Inhouse versus outsourcing

Inhouse Versus OutsourcingThere has long been an argument whether companies should do everything inhouse or outsource to others. The right answer may be circumstantial, on a case-by-case basis, but the right thing to do always comes down to which is most cost and value efficient. The problem arises when the company doesn’t fully understand the cost of inhouse work or the loss of value from outsourcing.

Inhouse costs

Every single employee in a business will have a cost per hour. That cost might not necessarily be their hourly rate or even be directly related to their actual time spent working within the business. For example, a salesperson or someone who generates chargeable hours will create different levels of value and cost for the business. When understanding the true cost of an employee you also need to consider the amount of time that they spend actually generating value or income for the business. This allows for tea breaks, social engagement, sick days, holidays, and any other time during the course of a normal day/week/month where they are not fully engaged in doing their work.

Once you have tied down a real cost for an employee you can start to understand where you should be utilising their talents most efficiently. Allowing high paid staff (salespeople, executives, senior management, skilled technicians or specialists) to spend time on menial tasks (administration, answering phones, or bookkeeping) is not a good use of their cost to the business. If you do not have the administrative resource inhouse, this is definitely one area where outsourcing should be considered. Virtual PAs, phone answering services and bookkeepers can be hired at a very low hourly rate compared to your highest paid staff – and they only charge the hours they actually work.

In a manufacturing environment the same principles apply. If there are elements of a production line that require the specific skills within a business then those specialists should focus their efforts in those areas. Where those same ‘highly paid’ specialists get caught up in low skilled elements of the production, however, there is a strong argument for outsourcing.

The bottom line is that a business should always try and get the best value out of their best-paid staff: using their highly paid time to fulfil the contributions that only they can make. Anything that can be done at a lower cost (while maintaining the quality and efficiency required) could be considered worth outsourcing.

Outsourcing value

The other side of the inhouse vs outsource argument is around maintaining quality. There will be times when outsourcing could represent a risk to the quality of the products or services that a business is producing. Keeping everything inhouse is certainly a way to keep control of the quality. Likewise, it may be that a business does not have all of the skills it needs inhouse to deliver the quality that it requires. In that scenario, a strategic decision needs to be taken to determine the best way to bring in those skills from outside.

In summary, the key to finding the right balance is truly understanding both the cost of your staff and the skills that they bring to the business. With a complete understanding of the resources at your disposal then you can allocate them appropriately and either employ or outsource the gaps.