7 questions to help sourcing decisions
These seven questions will help you weigh the pros and cons of
insourcing (or outsourcing) your next role and understand its
long-term impact on your business.
1. Is this role a “core competency”?
Certain roles are
— essential jobs that provide
the foundation on which the entire business is built. For a company
like Twitter, it would be software development; for Tesla, it might
be vehicle design and manufacture. Outsourcing these functions (or
those that may become core competencies in the future) delegates
away control over the heart of the business—effectively putting your
future in another company's hands.
While core competencies should be insourced, noncore roles (“back
room” roles, in Peter Drucker's terminology) can be safely
outsourced. These might be functions like accounting, IT, or even
marketing: Their smooth running is still key to the company's
success, but outsourcing doesn't directly impact your business's
unique selling point.
- Consider outsourcing if the role has little impact on any core lines of business.
- Consider insourcing if the role is integral to a core line of business.
2. What time and cost savings do we stand to make?
If we consider total compensation—base salary, equity, benefits,
401(k), and so on—hiring a freelancer is usually cheaper than hiring
a full-time employee with equivalent skill and experience. The more
roles outsourced, the bigger the potential savings: hiring a
10-person agency will be significantly cheaper than building a
comparable in-house team.
For a big company, outsourcing might provide a cost-effective way to
build a new team function, like accounting or marketing; for a small
business, it might be a valuable stopgap, making it possible to fill
important roles, even without the budget for a dedicated employee or
Though there may seem to be a significant difference between the
costs of outsourcing and the costs of insourcing, working with
freelance and agency partners introduces its own costs. These are
often harder to account for:
Account management. Freelancer and agency relationships
require active upkeep and regular communication.
Editing and quality assurance. It's harder to guarantee the
quality of third-party work, and outsourcing may require additional
time spent vetting and editing delivered work.
Scope creep. Many outsourced relationships work on a per-hour
basis. If projects grow in scope—either from poor estimation or
increased workload—costs grow as well.
While outsourcing can be an effective cost-saving tactic, it also
has the potential to increase the time and energy required to
complete work. If the answer isn't clear-cut, do your best to
estimate the additional costs associated with outsourcing the role.
Consider outsourcing if you're confident that freelancers and
agencies will reduce your total costs or you lack the budget for a
Consider insourcing if you're concerned about scope creep and
3. How urgently do we need to fill this vacancy?
Outsourcing can help companies respond to urgent staffing needs.
and onboarding all
take time, and there's always a risk that you won't find the right
employee. If time is a limiting factor—an employee resigns without
notice, or you're gearing up for seasonal demand—it's sometimes
faster to outsource the role to an experienced, staffed-up
Outsourcing also has the benefit of being a variable cost.
Short-term contracts mean you can stop working with an outsourcing
partner after a few weeks or months, allowing you to cut costs when
seasonal demand has passed, or insource the role once you've found
the right candidate.
- Consider outsourcing if you need to meet urgent or temporary demand.
- Consider insourcing if you're filling a long-term role and urgency isn't an issue.
4. How complex is this role?
Some roles are particularly technical or complicated and, without
expert personnel in-house, difficult to hire for. IT support is a
good example. Past a certain size, companies might struggle to
manage their computer network but lack the expertise to fix the
problem or even approach hiring for it. In these instances, it's
often easier to hand off the problem to an experienced third party,
mitigating the need to develop internal skills to understand the
But there's a trade-off. Complex areas like IT often become more
important as companies scale. In the long run, it may be more
cost-effective to insource and develop the skill set in-house.
Consider outsourcing if you're looking to fill a complex role
that doesn't align with your team's skill set.
Consider insourcing if you're hiring for a role your team
understands well, or you're keen to build the skill set in-house.