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Back to all articles
23 August 2021
8 min to read

Insourcing vs Outsourcing: what to choose for your company?

Vladyslav Havrylevskyj
Head of digital marketing

What are the main details about insourcing?

Insourcing is a perfect decision for companies that want to maintain control over a task or a project. The company's employees will do their work, so it is convenient for the management to be involved in the project. In addition, insourcing has the following benefits:

  • Practical service;
  • Better communication;
  • Trained employees for the needs of the specific business;
  • Maximum control over the workflow.

The on-site team can update and manage not only the software but also the local equipment. As the insourcing team will be able to communicate with all business departments, each member will understand business processes at a deeper level. It means finding more accurate ways of solving possible problems.

Following the requirements specified in the SLA, the company's management analyzes the necessity of providing each of the services by the IT department or an external provider. The operation of workstations or office equipment can be entrusted to the company’s own IT service since in general, this does not require special knowledge. But the implementation of projects using expensive network equipment can be more effective when transferring such projects to an external company.

When choosing services for potential insourcing or outsourcing, company owners can be guided by the following factors:

  • the importance of the service for the business, the stability of the business requirements for its provision;
  • the internal efficiency of service delivery;
  • service criticality (efficiency, reliability, information security);
  • the novelty of the service for the company;
  • availability, quality, and cost of services on the market.

Many companies face a choice, which option is more profitable: insourcing or outsourcing. But the most important question is what is more efficient? Thus, the advantages of a particular method are not always a question of discussion. There are no universal levers for evaluating production efficiency. Tools that work well under the same conditions, may fail in others, and even entail irreversible consequences. Therefore, choosing to insource is not always reasonable.

Is outsourcing appropriate for your project?

Outsourcing is often described as an effective cost-cutting strategy for a company. However, its difference is in other advantages:

  • Cost minimization. The profitability may depend on numerous factors. For example, company owners don't have to pay full salaries and annual bonuses to their employees. Opening an entire IT department on-site or investing in sophisticated equipment is also not needed.

  • Reducing risks. Customers can evaluate the stability of the outsourcing company, the duration of performing on the market. It is easy to know the business core and whether the team has got an experience in performing such outsourcing contracts. In addition, the risks associated with personnel management are reduced. There is no need to hire additional specialists, train them and develop their competencies, integrate into the work process, and keep inside the company. The customer company employs exactly as many employees as it is really necessary to support the process of performing IT services.

  • Round-the-clock technical support. As companies usually work from 9 am to 6 pm, insource employees cannot provide customer support beyond this time without additional payment. When hiring an external helpdesk, company owners can opt for 24/7 support without paying extra for overtime.

  • Minimal risk of data loss and hacking. In an increasingly competitive environment, outsourcing companies are striving to provide better services with increased security. Therefore, outsourcing firms are taking steps to improve data recovery, prevent data loss and technology downtime.

  • Increase in working hours. By choosing a hybrid business model: mixing inhouse employees with an outsourcing team, it is possible to increase your company's working hours. This way, two teams will work faster on the same project.

  • A team of highly qualified specialists. On outsourcing, company owners can select specialists by taking into account the needs of the project. IT outsourcing companies have a wide range of professionals specially trained for a specific set of tasks.

It is very difficult for startup teams to compete with larger structures for outstanding employees. In addition, fast-paced development is necessary for growth. Therefore, it is easier for small companies to gain any results by hiring outsource specialists. Although, both insourcing and outsourcing have their pros and cons.

Costs for outsourcing serving

After deciding on outsourcing, the task arises to calculate the costs of implementing an IT service. The main difficulty is to take into account all the costs of "accompanying" processes:

  1. Labor costs. It is necessary to determine how many people are needed and how long it will take to serve a project. Accounting labor costs incurred by IT (and all kinds of associated costs) is important for comparing the data obtained with the outsourcer's proposal.

  2. The cost of moving to outsource. Despite the seeming simplicity, the transition can be a very laborious and costly process. As a rule, it is difficult to assess what human resources the customer needs for transition. It means planning the number of necessary meetings, the time spent on the technical documentation development and the regulation of the transferred services.

  3. Optimal control of the processes. Transferring any processes outside does not yet cancel control over them. Processing users’ requests, coordinating the work of the outsourcer and the internal IT service, which entails the corresponding costs, remain. Therefore, the performance of work on interaction with the outsourcer and the cost of all the technical and human resources necessary for this must be included in the calculations. At the same time, the customer company should retain the competencies that will allow to control outsourcers, evaluate their actions and suggestions.

Another possible situation with outsourcing is when it is born out of a project for the implementation of a service in the customer company, which is then transferred outside for service. In this case, you first need to calculate the planned labor costs and obtain forecast data on the costs of the company. These calculations are necessary for the creation and development of its competencies for servicing the new system.

Algorithm of Moving the IT project to Outsource

Now let's analyze the main steps towards the effective use of outsourcing services. They should be followed when optimizing IT by the business process standardization strategy. The first and usually the most time-consuming step means establishing a clear understanding of the company's business processes. If the decision to attract external employers is nevertheless made, the company owner should build a clear hierarchy. It must go from business goals through business processes to IT services, which, in turn, consist of IT processes.

The next, fundamental step in moving the project to IT outsourcing is the formalization of business requirements for IT. It is made through the preparation of a Service Level Agreement (SLA). The SLA development is an inevitable measure, regardless of whether a particular service is outsourced or remains under the control of its own IT service.

Here is the list of questions to examine before making a final decision regarding cooperation:

  1. What is the speed of response to requests: in the case of remote administration or consultation?

  2. What is included in the IT service agreement and what is not?

  3. What happens to the service price specified in the contract when the size of the company increases or decreases?

  4. Are there any disadvantages of the service?

  5. How is the service provider monitored?

  6. Is it possible to use equipment replacement in case of emergency?

  7. How do hardware and software upgrades come out?

  8. What is the service provider specialists’ professional training?

  9. What is the procedure of the contract termination and the transfer of IT infrastructure?

  10. How is IT infrastructure documented?

  11. How is the proper level of IT security ensured against insider and outsider risks?

As the examples show, IT outsourcing means moving services and maintaining functions for the IT infrastructure and IT systems. Yojji team will help to find the most optimal strategy for your business. Our qualified specialists are ready to start working on the project when it will be convenient for you. Yojji helps not only develop business but also save money both for labor costs and moving to outsource. Generally, we increase the transparency of IT budgeting, improve the quality of IT services, minimize losses due to risks of downtime and errors.

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NL, Amsterdam

Ildar Kulmuhametov
CEO, Co-Founder

USA, Austin

Yevhen Piotrovskyi
CTO, Co-Founder