Definition
The term insourcing refers to the practice of filling a job function, or assigning a project, to a person or department within the company. Insourcing is the opposite of outsourcing, which is the practice of assigning work traditionally completed by internal resources to an external service provider.
Explanation
If a company cannot achieve economies of scale, or do not believe a function is one of their core competencies, they may outsource that work to an external service provider. Insourcing is the reversal of outsourcing. It is the practice of assigning work that was traditionally outsourced to internal resources.
Companies may decide to insource work for a number of reasons. For example, a startup company may decide to outsource back office functions such as accounting, billing, payroll, and collections. For example, according to startup failure statistics, 66% of small businesses outsource tasks to other small businesses in 2022. As the company grows, these functions may be insourced if the company can achieve what they believe are economies of scale.
Companies will also insource functions to protect sensitive information. For example, a company may decide to insource collections and billing functions to prevent competitors from discovering the identity of their largest clients.
Insourcing is sometimes confused with the term on-shoring, which is the practice of insourcing jobs performed in foreign countries. While insourcing oftentimes involves a service provider in a foreign country, the work may also be insourced from a domestic service provider.
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