Insourcing Definition - Investopedia

Insourcing is the assignment of a project to a person or department within a company rather than to a third party. It's the opposite of ... Business BusinessEssentials WhatIsInsourcing? Insourcingistheassignmentofaprojecttoapersonordepartmentwithinacompanyratherthantoathirdparty.Insourcingistheoppositeofoutsourcing. HowInsourcingWorks Inpractice,insourcingisusedtodescribeataskorfunctionthatacompanycouldhaveoutsourcedtoathirdparty.Asarule,insourcingprovidescompanieswithmorecontroloverdecision-makingandtheabilitytomovemorequicklyandprecisely,especiallyifinstitutionalknowledgefactorsintosomeelementsofthejob. Sincethe1990s,companieshaveincreasinglyoutsourcedratherthaninsource,seekingcheaperlaborindevelopingnations.Totheextentthatemployees’timecostsacompanymorethanitwouldpayathirdpartytodothesamework,insourcingcanproducehigherexpenses. Thedecisionalsodependsonthebestallocationofresourcesacrossasetoftasksaswell.Employeeswhoarequalifiedtoundertakeaprojectifitisinsourcedmightbemoreprofitablydeployedonotherprojects. InsourcingVersusOutsourcing Outsourcinginvolveshiringanexternalcompanytoundertakeatask,project,orongoingfunctionforanorganization.Thepracticebecamewidespreadandcontroversialthroughthe1990s,asmanybusinessessoughttoreducetheirexpensesbyhiringoutsidecompaniestoperformongoingtaskssuchashumanresourcesmanagement,customerservice,manufacturing,andmarketing. Withimprovementsinglobalcommunicationsandlogisticsspurredinpartbythegrowthoftheinternet,outsourcingbecameagrowthindustryindevelopingcountrieswherelaborcostsremainedlow. Allowingnon-employeestohaveaccesstosystems,particularlyback-officesystems,cancreatesecurityrisks. Outsourcingbringswithitasetofrisksandadditionaloverhead,however.Allowingnon-employeestohaveaccesstosystems,particularlyback-officesystemssuchasaccounting,createssecurityrisks.Evenacompanywithastrongcybersecurityprofilebecomespronetoaddedriskwhenitallowsunknownemployeesofathird-partyorganizationaccesstoitssystems. Furthermore,differencesininternationallawcangeneratechallengeswithregardtodrawingupcontractsthatadequatelyprotectanorganizationintheeventavendorfailstoliveuptoexpectations. Insourcingofferssomecompaniesacompetitiveadvantageiftheycanprovidemoreconsistent,superiorcustomerservicebykeepingthefunctionsinhouse,evenwhenitcostsabitmore. Forcomplexprojects,companiesmayfindthatinsourcingrequireslesstimeandexpensefortrainingsinceemployeesarealreadyfamiliarwithanorganization’sproducts,services,andculture. ExampleofInsourcing Asanexample,sayalargesnackcompanyisputtingoutanewbrandofcandy.Itsstrategyincludesasocialmediacampaignthatithopeswillhelpitsbrandcatchfire. Thecompanyhasitsownmarketingdepartmentthathastheproductandindustryknowledgetorunthecampaign.Italreadyimplementstherestofthecompany'ssocialmediastrategyalthoughithasneveractuallylaunchedanewproductonsocialmedia.Shouldthecompanyhandovertheprojecttoitsmarketingteamorgooutside? KeyTakeaways Insourcingkeepsaprojectinthehandsofemployeeswhomayunderstandthecompanyanditsproductsbest.Outsourcinggivesacompanyaccesstoexpertisethatmaynotbein-house,andpossiblyalowercost.Sincethe1990s,U.S.companieshaveoutsourcedmorethaninsourcedinordertotakeadvantageoflowerlaborcostsabroad. Ifthemarketingteamisfullybookedupwithitscurrentprojects,thecompanymaywelldecidetohiretheoutsidesocialmediaoutfittolaunchthesocialmediacampaignforitsnewcandybar.Fortheinitialphase,outsourcingcouldbetherightchoice.Oncethecampaignisupandrunning,thecompanymaywellreverseitsdecisionandinsourceit. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms WhyCompaniesUseOutsourcing Outsourcingisapracticeusedbydifferentcompaniestoreducecostsbytransferringportionsofworktooutsidesuppliersratherthancompletingitinternally. more WhatIsCorporateAccountability? Accountabilityistheacceptanceofresponsibilitytowardsotherparties.Readaboutcorporate,government,andpoliticalaccountability. more WhatIsaStipend? Astipendisasetamountofmoneythatmaybeprovidedtoindividualstohelpthemoffsetexpenses. more WhatYouShouldKnowAboutEntrepreneurs Entrepreneursandentrepreneurshiphavekeyeffectsontheeconomy.Learnhowtobecomeoneandthequestionsyoushouldaskbeforestartingyourentrepreneurialjourney. more BlockchainExplained Ablockchainisadigitallydistributed,decentralized,publicledgerthatexistsacrossanetwork.ItismostnoteworthyinitsusewithcryptocurrenciesandNFTs. more WhatYouNeedtoKnowAboutIn-HouseActivities In-housereferstoconductinganactivityoroperationwithinacompany,insteadofrelyingonoutsourcing. more PartnerLinks RelatedArticles CorporateFinance Outsourcingvs.Subcontracting:What'sthedifference? Business TheDifferenceBetweenOutsourcingvs.Insourcing Business WhenIsOutsourcingPreferabletoVerticalIntegration? Investopedia TheUltimateGuidetoWorkingFromHome Business TheImportanceofExcelinBusiness M&A 4BiggestMergerandAcquisitionDisasters