Outsourcing vs In-House: Strategic Business Decisions

NADICA METULEVA

11 min

·

March 15, 2024

Outsourcing or in-house? There’s hardly a manager or employer today who hasn’t asked themselves this question at least once. The problem with it is that there is no straightforward answer. Both options are available for many services and tasks and each has its set of advantages and disadvantages. So, how do you make the choice?

On one hand, you can keep this internally and hire someone who knows your company inside out. It will be faster, smoother, and in many cases – cheaper. If you go by loyalty studies from Forbes, 75% of internal hires are successful in a new job role, and this reportedly improves employee loyalty.

On the other hand, you have the option to give the task to someone else, which gives you a lot more choices. If you choose to outsource remotely, this can widen your reach tremendously. Every year, 300,000 jobs are being outsourced from the US alone!

To help you make this important decision, we will dive deeper into the intricacies of finding the perfect person for a role in-house or by outsourcing. 

Outsourcing vs In-house: What does it Mean?

In-house or internal recruiting is the process of hiring from within the company. This is as efficient as the employees you already have on board. Internal candidates are part of your team and know the company’s policies and culture. However, you need to find someone in-house who can do the tasks required by the new role. 

Outsourcing is the process of hiring a third party to handle a task. Companies use this method to cut costs on labor, get access to a bigger pool of candidates, and allow their employees to focus on the business’s core operations. 

When it comes to recruiting a new person – or a new team, it is essential to consider both options, especially if you are looking to reduce costs. Choosing the right option for your business requires an evaluation of both options. 

Outsourcing vs In House meaning

Pros and Cons of Outsourcing

One popular option for filling open job positions or getting some tasks done is outsourcing. Basically, you’d be opening your job listings to external candidates, or employing a third party to handle some task or offer some service on your behalf.

Outsourcing Advantages 

Outsourcing comes with the following advantages:

1. Perfect for more demanding services like travel management

These days, there are plenty of situations where it would be more efficient, not to mention cost-effective, to outsource instead of hiring someone in-house. Let’s say you need someone to handle booking travel for a small business. This is a very demanding role, so hiring someone in-house can be tricky, since it can take them away from their original position. Not to mention, you’d need to set aside a nice sum for someone who will deal with it all, which can be much more expensive. 

The solution would be outsourcing, since if you do this in-office, you have to hire more than one person to cover the business travel management 24/7. In this case, the more obvious solution would be to use an online booking tool that will streamline the process, remove the challenges, be available non-stop, and on top of it all – come at a much lower cost. You can’t expect an employee to work around the clock to streamline travel for any person on a business trip, and hiring several of them can be quite expensive.

2. Can offer a greater deal of security and anonymity

In many cases, organizations decide to skip their internal pool of candidates and outsource a task because they want to retain a certain level of anonymity and privacy. Let’s say, for instance, that you need help creating, distributing, and managing invoices

Outsourcing such a service means that you will get a third-party organization to send invoices to clients, collect payments, and follow up on unpaid invoices – all on your behalf. When you outsource invoicing, you are delegating a task to someone who can improve security, customer service, efficiency, compliance, and of course, cost-effectiveness.

Or, you need someone to handle the payments for people inside the company. If you give this task to someone in-house, that gives them access to the most private details of other employees. They’ll know how much other people earn, have access to the company’s financials, and more. This can create hostility within the organization, make people more competitive, and cause you trouble. 

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3. Fresh ideas and a more diverse skill set

Companies that solely work with a selected number of people for many years are stagnant. A new employee, temporary hire, or outsourced company can refresh an organization with new perspectives and ideas and can bring fresh insights and different types of experiences from their previous workplaces. 

More importantly, outsourcing gives organizations access to a more diverse pool of candidates and far more choices compared to hiring in-house. You can hire entire organizations to handle a task, give the task to some remote workers from a different part of the world, and pick and choose between hundreds, if not thousands of candidates instead of just, let’s say, ten of them. 

Outsourcing Disadvantages 

Outsourcing often means spending more time to find the perfect candidate, which increases the hiring costs. You’ll need to spend money on advertising the job, interviewing candidates, training them, fitting them into the company’s culture, etc. If you decide to hire a remote team to handle a task, you’ll need to spend time interviewing the options, checking their reputation online, setting rates, etc.

1. Find someone with skills your employees don’t have

Let’s be real – even if you want to hire someone in-house if they don’t have the skills and experience, it is always better to outsource. Generally speaking, hiring in-house is cheaper because you are saving on the search and hiring process, onboarding, and even compensation. However, if you need to spend months training someone in-house, you are losing time and money. Outsourcing the task to someone experienced and skilled to do this is faster, more efficient, and cheaper.

When is the Best Time to Outsource?

Outsourcing talent is the obvious option in most cases when you need a service or a professional with skills that your team doesn’t possess. Outsourcing can be more expensive if you can hire someone great in-house, or it can be cheaper if this is a better option. To help you, we created a list of situations where it would be better to outsource:

  • When you need access to new expertise and skills 
  • If you want to free up resources to focus on some other areas of the business, and you could use someone to handle a specific task
  • If you have a very important position and time to fill it and would like to have more options to find the most skilled candidate for the position
  • When you want to bring a fresh perspective and boost diversity in the workplace

Outsourcing business

Pros and Cons of In-house

Hiring someone from your existing team can be excellent for your business. When a job becomes available that you think someone in the office can handle or be trained to do, you can post the listing internally before you start looking outside the business. This will give people in your organization a chance to apply. 

In-house Advantages 

Here are the top reasons why you might want to hire in-house:

1. Stronger company culture

By considering the people you have working at your company, you are cultivating a culture of continuous improvement. This means that you are allowing employees to rise in terms of salary, and career status, and reach their career goals. 

Your organization is already spending money and time to develop the talent it employs. By hiring internally, you can keep your employees happy, retain the developed talent, and prevent them from bouncing to your competition. 

Let’s say that you have a person in the office who is interested in a task you have and can do it in addition to their work. Or, you have a person who is eager to get promoted to a better role, but you decided to onboard someone else to handle it instead. These employees will realize that your company doesn’t really offer them opportunities for professional growth. This is one of the top reasons why people leave their work. 

On the other hand, a person who is given the opportunity to grow at the company where they work will be happier with their position and more motivated to work. A study from the Wharton School of Management found that external candidates are paid more but perform worse in performance reviews, and are 61% more likely to be fired compared to internal hires. 

Potential disadvantage: While internal hiring is usually linked to improved company culture and employee morale, it has the potential to do some damage too. If you have more than one employee who is skilled and interested in the position, this can bring up some competitiveness. If you make the wrong choice or hire someone equally skilled as another employee, those who don’t get the role won’t be happy with the situation – and can even decide to leave the company.

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In-house Disadvantages

1. Familiarity with the company’s rules and culture

A person who already works at the organization is familiar with the company’s structure and culture. An external candidate, on the other hand, will need some time to adjust. The onboarding time for external employees is often much longer, and it requires that everyone makes an effort to adapt to a new addition to the team. 

Internal hires who have worked at the business usually need a bit of training and some adjustment to hit the ground running. They can use their pre-existing experience and knowledge as part of the business in their new role. Not to mention, they are already familiar with the people who work in the office, which will make it much simpler for them to adjust to a new role. 

2. Quicker hiring process

When you onboard talent, you have a much bigger pool of candidates to consider, especially if they can do the work remotely and you can expand your search outside your location. Making a good hire is expensive, even more so if you are outsourcing. Most of the cost is the investment of time: recruiting, screening, interviewing, negotiating a salary, and more. Overall, it takes 100 hours to hire someone from approval of the position to their first day on the job, and this doesn’t even include the onboarding process, which is also longer for outsourced candidates. 

Hiring internally means that you’ll be limited to the people you have in the company – often even limited to a few people who have the necessary skill set to do the job you require. 

The sole fact that you have fewer people to consider shortens the hiring process tremendously. But, that is not all. In the case of outsourcing, the human resources department will need to schedule and conduct interviews and tests, follow up on references, and do background checks. Very often, an important position or project requires more than one interview, and they’ll have to review many candidates before making a choice. 

Well, if you hire someone internally, not only do you have fewer people to consider, but you will also have a background check and most likely even know them personally. You can often do this without an interview or, if you decide to have one, you’ll know exactly what to ask since you basically know them. 

Outsourcing hiring

Potential disadvantage: In some cases, you can give an additional task to someone in-house for a higher salary and more benefits. However, if the new task is demanding, they might have to leave behind their previous position, so you’ll need to fill in another job opening to cover their old position. 

4. Clear performance history

When you outsource a task, you are relying on a person’s resume, an organization’s reputation online, or background checks. Even if your hiring process is the most detailed and comprehensive, bringing in someone your business hasn’t worked with before requires somewhat of a leap of faith. 

Hiring in-house is often much different. The people already work at your company, so you have instant access to their performance history. You can ask their managers about their performance, check their progress at the company, and know ahead what kind of training they’ll need to fill the gaps for the new role.

5. Lower hiring costs

While this doesn’t necessarily have to be the case, internal hiring is cheaper for most organizations. Start with the hiring process. It is quicker, which immediately translates to lower hiring costs. 

However, hiring in-house can also lead to compensation savings. Initial compensation costs 18% more for external hires compared to internal hires. 

When is the Best Time to Hire In-house?

We discussed many perks of hiring in-house such as cost-efficiency, faster hiring, and better performance. However, this is not always the best option for you. To help you make a choice, we created a list of situations when you should opt for hiring in-house:

  • Smaller budget to employ, onboard, and train new people
  • You have eager, skilled people on board who are ready to get a new role
  • You already have people within your organization’s talent pool that possess the skills you need
  • The organization is in a time crunch to get the job done
  • You are looking to hire someone for a position that requires company knowledge

Hiring new employee

What Kind of a Hire do YOU need?

In the world of business, the decision between outsourcing and hiring in-house is vital for success. This demands careful consideration. If you make the wrong choice, it will cost you more, can be bad for the company culture, not to mention you might not get the results you need. 

The question to ask yourself is: what kind of a hire do you truly need? Would you benefit from someone who already works for you, or would it be better to delegate the task to someone outside your organization? 

The answer lies in aligning your organization’s goals and resources with your decision. You should consider the nature of the task you need to fulfill, the skills required to do it, the urgency of the project, and your budget. Based on this, decide if you need specialized expertise you can find outside, or if this is an opportunity to give someone in your team an extra task or a new position.

Ultimately, there isn’t a one-size-fits-all solution. The answer to your question depends on every individual role and case, so consider the advantages and disadvantages of both to choose an option that aligns with your business objectives.

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