To outsource or to insource?

Jul 28, 2010

Software outsourcingFor decades, the debate between choosing outsourcing over insourcing and vice versa has been standing without a clear answer. "Which of the two methods is the most suitable for an organization?" is still an unanswered question. This happens because outsourcing, as any other method or business strategy, has its ups and downs, advantages and disadvantages.

Furthermore, the economical background of the past years leads  to tight budgets and an impending need to cut costs inside organizations, all over the world. So nowadays, it's even harder for companies to decide whether to outsource or to keep everything in-house, and this decision requires a thorough analysis of current and future objectives and options.

Insourcing
can be defined as the opposite of outsourcing, and it represents the situation when an organization decides to develop a project or manage a function using the already existing resources (relocate employees from a department to another, or from a project to another - the decision being made based on employees' skills) or to hire new, qualified staff. In most cases, insourcing involves hiring specialists to fill in temporary needs, or to train already existing staff in order to be able to perform different tasks, that otherwise would have been outsourced.

Insourcing raises a lot of questions and issues regarding recruiting, hiring specialists, software licenses that might be needed, space - and obviously the costs that would be implied by hiring of new staff members (monthly salary, taxes and employee benefits). But insourcing also has its own advantages, among which the most important one is the improved bidirectional communication - both with the project responsible, and with the final consumer.

Outsourcing started to rise at the beginning of the '80s, when organizations began to delegate their non-core functions/processes to an external provider, which was specialized in a certain domain. Organizations made the decision of outsourcing on the basis of cutting costs, and at the same time they wanted to focus on the core activities of the company.

The domain where most of the outsourcing takes place is the IT industry. IT outsourcing companies cover a wide area of services, from small-projects to complete business process solutions (where the entire IT functionality is implemented by the outsourcer). Over time, various surveys and reports have shown that the IT outsourcing industry provides a wide range of areas of expertise, including customer support, network management, software development, disaster recovery, data center operations, IT strategy and planning, support services, application hosting and web design and development.

Developing software can be outside of a company's core competencies, and employing and maintaining a developer team plus building the necessary infrastructure might be time consuming and over the budget, therefore the best solution is often to outsource the IT function. Not only that your organization will save money, but also would have the resources and time to focus on the core functions of the business. The reasons to outsource your IT functions are many, but among them are several that are vital for the well being of an organization: cost and time savings, access to valuable know-how in the domain and access to new technologies.

Until recently India was the top of the IT outsourcing providers, but due to the recent wage inflation, its position is threaten by other countries like China, Malaysia and several countries from Eastern Europe, such as Bulgaria, Hungary and Romania. The wage inflation is not the only reason why India has been dethroned, also the educational challenges which are influencing the skills of the graduates is one of the reasons why many organization choose to outsource their IT functions to other countries such as Romania.

Romania
is one of the outsourcing suppliers which cover a wide range of services and meet most of the conditions of a secure and qualified outsourcing environment. The cost of using and providing IT services is still cheaper than in most developed countries, and the well educated and high skilled workers make Romania a highly suitable destination for outsourcing. Large companies such as Siemens, Nokia, Alcatel and Ericsson have already chosen Romania for setting up research & development, software development or manufacturing facilities. Also, Oracle has its largest development and call centers in Romania, providing support in 13 foreign languages. To learn more about Romania and why it is a suitable outsourcing destination, read this article.

So depending on your company's needs (and most of all, its budget), you have the option to either insource or outsource your projects. When it comes to the “time” factor, insourcing is more suitable for shorter developments, while outsourcing has proven its effectiveness over medium and long periods of time.


Also read:

Communication: a key element for reaching success when doing software outsourcing
Outsourcing the right way: How can software outsourcing help you reduce your risks during the financial crisis?
Reasons for outsourcing
What is outsourcing?