Insource vs Outsource: a strategic perspective

A principles-based strategic approach

The decision of which processes and capabilities to insource and outsource is a key strategic consideration which will impact the shape of your organisation and its ability to deliver its strategy.

A key consideration is that you should retain in-house capabilities that differentiate your business. All others may be considered for outsourcing. Differentiators are what make your business unique, drive competitive advantage, and form the basis of your brand promise.

Here are some real-life examples of what to outsource and what to keep in-house:

Things You Should Not Outsource

1. Core Product Design and Innovation

   • Example: Apple does not outsource the design of its hardware and software, ensuring the seamless integration and premium experience that differentiates its products.

2. Customer Experience and Support

   • Example: Zappos is known for its exceptional customer service, which is core to its brand promise. The company manages its support teams in-house to maintain quality.

3. Strategic Decision-Making

   • Example: Amazon's logistics strategies, such as its delivery network, are developed internally. While it may partner with delivery companies, the strategy itself is managed in-house.

4. Proprietary Technology Development

   • Example: Tesla develops its own battery technology and vehicle software, which are key differentiators in the electric vehicle market.

5. Brand Identity and Marketing Strategy

   • Example: Nike retains control of its brand and marketing strategy, even when outsourcing the production of its products.

Things You Might Outsource

1. IT Infrastructure and Routine Tech Support

   • Example: Many companies outsource cloud computing needs to providers like AWS or Microsoft Azure rather than building their own data centres.

2. Payroll and HR Administration

   • Example: Companies like Deloitte outsource payroll management to specialists like ADP to save time and ensure compliance.

3. Non-Core Manufacturing or Assembly

   • Example: Nike outsources the production of its footwear but controls the design and branding in-house.

4. Facilities Management

   • Example: Google outsources facilities management for its offices while focusing on employee experience through in-house initiatives.

5. Customer Analytics

   • Example: Smaller companies may outsource analytics to third-party platforms like Google Analytics or Tableau if it’s not a core competency.

Key Considerations

• Is this function central to your value proposition? If yes, keep it in-house.
• Will outsourcing this function impact quality, confidentiality, or control? If yes, reconsider outsourcing.
• Does outsourcing free up resources for strategic activities? If yes, it might be worth considering.

By strategically deciding what to keep and what to outsource, businesses can focus on strengthening their core while achieving efficiency in non-core activities.

Start with a clear business strategy

You should not make an insource/outsource decision in the absence of a clear business strategy. Getting this wrong could be disastrous for your business.

If you don't already have a clear business strategy, you can use a tool like StratNavApp.com to help you develop one. It will provide you with all the guidance and AI support you need.

Within StratNavApp.com, you can use a Strategy Alternative Matrix to help you choose between strategic alternatives such as insourcing and outsourcing on a sound and strategic basis.