Introduction

In current financial climate, especially due to recession a lot more companies are
faced with most with the question of how to make your business more efficient
and how to save money. That is where outsourcing and insourcing comes in to
international strategically based decision making plan. Management need to
choose the best way that suits particular company. Management- using
resources to meet common goals (lecture notes, session 1).

Whether you outsourcing or insourcing profit is the main drive of the company.
Focusing on core competencies to motivate staff members to do what is
important for the company and customers. That is where outsourcing and
insourcing can really make a difference. Is it possible to save money through
outsourcing? Of course! Is it guaranteed that you will save money through
outsourcing? Of course not! Can you save money by insourcing? Mayby, mayby
not! However in this economically unstable times there must be educated
desicion making that company need to deceide on for it to able to survive this
crisis. So let’s look more indepth into what benefits can outsourcing and
insourcing can bring for a company.

Outsourcing

Outsourcing - dates back to early 1980s, when organizations started delegating

the non – core competencies to an external organization that was specialized in
providing a particular service, function or product. In outsourcing the external
organization would take on the responsibilities of management of outsourced
function.

However, in current time, moreand more companies turning to outsourcing as

one of solution to save money. At the same time , success of outsourcing
depends on the structure of agreement and on experience of outsourcer, but the
most important thing is to accept change, as it said in old adage, "Doing the same
things with the same people in the same way gets the same results." In the same time it
is not only about people you are working with, it is important to remember costs,
company have to balance potential benefits of outsourcing with potential expenses in
order to determine which one is best in achieving companies objectives. Wrong choice
can result in business failure. On the other hand right choice may result in success, but
we must not forget that it is only estimates we are calculating, we cannot really predict
right figures, because of market instabilities and other outside factors. Outsourcing is not
just a popular phenomenon, but is seen as one of the most important strategies of
current times.

“ Indeed, there have been calls in the literature to elevate the process of
outsourcing – insourcing to status of a new management function that can
replace entire purchasing, information systems, operations, marketing, finance
and accounting departments.” Let us talk about advantages and disadvantages
of outsourcing.
Advantages

– Reduce workload- this step is quit predictable, as we do less work, we

need less hardware, staff members and utilities.
– Reduce rework, as work quality usually increases
– Reduce support and staffing overheads as well as overlapping functions
– Reduce risk in operations
– Reduce costs
– Increase efficiency- as overload will be controlled, company can reduce
the quantity that needed for it to accomplish set targets
– Experienced outsourcer, who are using they best practice to do the job
– Increasing personal efficiency through training and incentives
– Downsizing, including less bills to pay
– Downscaling, work can be performed by junior or trainee staff member,
which saves salary spending
– Relocating, which can save money in rent, salaries paid out and expenses
paid for facilities used

Although it looks like outsourcing has lots of advantages, let’s look at

disadvantages.

Disadvantages

– Loss of control of staff members, as well as activities

– Financial problems, as reporting in time any issues
– Fraud, as outsourced companies staff members are not closely supervised
– Employee bad morale
– Issues with implementing and enforcing best practises
– Staff members reduction not implemented
– Over qualified outsourcers, who require bigger salaries
– Finding trustworthy outsourcer, who can guarantee cost saving procedures
will be used
– Security of investment not guaranteed
– Financial crime
– Losing in – house expertise

Now when we looked through the advantages and disadvantages of outsourcing,

we still have to look in depth at insourcing in order for us to determine what
would suit company in the best way, not only financially, but service and
productivity wise as well.

Insourcing

Insourcing is a business decision, which often made to have control of core

competencies. It can be also defined as internal sourcing of business activities,
allocating or relocating of resources internally within the same organization, even
if the allocation is done in different geographic locations.
Every company company starts from with insourcing its services, once company
expands, it starts delegating it’s core and non – core competences, then most of
the time company would outsource it’s non-core competencies and it is very
good strategic move, if they don’t forget that two parties must work on it.
Delegating responsibilities maybe very exhausting issue, that’s why some
companies prefer insource.

According to research, insourcing gaining its popularity again, as many

companies realize that they can save money by insourcing and finally get control
over services and responsibilities they provide. One of public services that is
turning back to insourcing is council services, especially those that do exactly
what they say they are doing and are delivered directly by teams employed by
local authorities may have been out of trend, but it looks like they may be back
in fashion. Research showing that local authorities are bringing back in – house
the services previously given out to private or voluntary contractors, especially
as recession strengthens, this trend is likely to grow.

For decades, management of public sectors been to unsure to take its own
decisions, that’s why they implemented the same management theory – ‘market
knows best’. Unsurprisingly, reserche that been carried out last summer by
economist DeAnne Julius for the department for Business Enterprise and
Regulatory Reform, recommended keeping using the same way.

As uncertainties in worlds market makes private companies more vulnerable to

mergers and acquisitions, difficulty in securing investments is placing public-
private partnerships under threat. It is very important for local authorities to take
responsibility for providing high- quality services, despite severely overstretched
budget. And they also need flexibility to adjust to changing local and global
factors, rather than being limited by long – term contracts that can be expensive
to renegotiate.

Before deciding whether to insource or outsource usually was down to political

ideology, but this days councils are bringing service back to in – house as a
result of pragmatism. Insourcing has occurred in all political denominations.

Services, such as revenues and benefits are the most security focused services,
so it is not surprising that they more likely to be brought back in – house,
especially considering high – profile failures in subcontracting them in the past,
including big backlogs in benefit claims in several London boroughs, which in
some cases result in tenants facing eviction.

Research shows that the most common reason for choosing insourcing is poor
performance of outsourcing party, often accompanied by book of complaints
from residents. There were cases, when contractors were charging low prices,
but they were not able to provide services they promised to provide. There also
were cases when outsourcing party was using dilapidated vehicles that kept
breaking, low staff morale, which impacted on the quality of service and taking
up more time from senior management than anticipated.
But it’s not only about bad experiences. In many cases, councils prefer
insourcing as a positive response to changing policies, meeting goals, for
example tackling climate change. It been reported that in London borough of
Southwark, satisfaction with street cleaning rose from 30% to 70% when the
service was directed directly by council; Exeter city council used insourcing
during building maintenance work, which allowed them to apply sustainability
principles; the most sufficient change was recorded in Hertfordshire, Three Rivers
district council, have been able to save more than £1.5m.

Insourcing can also be a way of increasing training and employment

opportunities and boosting local economies as recession becomes stronger.
Study with the Centre for Local Economic Strategies, showed that for every £1
spent on direct services in Swindon generated £1.64 as a result of strong local
employment and supply chains. These savings are even more important in
current economical climate.

It is not suggested that in – house services is the only option, or that returning to
insourcing can be done without serious consideration. But residence of all
boroughs need services to provided regardless if there is profit for shareholders
or not, excellent service and efficiency must be retained.

As we see in example that been provided, insourcing gaining its popularity, let’s
look through advantages and disadvantages of insourcing.

Advantages

– Control of production
– Control over companies finances
– Control of quality of customer service
– Control of activities
– Security of investment
– Increasing employment
– Increasing countries economy
– Increasing training opportunities
– Increasing work quality
– Loyalty of staff members and management
– No delays in dealing with issues that occur
– Less cases of fraud, as staff members are supervised by management
– Better morale of employees
– Using the best in – house experience
– Sufficient amount of employees
– Cost control implemented
– More guarantees of investment securities

Now let’s look at disadvantages of insourcing