Outsourcing v. Insourcing in Services | What aspects to consider? Creative Question

Cases outsourcing Practice cases
New answer on Sep 26, 2022
6 Answers
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Anonymous A asked on Apr 16, 2020

Hi dear Prep Community,

I have had some issues to deal with a creative question on "outsourcing v. insourcing pros and cons" in services. I know that one-fits-all structures are useless, but I would like to know what are the key aspects that I should keep in mine.
Can you kindly give me an example of buckets I could use for this answer?

Thank you for your help!

Anonymous

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Anonymous replied on Apr 16, 2020

Hi there,

A few areas that you want to take into consideration:

(1) Cost: Note that you should consider not only the $ directly associated with product manufacturing or service deliver, but also the cost in coordination and logistics (can be qualitative if no data available)

(2) Speed: This would be case specific, depending on the industry and what is the task being considered for outsourcing. Outsourcing could be fast compared to building from scratch, but could be slower when there is back and forth alignment required

(3) Degree of control: This could affect quality, branding (if it is service driven business) etc.

Hope it helps,

Emily

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Clara
Expert
Content Creator
replied on Apr 16, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

The one that I see key when determinin whether to outsource or not is the flexibility this gives you, in terms of:

  • Costs: you don´t have any fixed, but can contract ad-hoc external sources
  • Times: many businesses run in cycles, with high peaks of work where you would need some back up capacity and also long valleys where you are indeed over-sized. Outsourcing solves this, and gives you the posibility of contract ad-hoc when needed

However, I would also mention:

  • Cost: normally it´s more expensive than in-house solution, since this is precisely the value prop for the people to whom you are outsourcing
  • Capability building: that is not generated within the org when you rely on outsourcing. This drives you to problematic situations such as:
    • Dependence of them
    • Disadvantage to other players that indeed are developping in-house capabilities

Hope it helps!

Cheers,

Clara

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Thomas
Expert
Content Creator
replied on Apr 16, 2020
150+ interviews | 6+ years experience | Bain, Kearney & Accenture | Exited startup| London Business School

Hi,

In addition to what others have mentioned I think there are two more relevant factors:

  • Expertise: in or outsourcing might hold proprietary or unique expertise. Second, expertise might allow for more nimbleness which is relevant is the product/service is subject to change.
  • Scalability: often outsourcing will be easier to scale. This is particularly relevant if you talk about technology services.
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Yana kll replied on Jun 28, 2022

Hi. If you are thinking of going to an outsourcing company, then this is the right decision in my opinion. This will save you time and money. Outsourcing gives you unlimited hiring opportunities. You can consider different professionals from around the world who have different skills and experience, and choose the best engineer. However, I would like to draw your attention to the fact that you should always look at examples of work and the reputation of the outsourcing company. It is also worth always concluding an agreement, which will prescribe the services, time of their execution, and cost. Cleveroad is an outsourced company and has experience in software development

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Antonello
Expert
Content Creator
replied on Apr 30, 2020
McKinsey | MBA professor for consulting interviews

Hi, I would identify the top KPI involved in the decision and then give a grade for each of them depending on the scenario. Cost (one-off and recurring), speed, control over quality and ability to react to technological transformation are generally the most important things to consider. It will be important however to customize the answer on the client, the industry and the main question of the case.

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DanilArt replied on Sep 26, 2022

This is quite an interesting question. I think the answer depends on the size of the project. For example, if the project is very small and you don't need a specialist anymore, then of course outsourcing suits you. For an example of how to look for such specialists - https://artjoker.net/blog/hire-blockchain-developer/. But if the project is quite large, it requires a large team and you have a sufficient budget, then of course the second option wins.

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