Outsourcing vs. Insourcing Your Human Resources: Which Strategy Makes Sense?

To outsource or to insource human resource services: that is the question.

Human resources is an increasingly complex and mission-critical function, so making the right decision on your strategy is essential. In order to determine which route would be best for your organization, it’s important to first understand the differences.

What is Outsourcing?

Outsourcing in human resources refers to contracting with a company or individual consultant who operates outside your business, but who has the skills and experience that can provide the meaningful consultation and resources to support your team. This strategy has been widely accepted by many companies, and it has become a trend that is common in human resources, information technology and other industries.

Additionally, outsourcing can be a cost-saving strategy for companies. Labor costs are reduced; direct costs are reduced, including office maintenance and office furniture; and flexibility increases based on the need of specific projects.

Outsourcing can also be highly competitive because you are purchasing the appropriate level of support for your business, rather than hiring personnel who might be over-worked or underutilized. In other words, if the right staffing requirement for your HR operation is, say, 1.5 full-time employees, the outsourcing option allows you to secure exactly that level of support (no more, no less).

According to Companies that Outsource, a recent study by BlueWolf reported, “35% of companies will outsource more in the next 18 months.”

Peter Cappelli, a professor at the University of Pennsylvania’s Wharton Business School, told Inc.com, “I’m usually not a fan of [outsourcing], but this is one of those rare instances that is both cheaper and better. It’s a big burden on a local HR manager to know everything.” (Bank Adviser)

What is Insourcing?

Insourcing means using an organization’s own personnel or resources to accomplish a task. One benefit of insourcing is that it promotes the idea of valuing an organization’s direct employees, identifying their skills and expertise and working hands-on to leverage both the employee and the company’s growth.

Another benefit of insourcing human resources is that those employees will then understand, in a unique way, the organization’s tasks and issues directly.  This allows employees to feel valued and have a greater effect on the overall company’s success. It also ensures that the company is managing its HR operations in its own unique way, with processes and procedures that it alone controls.

Brian Hults, a Harvard Business Review blogger and human resources manager for multiple corporations wrote, “In order to add significant value to a business, HR must be able to support and enable the execution of strategy through building organizational capability. This is a role that cannot be automated, shared as a service, offshored or outsourced. It comes from an intimate knowledge of a business’s strategy and the existing capabilities of the organization.” (Bank Adviser)

It is also possible to take a hybrid approach. For example, some companies will insource human resource administration but outsource recruitment and applicant tracking. Others might elect to hire an HR administrator or build a small internal team, but outsource support functions to a third-party firm, or contract for strategic talent management with an outsourced human resources executive.

While preferences differ on whether or not human resource personnel and functions should be outsourced or insourced, ultimately it’s based on the needs of your organization. Human resource functions are vital to a company, so it’s worth the time to decide which strategy works best for your company.