Insourcing vs Outsourcing: How to Decide for Your Next Project

Digital Commerce

Author: Jacobi Zakrzewski VP Business Architecture at Luminos Labs

Insourcing vs Outsourcing pros and cons

Picture this somewhat fictional scenario: Hillary Woods is the new Chief Digital Officer (CDO) of a longstanding industrial manufacturing company, Boss Bearings. Hillary is the first CDO for the company and is tasked with being the catalyst to drive the organization out of stagnating growth over the last six years.

Boss Bearings has completed several activities that include assessing their business model, product mix, customer needs, market trends, etc. The organization has made the determination to create an online platform for their customers and prospects to move all the way through the customer buying journey including major account management functions that customers are aching for. Boss Bearings is going Digital, baby!

<For the sake of brevity, we’ll spare the details on how the organization came to this conclusion – let your imagination run wild.>

Preliminary budgets are approved, exciting organizational communication cascades, and there is finally a north star to rally the troops around headed up by Hillary Woods herself. One thing seems off though, there is an ever-growing worrisome look on Boss Bearings Chief Information Officer’s (CIO), Randy Brown’s, face.

Boss Bearings seems to have defined what to do, and why they need to do it, but now the elephant in the room is the how and who. This is where Randy has already been looking ahead – he’s seen this before and knows what’s coming as he is responsible and accountable for anything technology related. Several internal working sessions to talk strategy are executed and a key problem question has arisen much later in the process than it should have:

Who is going to implement, support, maintain, and improve this new digital platform from a technology perspective?

Randy doesn’t want to let this run amok. He quickly partners with Hillary to begin thoroughly investigating the above question. A huge part of the decision is what to keep in-house vs. outsource; thankfully Randy and Hillary have heavy experience with both worlds. Let’s explore what they are likely considering:

Although you may already be entirely familiar with it, insourcing involves using the organizations own resources, vs outsourcing which requires contacting external companies for their services. Insourcing typically can allow for more control over processes and better protection of valuable data since it remains within company walls. On the other hand, outsourcing proves to be beneficial when it comes to more flexibility and gives the capacity to rapidly increase production usually on minimal investment cost. (You can find more information on insourcing here, and outsourcing here)

Back to Boss Bearings situation. After a fair amount of due diligence in looking at their scenario to take the company into the Digital age, Boss Bearings has made the determination to:

  • Purchase several vetted out software solutions that will be integrated together to their back-office systems (ERP, CRM, WMS), making up the Digital solution that will wow Boss Bearing’s customers and enable business users.
  • Engage with a third-party development team to build, customize, and support the ongoing improvements through product management methodology who has experience in the chosen platforms, a proven track record, and gap-fills current internal expertise.
  • Boss Bearings internal Digital Product Manager along with the internal Digital Marketing team, under Hillary Woods, will be partnered with the third-party development organization working day-to-day from the beginning to platform launch.
  • Randy and the internal IT team will be consulted and informed for various needs such as back-office API access/testing, cybersecurity governance, and vendor management. The internal IT department can assume additional responsibilities as needed with training, education, and support.

As a result, Randy is now consuming less Tums and knows that Hillary is well taken care of on a development front with minimal support from his crew, all the while Shadow IT isn’t rearing its ugly head.

Fast forward and Boss Bearings is becoming known for their Digital platform, driving both existing and new customers to engage with their organization at a level never before seen. Churn is dropping, margins increasing, and net-new revenue through upsells and product recommendations are doing better than expected thanks to digital marketing efforts. The third-party development firm has great direction and prioritization efforts from the Product Manager with new release sprints happening every two weeks and leveraging existing back-office system integrations so the whole business doesn’t need to change their processes. Last but not least, the constant new features and quality of life improvements for both customers and internal employees are really keeping the momentum going.

While the above story is fictional, the scenario plays out every single day in the real business world. Making thoughtful determinations on whether to insource or outsource certain efforts of work takes concerted intention. If you’re anything like Boss Bearings, try and consider the how and who components before completely defining what and why – it will drive some of the decision making.

If you're interested in learning more about my experience with this, lets chat about it. Contact me here

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