Outsourcing Is a Shortcut; Insourcing Is an Investment
On the surface, outsourcing seems like an ideal way to run a business. But 'insourcing' actually saves time and money and builds a lasting culture.
Opinions expressed by Entrepreneur contributors are their own.
If you rip pages out of business schools textbooks, you'll find they echo a similar sentiment: Outsourcing is in. The commonly read book, The E-Myth, helped popularize this idea that entrepreneurs should outsource as many parts of a company as possible.
You've probably also heard the old admonishment about working on your business instead of in it. Tim Ferriss's famous The 4-Hour Workweek reinforced this idea, putting a modern spin on the perks of outsourcing.
Not surprisingly, then, outsourcing has become a popular approach among entrepreneurs. Not only does the practice take obligations off the leader's plate, it also saves money, at least initially. Instead of paying someone the locally mandated minimum wage, entrepreneurs who go through third parties gain access to a pool of employees thousands of miles away who will work for as little as $2 an hour.
Accordingly, this choice seems like a no-brainer, but I am going to propose the radical idea that paying more for your team and insourcing will yield a higher profit.
A 2017 study from Pew Research Center underscored this belief. It found that 30 percent of Americans surveyed believed that outsourcing jobs was having a negative impact on their own jobs and livelihood. As an entrepreneur, you'll find that your employees can be your biggest assets; so ignoring their concerns about outsourcing isn't the most intuitive step to take.
I can confirm this lesson from personal experience: Having learned it the hard way, I've come to agree that insourcing can actually save time and money and build a culture that lasts.
Out of sight, out of mind
My first attempt at outsourcing occurred when my company was very small. I opted to hire a virtual assistant in a different country thinking I'd found a cost-effective way to increase my productivity. The problem with a virtual assistant is that he or she doesn't know you and will only do the work that you send over. A motivated in-house assistant, on the other hand, can walk around the office and organically recognize business opportunities to bring to you. In other words, he or she finds work and offers ideas you might never think of on your own.
The need to continually provide work for my virtual assistant, along with the obstacles formed by the language barrier and cultural differences between us, ended up creating more work for me. Today, I have an insourced in-house assistant. Not only is she forward-thinking and creative, but she also knows my wife and kids (including their schedules), as well as my managers and their communication styles. She produces high-quality work; and hiring her has been a vastly superior investment.
Insourcing as an investment and its three powerful benefits
In my experience, insourcing and adding capable team members whom you can interact with on a daily basis will help your business reach a new level of success. Here are three benefits businesses stand to gain from insourcing that can't be realized by taking the outsourcing shortcut:
1. You create a collaborative environment. Collaboration breeds creativity, and creativity is the only real equity value companies have in the modern economy. According to a World Economic Forum report, The Future of Jobs, creativity is the third most important skill for employees to have, having risen to the No. 10 spot in 2015. In turn, creativity requires the kind of fostering environment that leads to company profits.
Despite these findings, businesses continue to outsource their call centers to places like India, so they never have to think about them. The problem is that those "employees" aren't thinking about your business, either. Every day, customers call them with questions and complaints, and these outsourced employees stick to the script because that's what their roles require.
Don't let a call center happen to your business: Cultivate a collaborative environment by insourcing talent close to home, and encourage your team members to share their big and small ideas alike. Often, small iterations can yield the biggest creative breakthroughs. Hundreds of small tweaks over a longer period of time are what separate a good business from an outstanding company.
Related: 10 Tips for Retaining Top Talent
2. You increase the depth of your roster. Talent is incredibly important and increasingly rare. What occasionally goes unmentioned is that talent takes time to cultivate. Instead of hiring from outside of your company, why not utilize the skills of your employees you've already invested in?
Hiring internally provides you with employees who understand how your business operates. More than 45 percent of our team members started in hourly positions. As new opportunities became available, and these team members demonstrated they could win at the role in front of them, they then transitioned into positions with increased responsibilities and higher compensation. Consequently, when you insource, you add depth to your roster of talent.
According to Gallup, only 32 percent of American employees are engaged in their work. However, insourcing team members and then promoting those individuals within your company can populate your talent bench and increase engagement.
To do this, surround yourself with people you can rely on, and reward the most deserving team members by moving them into roles that match their passions and talents. Recognizing the achievements of your team members increases the motivation of the entire team.
3. You construct an impactful culture. At our company, anyone who interacts with a client knows what our company is about. These employees attend meetings on a weekly and monthly basis and come to understand that our core values matter. Company culture is the soul of a business. When you outsource work, you miss out on that; and the decision you've made may have severe consequences.
The American Institute of Stress, for example, produced a study showing that an unstable culture results in an increase in voluntary turnover of almost 50 percent. Meanwhile, companies such as Nike, which was voted as having the best company culture in 2017 by Indeed, have low turnover rates and are highly desirable places to work. Nike's coveted culture includes advancement opportunities, and the belief that every individual counts and more.
The alternative is that you have to hunt for new team members, and that costs time and money. You can avoid these expenses by insourcing and developing a supportive culture with attractive values. Begin by being honest about your team's talents, and then find roles that allow people to do work they love.
On the surface, outsourcing seems like an ideal way to run a business. Many business owners -- myself included -- have been lured into outsourcing by the promise of lower costs and fewer worries. Ultimately, though, outsourcing usually turns out to be a bigger headache than expected, and you give up the benefits that come with adding employees to your team.
The next time you're faced with the option to outsource, consider the investment that insourcing provides to your business's collaborative ideas, talent retention and overall culture. Then look inside for your next personnel need.