Pros and Cons of Outsourcing vs In-House Projects: A Comparative Analysis

There has long been a debate over whether companies should oversee all aspects of their business internally, or outsource certain responsibilities to one or more third-party companies. Many companies on both ends of the argument vehemently state their chosen business growth strategy has worked, with 54% of companies saying that outsourcing has not affected the quality of service (Statista).

But that doesn’t change the fact that this debate will seemingly never dissipate; many business owners prefer to build capable, multi-skilled in-house teams, while others will wax lyrical about outsourcing certain activities to a trustworthy and reliable set of suppliers. 

Deloitte’s recent whitepaper suggests that global spending on outsourcing could hit $731 trillion (USD) this year, so there is clearly a market for it. Despite the prevalence of outsourcing in recent years - thanks in part to the Covid-19 pandemic and many organisations restructuring their business models - in-house development still presents plenty of distinct advantages. So which model should you choose?

In-house vs outsourcing - which is best?

Every business owner’s experience will differ from the next, with their advice and expertise often tainted with subjective opinions or biases, thus making it difficult for startup business owners to decide which approach is right for them at their current juncture. 

This guide dispels biassed opinions about which side of the in-house vs outsourcing debate is correct. Instead, it will look comparatively at both approaches and the benefits and drawbacks that business owners can realistically expect with both as a business growth model. The best choice isn’t always glaringly obvious, so being methodical about your approach will be the wisest move you can make to start with.

Many business functions can be outsourced or brought in-house, including (but not limited to):

• Digital marketing

• IT and development

• Recruitment

• Sales

• Human resources

• Administration

• Customer service

Pros of outsourcing projects to third parties

• Expertise

One of the many benefits of outsourcing business functions to third parties is that you’ll be working with experienced professionals in particular fields. 

Business owners can find it challenging to keep up to date with emerging trends, not least with ones that concern multiple different functions. Your chosen suppliers will be ‌clued into the knowledge of their chosen sector(s) along with any associated technologies and innovative new strategies to help you.

• Faster Turnaround Times

Outsourcing projects to different suppliers allows business owners to focus on other important areas of their companies, while their suppliers are entrusted with delivering projects or information, usually by a specified deadline. 

In-house teams, meanwhile, might need to counterbalance multiple responsibilities and need to account for additional time for upskilling, which can delay completion times for projects. 

• Cost-Efficient

Outsourcing allows you to choose from a range of suppliers that can work within your desired price range. 

Allocating your budget to your chosen suppliers can ultimately save you money in the long run. When you factor in the costs of hiring, onboarding, training, and upskilling staff for in-house roles, working with skilled experts means you alleviate many of these upfront and often unseen costs. 

• Broad Choice

When considering the right companies to outsource your specific functions to, you are often spoiled for choice, depending on how niche your requirements are. 

Invariably, and before long, you’ll be able to condense many of the potential suppliers down into a carefully selected shortlist. From there, you can make more informed decisions about how you progress. 

By the end of 2023, it’s expected that IT services (an increasingly popular outsourcing market) are expected to reach a value of $1.392 trillion alone.

Cons of outsourced projects

• Quality Control

It’s important to remember that you might not be able to control and oversee all aspects of your projects. While good suppliers will request your input, sometimes it’s not always possible. It depends on the function. 

For example, if outsourcing web design, you can expect your developer to request your approval and feedback, whereas, with recruitment, you may only need to be involved once candidates are past a certain stage in the interview process. Any unnecessary tampering with processes can jostle the relationships you build with your suppliers.

Therefore, you should exercise caution, as if you want to retain control, you may need to take a step back and reassess how much you’re willing to delegate to a third party. 

• Communication

One of the biggest barriers for any client-supplier relationship to flourish is communication. With most employees working on a mostly or fully remote basis, the need for sufficient communication across languages, cultures, time zones and geographies has only grown. 

Therefore, it’s important to consider who you are outsourcing your projects to, and establish a firm rapport with your chosen suppliers. Any breakdowns in communication can have a long-lasting business impact if you leave projects in their hands. 

• Trust

Trust is vital regardless of who is receiving your projects. But in order to see any tangible benefit from working with suppliers, it’s important that you trust them to do a professional job. Reliable suppliers that communicate openly and are willing to be flexible will help solidify your trust in them. 

Also, remember to ensure you understand the terms and conditions of a contract before you get started, ensuring that you are clear about any and all of their deliverables, deadlines, and commitments. 

Pros of bringing projects in-house

• Control

One of the biggest benefits of in-sourcing your projects is that you can retain complete control over all aspects of their lifecycle. By outsourcing projects to another company, there is always a risk that the job will not match your expectations exactly, or that certain fulfilments of the job might be completed in a different way. 

Conversely, bringing that function in-house means you can control every aspect as you see fit.

• Scalability

In-house employees will, over time, become increasingly familiar with your organisation, its reporting line, culture, values, and processes. Understanding how the business works will provide a huge helping hand when delivering projects to expected deadlines and standards, and it will also help set expectations from the outset.

For many companies, projects might require involvement from multiple departments or teams, where ad-hoc adjustments have to be made. When there are changes, in-house processes can make them much more quickly and proactively, especially if these changes involve the use of shared software or tools.

• Improved Communication

The old proverb of ‘too many cooks spoil the broth’ rings true. Essentially, communication is much easier and less obstructed when there is only one organisation handling a project. It’s easier for the business owner or director to communicate information or messages to all parties down the organisational hierarchy. 

Communicating information to third-party suppliers often takes longer and more effort to arrive at a mutual understanding.

Cons of in-house projects

• Long-Term Costs

Building a team of skilled, multifaceted individuals takes time and, before long, the costs will start to pile up. Not only do you have to factor in wages, taxes, insurance, and pensions, but also the costs of licences, software, hardware, devices, training, and numerous other expenses. This is also after the costs of recruiting and onboarding them to your company. A study by the Society for Human Resource Management states the average time to hire and onboard a new employee takes 42 days and costs $4129.

This can quickly seem like an overly ambitious endeavour when you consider that outsourcing to a third party means you avoid all the time-consuming hoops to jump through. 

• Upskilling

Hiring members to join your team will require meticulous attention to detail and an acute awareness of their capabilities. If there are any gaps where employees will need to upskill, you will have to fund this at your own expense. 

Ultimately, this may require the input of an external vendor, trainer, consultant, advisor or planner which will come at a fairly steep cost depending on the extent of support. Therefore, if you’re budget-conscious, you may want to weigh up this decision carefully. 

• Staff Turnover and Shortages

Certain job roles and sectors are highly competitive, others ‌significantly less so. When fulfilling in-house roles, you should consider the employee turnover rates of the sector, along with the competitiveness or skill shortages of your open role(s). According to McKinsey, 87% of surveyed businesses are experiencing gaps in their IT teams due to recruitment bottlenecks.

In turn, you may decide that hiring might take longer than you realise. You will need to consider how feasible it is for you to fill employment gaps. It might mean that the time it takes will have a knock-on effect on budgets and project deadlines.

How to get the best of both in-house and outsourced projects

It’s clear there are pros and cons to both business models and approaches. While certain sectors are seeing increased demand, it’s clear that some businesses will need to outsource at certain stages. This trend doesn’t appear to be slowing anytime soon. 

Therefore, when it comes to choosing whether to outsource or keep projects in-house, it doesn’t have to be as black-and-white as deciding one or the other. 

You may benefit by having an in-house team that focuses on the most critical, time-sensitive projects while outsourcing other, less-urgent projects to a trusted, reliable partner. Ultimately, the best approach will depend on your specific needs.