In-house refers to conducting an activity or operation within a company, instead of relying on outsourcing companies . A firm uses its employees , their  skills , efforts  and time to keep a business activity, such as software development  or  building a product in-house.

An in-house operation is an activity performed within the same business, using the company’s assets i.e. tangible & intangible assets  and employees to perform the necessary Outsourcing involves hiring outside assistance , often through another business , to perform those activities instead of using internal assets or employees such as Auditing .

The determination as to whether to keep activities in-house or to outsource in market  often involves analyzing the various costs and associated risks. How these costs are calculated may vary depending on the size and nature of the core business of the company.

 The example can be building a specialized  new in house product development  .

Advantage of in-house development :

•The company has full ownership of the final product as well as its source code and the knowledge gained while developing the product it.

•It matches exactly to the business requirements of the company.

•There is a relationship between the development team of the company  and the user base which helps in communication and expectation delivery.

•It gives you full control over the developed  system and its functionality.

•It allows you to differentiate the company  from your competitors

(as the system is developed for your specific business needs ).

•It can provide the business with a greater competitive advantage that a bought solution.

Disadvantage of in-house development :

•It can be costly to maintain and improve the system to continuously meet business needs of the company .

•It requires more skilled IT personnel which in turn lead to high overhead cost.

•High switching costs: It is always  expensive to change to newer technology.

•It is more time consuming to develop an in-house IT system as the company need skilled IT Professionals & resources  as opposed to buying it.

•It requires high development and maintenance costs.

•If the company decides to sell the system, it may suffer from a lack of portability, as the system may be too tightly built into the identity of main  company .

Outsourcing is an agreement in which one company hires another company to be responsible for an existing internal activity or to build new product . Sometimes it  involves the contracting of a business process (e.g. Application development ,marketing ), operational, and non-core functions, such as new product development , manufacturing, facility management, call center support. The term "outsourcing" came from "outside resourcing" . Outsourcing sometimes involves transferring employees and assets from one company  to another company . Outsourcing includes both foreign and domestic contracting for a particular task or can , and sometimes it includes off shoring -relocating a business function to a distant country  or near shoring -transferring a business process to a nearby country .Outsourcing is a common practice of contracting out business functions and processes to third party providers for work . The benefits of outsourcing can be considerable - from cost savings and efficiency gains to greater competitive advantage.

e.g.- India is home for  Giant US based Companies for Outsourcing - BPO Outsourcing  .India Outsourcing allow IT  companies to  save cost & provide efficient management of their customers globally .IT Outsourcing Companies hire & train skilled persons to work for them . 

Outsourcing means just what it says -- going "out" of the organization  to find the "source" of what you need. These days many business outsource for what they need to serve their  internal and external customers . For the company ,  an external customer is the entity that ultimately purchases a company's product or services, while an internal customer is the company's own employees or shareholders. Business can obtain both products like machine parts and services like IT services like Application Development , recruitment  through outsourcing.

Two organizations may enter into a contractual agreement involving an exchange of services, expertise - skills  and payments.  Outsourcing  helps firms to perform well in their core competencies, fuel innovation, and mitigate a shortage of skill or expertise in the areas where they want to outsource to third party firms .

The example of outsourcing can be one company gives new IT product development to its outsourcing partner comapny .

Reasons for outsourcing :

Companies primarily outsource to other companies to reduce certain costs, which may include non-core business expenses, high taxes, high energy costs, excessive government regulation , expertise  and production or labor costs.

Other reasons include:

§  Reducing and controlling operating costs of the company .

§  Improving company focus on Products & Services .

§  Gaining access to world-class capabilities .

§  Freeing internal resources for other purposes such as Customer Service .

§  Increasing efficiency for time-consuming functions such as recruitment .

§  Maximizing use of external resources .

Advantages of outsourcing :

There are several  reasons why a business may choose to outsource a particular task , job or a process.

•           Improved focus on core business activities -Outsourcing can free up your business to focus on its core strengths, allowing your company staff to concentrate on their main tasks and on the future strategy

•           Increased efficiency - Choosing an outsourcing company that expertise in the process or service you want them to carry out for you can help you achieve a more productive, efficient service, often of greater quality .

•           Controlled costs -Cost-savings achieved by outsourcing can help you release capital for investment in other areas of your business of the company .

•           Increased reach - It gives  you access to capabilities and facilities otherwise not accessible or affordable .

•           Greater competitive advantage - Outsourcing can help you leverage knowledge and skills along your complete product development

Outsourcing can also help to make your business more flexible and agile, able to adapt to changing market conditions and challenges, while providing cost savings and service level improvements for future .

Disadvantages of outsourcing :

Outsourcing involves handing over direct control over a business function or process to a third party firms . As such, it comes with certain risks such as

•           Service delivery - which may fall behind time or below your expectation

•           Confidentiality and security - For new product development  it is biggest risk .

•           Lack of flexibility - contract could prove too rigid to accommodate change as per demand

•           Management difficulties - changes at the outsourcing company could lead to friction with management of the company

•           Instability - the outsourcing company could go out of business in the market as competitor .

Let’s look at 5 key business factors to consider when comparing in-house  against outsourcing .

   In today’s fast-paced  business world, driving efficiency is often at the heart of growth plans for companies . When deeply  planned, outsourcing plays a vital role in ensuring productivity is high; enabling managers to focus on business development and disruptive innovation.

      However, some companies cause irreparable damage to their business by outsourcing too early, while others companies  risk falling behind to more innovative competitors by ignoring the opportunities available and some companies outsource the  mix of activities wrong .

1. Your Company Culture, Vision and Values :-

Whether to develop the new product in-house or outsource it to outside firms  depends on your company culture . Company culture is the personality traits of a company. Company culture  defines the environment in which skilled  employees work to achieve the organizational goals . Company culture includes a variety of elements such as   work environment, company mission, value, ethics, expectations, and goals. Core values of the company are what support the vision, shape the culture, and reflect what your company values. Core values are your company's principles, beliefs, or philosophy of values. A mission statement of the company is intended to clarify the "what" and "who" of a company, while a vision statement adds the "why" and "how" as well. As the  company grows, its objectives and goals may change.

2.Cost-efficiency :-

Generally  , the majority of outsourcing takes place to increase profit margins, lowering expenditure on labour and operational costs, while improving the bottom line. However, the cost-efficiency of taking this approach comes into question if the wrong processes are left in the hands of a third party companies .

3.Business reputation :-

Any businesses live and die due to  their reputation and in the social media age, each product and service they offer is scrutinized under the microscope. It’s therefore important  that the highest possible standards are maintained continuously, mainly for external facing processes. Failing to take your reputation into account before outsourcing may be the biggest mistake you ever make.

4.Innovation :-

 Recent businesses aim to transform their offerings and innovate like a ‘start-up’. However, internal constraints and practices can stifle this. Established businesses investing high  capital in disruptive innovation should be the cornerstone of their development plans.

Outsourcing innovative processes such as software development often brand the best results, as internal team members may be too close to the business’ existing processes to ‘think outside the box’.

When successful, such innovation is highly profitable. By researching and identifying a new market the disruptive business will immediately become the industry leader, leaving competitors in its wake. If companies fail to do so their competitors will, so outsourcing wisely in areas such as innovation is demanding.

5. Communication & collaboration  :-

Agile development has continued growing in popularity, with continuous communication and collaboration at the heart of innovative software  projects. It’s therefore essential to keep this in mind before outsourcing project work to a third party, especially when considering off shoring.

In some cases, there may only be a few hours of overlap during the working day so time for communication is limited and can seem rushed. This will either impact product quality, or at least result in unnecessarily long time for projects to complete . Also social  cultural differences shouldn’t be underestimated, companies frequently need to work much harder to overcome these than is often considered up-front.

6.Calculated risk :-

Outsourcing is often unreasonably viewed as a risky option, and although there is risk involved this depends on the type of processes outsourced. If core business practices of the companies are off shored the risk is huge, as you have little control over what is a central element of your organization, which can have disastrous results.

On the contrary , outsourcing development projects should be viewed as well-calculated risk, offering businesses an opportunity to research their market and work closely with a third party firms to innovate and generate the highest quality results possible.