insourcing

What is insourcing?

Insourcing refers to the practice of assigning work to an individual or department within an organization instead of contracting it out to a third party. That is, the company uses its own resources to perform the work rather than those provided by another entity.

Understanding insourcing

Insourcing is a process where work that would otherwise be outsourced is carried out internally.

Insourcing may be the preferred option for several reasons:

  • Increased responsiveness. In today’s dynamic global market, businesses must be more agile than ever. Outsourcing work is normally a slower process which can hinder a company’s responsiveness.
  • Knowledge and social capital. In the most successful organizations, social capital fosters collaboration between ambitious employees who are motivated to reach their objectives. Insourcing keeps this knowledge in-house where it can be utilized with the greatest impact.
  • Lack of control. In some cases, poor quality work is produced by the outsourcing company which results in significant financial losses. Insourcing can be more desirable since the company has more control over decision-making and the final product.

How does insourcing work?

Before insourcing can take place, the company must first identify a need, project, or area where it is otherwise lacking that could benefit from professional guidance.

The company may then transfer one or more specialists to an existing team or create a new team subject to resource constraints.

Insourced staff may work for a predetermined period or until certain KPIs or objectives have been met.

Some may establish new company-wide processes and procedures and/or remain in their new roles indefinitely.

Insourcing examples

Let’s conclude by describing two insourcing examples that will provide clarity on the practice.

Breakfast cereal company

Consider a British breakfast cereal company that wants to expand its marketing and promotional activities to France and Spain.

Since its ads have only been run in English, the cereal maker requires French and Spanish speakers.

Many companies who have found themselves in a similar position have contracted the creation of the ads to a third party in the relevant country.

The cereal company, however, uses insourcing to recruit native French and Spanish speakers who then build their own internal teams.

In addition to translating existing promotional materials, the new staff play a pivotal role in the creation of culturally-sensitive and relevant ads for French and Spanish audiences.

Agricultural machinery company

In the next example, we have a company that designs and manufactures heavy machinery for agricultural purposes such as combine harvesters, tractors, and balers. 

In preparation for the release of a new harvester, the company recruits its in-house engineers to write the owner’s manual instead of looking for assistance externally.

Sensing that it would be more cost-effective than outsourcing, the company pays for its engineers to enroll in a technical writing course.

With more internal control over the process, the manuals are more likely to be of a sufficient standard.

Key takeaways:

  • Insourcing is a process where work that would otherwise be outsourced is carried out internally. Benefits include increased responsiveness, improved knowledge and social capital, and more control over the final product.
  • Before insourcing can take place, the company must first identify a need, project, or area where it is otherwise lacking that could benefit from professional guidance.
  • A cereal company can use insourcing to hire French and Native speakers as part of an international expansion effort. A manufacturer of heavy machinery can also use it to avoid having to hire external technical writers.

Connected Business Concepts

Vertical Integration

vertical-integration
In business, vertical integration means a whole supply chain of the company is controlled and owned by the organization. Thus, making it possible to control each step through customers. in the digital world, vertical integration happens when a company can control the primary access points to acquire data from consumers.

Backward Chaining

backward-chaining
Backward chaining, also called backward integration, describes a process where a company expands to fulfill roles previously held by other businesses further up the supply chain. It is a form of vertical integration where a company owns or controls its suppliers, distributors, or retail locations.

Supply Chain

supply-chain
The supply chain is the set of steps between the sourcing, manufacturing, distribution of a product up to the steps it takes to reach the final customer. It’s the set of step it takes to bring a product from raw material (for physical products) to final customers and how companies manage those processes.

Data Supply Chains

data-supply-chain
A classic supply chain moves from upstream to downstream, where the raw material is transformed into products, moved through logistics and distribution to final customers. A data supply chain moves in the opposite direction. The raw data is “sourced” from the customer/user. As it moves downstream, it gets processed and refined by proprietary algorithms and stored in data centers.

Horizontal vs. Vertical Integration

horizontal-vs-vertical-integration
Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Vertical integration happens when a company takes control of more parts of the supply chain, thus covering more parts of it.

Decoupling

decoupling
According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the third wave (2006-still ongoing) where companies break apart the customer value chain to deliver part of the value, without bearing the costs to sustain the whole value chain.

Entry Strategies

entry-strategies-startups
When entering the market, as a startup you can use different approaches. Some of them can be based on the product, distribution, or value. A product approach takes existing alternatives and it offers only the most valuable part of that product. A distribution approach cuts out intermediaries from the market. A value approach offers only the most valuable part of the experience.

Disintermediation

disintermediation
Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all, can produce products that customers want.

Reintermediation

reintermediation
Reintermediation consists in the process of introducing again an intermediary that had previously been cut out from the supply chain. Or perhaps by creating a new intermediary that once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players within the supply chain are born as a result.

Scientific Management

scientific-management
Scientific Management Theory was created by Frederick Winslow Taylor in 1911 as a means of encouraging industrial companies to switch to mass production. With a background in mechanical engineering, he applied engineering principles to workplace productivity on the factory floor. Scientific Management Theory seeks to find the most efficient way of performing a job in the workplace.

Poka-Yoke

poka-yoke
Poka-yoke is a Japanese quality control technique developed by former Toyota engineer Shigeo Shingo. Translated as “mistake-proofing”, poka-yoke aims to prevent defects in the manufacturing process that are the result of human error. Poka-yoke is a lean manufacturing technique that ensures that the right conditions exist before a step in the process is executed. This makes it a preventative form of quality control since errors are detected and then rectified before they occur.

Gemba Walk

gemba-walk
A Gemba Walk is a fundamental component of lean management. It describes the personal observation of work to learn more about it. Gemba is a Japanese word that loosely translates as “the real place”, or in business, “the place where value is created”. The Gemba Walk as a concept was created by Taiichi Ohno, the father of the Toyota Production System of lean manufacturing. Ohno wanted to encourage management executives to leave their offices and see where the real work happened. This, he hoped, would build relationships between employees with vastly different skillsets and build trust.

Dual Track Agile

dual-track-agile
Product discovery is a critical part of agile methodologies, as its aim is to ensure that products customers love are built. Product discovery involves learning through a raft of methods, including design thinking, lean start-up, and A/B testing to name a few. Dual Track Agile is an agile methodology containing two separate tracks: the “discovery” track and the “delivery” track.

Scaled Agile

scaled-agile-lean-development
Scaled Agile Lean Development (ScALeD) helps businesses discover a balanced approach to agile transition and scaling questions. The ScALed approach helps businesses successfully respond to change. Inspired by a combination of lean and agile values, ScALed is practitioner-based and can be completed through various agile frameworks and practices.

Kanban Framework

kanban
Kanban is a lean manufacturing framework first developed by Toyota in the late 1940s. The Kanban framework is a means of visualizing work as it moves through identifying potential bottlenecks. It does that through a process called just-in-time (JIT) manufacturing to optimize engineering processes, speed up manufacturing products, and improve the go-to-market strategy.

Toyota Production System

toyota-production-system
The Toyota Production System (TPS) is an early form of lean manufacturing created by auto-manufacturer Toyota. Created by the Toyota Motor Corporation in the 1940s and 50s, the Toyota Production System seeks to manufacture vehicles ordered by customers most quickly and efficiently possible.

Six Sigma

six-sigma
Six Sigma is a data-driven approach and methodology for eliminating errors or defects in a product, service, or process. Six Sigma was developed by Motorola as a management approach based on quality fundamentals in the early 1980s. A decade later, it was popularized by General Electric who estimated that the methodology saved them $12 billion in the first five years of operation.

Read Also: Vertical Integration, Horizontal Integration, Supply Chain, Backward Chaining, Horizontal Market.

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