When to hire in-house and when to outsource?
Updated: Oct 10, 2019
If you're trying to develop a successful enterprise, hiring is crucial factor. Top performing businesses tend to have top performing teams. The hiring process is important, whether you're bringing on a full-time employee or outsourcing a job to an outside worker. Choosing the right person for the task is a vital factor in Small and Medium business success.
Hiring is an essential step of building your organisation, but it’s not always easy to do well. To expand and grow your operation, you need more people. You want those new people you hire to be good at their job, motivated and have a good work attitude that will fit in well with your existing team.
Often for many businesses this means hiring in-house employee, but now businesses facilitated by out-staffing companies have the option to hire an outsourced employee. An out staffed or outsourced employee is someone working for you through another company often working from another (usually lower cost) country.
A failed project is not cheap no matter how little it costs
Some business owners outsource an entire project to the other side of the world to the cheapest bidder which can result in significant savings. However, this does not actually work out cheaper if the product does not work properly and project turns into something which you cannot use or sell.
Failed projects often arise due to a lack of communication and visibility, constant feedback and refinement during the project are often needed to make a product work well. You cannot simply outsource an important project whether it be marketing, software development or manufacturing to the other side of the world without the close integration, communication and feedback that your in-house team has and expect the same reliable results.
Another problem with many outsourced projects is one of quality and reliability. Even agencies with great reviews and example projects often under quote prices, hoping to get more money to finish the project once you are fully invested.
When to Outsource a job and when hire an in-house employee?
Your organisation should understand when to outsource or outstaff a role and when to keep responsibilities within your onsite team. Small business owners often find themselves asking, "Should I outsource a job/task or hire in-house?"
The answer is not always as simple as you think, but there are a few key considerations when determining whether to hire an onsite employee or get an outstaffed worker.
Keeping control of core business functions and Intellectual Property (IP)
In general we would say it’s important to maintain tasks directly related to your competitive advantage within your in-house team. Otherwise, your business becomes alarmingly reliant on outsourced help, which can rarely be counted on as much as in-house staff.
If for example you run a betting site and have a core algorithm (proprietary calculation) that takes in data inputs and produces odds for sporting events on your betting website. That algorithm would be considered core to your business, because it determines if the odds produced by your company are more accurate than your competition.
All non core aspects pf your project there is a strong argument to outsource and save money. For example in the betting site, web or app related development tasks are not core (not specific to your company) and are therefor candidates for outstaffing. Your business should try to keep people with key knowledge about your betting algorithm directly employed. Or you could wake up one day with all the experts in your core algorithm and its implementation working for another company!
It’s also doubtful that an outsourcing company will value the special knowledge and skills built up in these employees working for your project as highly as your own company will. Not only that, if these employees are not valued their knowledge could be transferred to one of your competitors.
Whats Core to my Business?
What do we mean by core business? Any task or system requiring specialist or proprietary knowledge that is directly related to your business and you would consider gives you an advantage over the competition in your industry.
It’s important to take a deep look at what aspects of the business may be core areas. Then you can focus your staffing to ensure those working on mission-critical tasks are in-house employees. When you outsource too much of the core knowledge, what you end up with is a culture of maintenance people – people that are uninspired, that are just keeping things running
Mixing it up! "Nearshore Out-staffing"
One method that seems to be working well is out-staffing which is to outsource a specific role within your team, then use online software to tightly integrate the remote worker into the team. Having mixed teams of outsourced and on-site employees allows you to reduce costs on the project development effort, while keeping key core knowledge and skills within your onsite team.
For this model to work well teams should use the same software your in-house team uses and work at the same hours wherever possible. Using video chat will also improve team communications, visibility and integration when working with a team that has members spanning different physical locations. With recruiting being a major challenge for small businesses, it can sometimes be a good idea to keep the most rewarding tasks in-house. While outstaffing will help you reduce costs on labour and time intensive tasks and add any skills you may lack in your current team.
Conclusion in-house employee vs. outsourced employee
Outsourcing roles can significantly reduce your costs and give you a competitive advantage. Many of the largest software companies in the world including IBM, Microsoft and Google benefit by moving programming and testing jobs from high wage economies to lower wage economies. Determining the right decision for your business comes down to a thorough evaluation of your needs.
While outstaffing can significantly reduce costs, be careful not to outsource all your core business functions and intellectual property. Keep key people within your organisation that understand your core business problems best and give your company an advantage. Once you have ring-fenced your intellectual core there is nothing to stop you taking advantage of lower costs abroad by outsourcing most labour-intensive or time-consuming roles.