In-House vs Outsourcing: Which is Right for Your Business?

Should you hire in-house or outsource? It’s a million-dollar question that has consistently been in debate for many years. Unfortunately, there’s no straightforward answer to this, as there are many variables that can influence your decision.

That said, your end goal, be it hiring in-house or outsourcing, is to grow your business by reducing operating costs and increasing revenue. After all, the success of any business depends on its people, so hiring is critical.

Outsourcing vs in-house market trend

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The above shows the in-house vs outsourcing services trend from the years 2014 to 2023 for the global pharmaceutical industry market. In this period, the percentage of in-house hiring spending is expected to reduce from 66.3% in 2014 to almost 51%in 2023. This translates to a continuous uptick in outsourcing adoption for the market.

Both can be great options – but which is best for your business?

Advantages of outsourcing

The following are the benefits you can reap when you outsource your resources:

1. Cost cutting

According to a survey done by Statista, one of the leading drivers for companies to opt for outsourcing is cost-cutting. In fact, 59% of companies agreed to this.

Let’s take an IT company for example. If you consider the infrastructure costs and hiring expenses of developers, you can reduce your development cost up to 60% by outsourcing, by hiring developers from India at a fraction of the cost of getting from the US.

Additionally, you won’t need to spend time and effort on tons of interviews and equip the necessary workplaces. You only need to agree to a sum for the project and once delivered, you move on.

2. Core competency

There will be times when certain specialized skill sets are required to complete the job as part of the project requirements. Since you and your team don’t have these skill sets, it would make sense to outsource and let the experts handle this while you do what you do best. This enables you to focus better on your core business.

For example, if you’re required to build an online teaching platform but your niche is in the financial industry, outsourcing can fill in your knowledge gaps. Although there are tools that can help in some areas of this, the fact that you’re not familiar with this area puts you in a difficult position. In this situation, it would make sense to outsource.

3. Short-term commitments

Outsourcing allows you to bring in an expert, without long-term commitments. You’ll need to pay only for the job. On the other hand, an in-house team requires a long-term commitment that binds you to pay fixed monthly salaries along with other employee benefits.

Let’s take the same example of building an online teaching platform, as mentioned above. The project is a one-off and is for a month. There’s no point in hiring a new person into your in-house team permanently just for this. Unless you foresee that you’ll need this specific skillset on a long-term basis, it would be better to outsource. Hire as and when you need.

4. Risk mitigation

When you choose to outsource, there’s a legal contract. It usually includes the usual scope of work, NDA (Non-Disclosure Agreement) and also other important points like payment terms, and delivery time, performance, confidentiality and exit clauses.

As such, both companies share the risks involved in the process by default.

5. Easier to change the team

As compared to in-house workers, if you’re not satisfied with the quality of the team, you can always request a change.

6. Symbiosis relationship

If all works out well, you can return to the same contractor for new tasks. Furthermore, there’s always this possibility that they’ll refer you to their network, so it becomes a win-win situation for both you and the contractor.

7. Easier to set a budget

Hiring in-house may introduce other extra costs such as additional training, raises or bonuses, overtime pay and more. Contractors usually stay on budget, so you can plan your financial expenses better.

Disadvantages of outsourcing

As with everything however, there are always two sides to a coin.

1. Less control

This is probably the most commonly reported concern. While you have clearly conveyed what you want, chances are, your contractor’s team may not understand or choose to be mule-headed and want things done another way. As such, things can spiral out of control.

This can be mitigated by documenting all your requirements, creating flowcharts and diagrams, monitoring key milestones and project charter. As such, you can quickly correct any unwanted detours.

2. Quality

While contractors are usually experts in their own field, there are situations when the work produced is of bad quality. As a result, you may need to bring in your in-house team to pick up the mess. This can be avoided by doing your due diligence before you sign up with any contractor.

3. Communication concerns

Communicating with your in-house team is easier and more effective than communicating with a remote team. This is made worse if teams are located in different time zones, with no single point of contact and no reliable internet connection. This can be avoided by setting the right expectations from the get-go.

4. Not having them on your beck and call

Bear in mind that contractors have other clients too, so they’re not always available whenever you need them. Unlike your in-house staff, they can’t drop everything and rush to you immediately.

5. Potential security risks

If you trust your contractor, especially after having worked together for a long time with no problems, this shouldn’t be an issue. However, if you're working with a new contractor, and especially when sensitive information is exchanged, there’s always the risk of a security breach.

You can mitigate this by discussing all your security concerns upfront and putting down the necessary clauses in the said contract to protect your interests.

6. Potential additional costs

While outsourcing helps you set a more fixed budget upfront, this may not hold true at all times. There could be other hidden costs that you aren’t aware of, so it’s best to iron out all this beforehand.

Advantages of hiring in-house

Although outsourcing has its advantages, hiring someone in-house can help strengthen your organization and bring in considerable long-term benefits.

1. Better cultural fit

Hiring an in-house team simply means they’ll be working together with the same visions and missions of the company. This creates stronger teamwork for a more cohesive working environment.

2. On-site availability

Once you have your team in place, you can get down to business and immediately start work. Since the team is working together within the same office and time zone, it’s more effective and efficient this way.

3. More control

You’ll have more control as you’re literally sitting on the driver’s seat, managing and overseeing the whole team internally while controlling the processes.

4. Better understanding

Remember, the in-house team works on the project from its start until completion. As such, they’re aware of all the requirements and have a solid understanding of the project from both the micro and macro levels as well. Unlike the outsourcing team, especially if they’re brought in mid-way, they’d need time to understand the project details.

5. Talent development

If you require a certain skill set, you can develop your employees and give them the opportunity for professional growth. They’ll be happy and you gain a stronger asset to your company. Again, a win-win situation for all.

Disadvantages of hiring in-house

While having your own in-house team is beneficial, it has its own share of risks and disadvantages too.

1. High costs

The overall cost to hire people in-house doesn’t involve paying their salaries alone. There are other costs involved, such as putting the infrastructure in place, employee benefits and training costs. You’ll also need to invest in the recruiting process.

Bear in mind that you’ll need to pay their salaries even after the project has ended. This is the long-term commitment you’ll have to undertake.

2. Time factor

Time is of the essence. Nowadays, projects require fast implementation and delivery. You need to stay on top of things and remain competitive in the market. Hiring an in-house team takes time and especially if you need highly qualified ones with specific skill sets.

When you do so, your project is paused. You don’t want this as prolonged pauses are undesirable for your project’s success. They may even cause you to lose business.

3. Low retention rates

Employees come and go, and you may face the possibility of losing someone in your team during the critical phase of the project. You’ll then need to scramble to find a replacement which can take time. This could be made worse especially when you have invested in training and developing the employee.

This can be avoided by having the employee sign a bond period to the company after having undergone the training. That said, most would frown at such a concept.

Which is the best way for you?

While there’s no obvious answer to this, there are some guidelines that can help you; they’re typically based on your business objectives and needs.

Any tasks that require you to have firm control over or have a long-term need or can give you added competitive advantage, in such cases, it would be best to hire in-house staff. However, if the tasks aren’t part of your company’s core competencies or you have a short-term need, you may want to consider outsourcing.

Outsourcing gives you that flexibility to take advantage of others’ specialization for a short time and then move on.

Final thoughts

When you’re at a crossroads, deciding between hiring in-house or outsourcing, you’ll need to first evaluate your business needs. After all, there are pros and cons to both options as listed above. Bear in mind that each approach is suitable for different situations and requests.

Analyze your company’s needs and be meticulous with your choice. Whichever way you choose, you don’t want to become so reliant on contractors that your business cannot survive without them. Maybe that’s why most go for the hybrid approach. At the end of the day, you want your business to prosper in whichever way you choose.