Outsourcing vs insourcing

The decision to outsource or insource enterprise-wide activities related to the acquisition, deployment, and management of IT represents one of the more complex choices facing a firm’s managers. On the one hand, insourcing requires management to commit significant resources to a course of action, the effects of which may be costly to reverse, while forgoing numerous advantages associated with the marketplace. On the other hand, insourcing may be required for a firm to accumulate resources necessary to generate or maintain a competitive advantage.
While the increasing rapidity of technological change and the increasing dispersion of knowledge suggest an increased role for outsourcing in the economy, the relationship between governance choice and performance is dependent on the distribution of relevant capabilities and the degree to which performance is driven by autonomous or systemic innovation.
Empirical evidence suggests that carefully crafted outsourcing strategies increase the overall performance of the firm. Outsourcing is generally considered as a very powerful tool to cut costs and improve performance. Through outsourcing, firms can take advantage of the best outside vendors and restructure entrenched departments that are reluctant to change. Outsourcing can also help focus on the core business.
Since building core competencies and serving customer needs are critical to firm success, anything that detracts from this focus may be considered for outsourcing.