocate staff to “new” projects is difficult, time-consuming and costly.
  • Focus on business – Outsourcing frees up the organization to focus on their core business competencies and shifts the focus of potential technical issues to the outsourced firm. This shift to core competencies allows firms to increase efficiencies and overall productivity of the organization.
  • Early exposure to technology updates – Software outsourcing allows organizations to take advantage of new features and releases without having to coordinate internal resources for potential upgrades, system maintenance, etc.

Going through the process of identifying core competencies and weighing them against their internal or external costs is beneficial in building a solid business case, whether it is to recommend outsourcing or to prove that current in-house services are the most efficient solutions.

Learn more about how Confluence can help organizations grappling with these tough decisions through our Business Process Outsourcing Services.

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