Insourcing – the model that mixes in-house and outsourcing

What is insourcing?

Insourcing is where a third party manages a business function, such as a contact centre or accounting, at your facility. In other words, it’s a blend of the inhouse and outsource operating models. The third party – typically a BPO – provides:

  • recruiting
  • some or most training
  • management of staff
  • best practice sales, service or back office methodologies
  • some or most components of the technology solution
  • reporting
  • accountability for KPIs
  • support functions such as quality assurance, workforce management, IT help  
  • HR administration – payroll, superannuation, workers’ compensation

The client provides:

  • the physical facility
  • assistance with training
  • subject matter experts/floor walkers for complex products and services (at least initially)
  • some components of the technology solution

What are the advantages of the insourcing model?

Advantages of insourcing include:

  • Lower cost. It’s cheaper on the surface than traditional outsourcing, firstly because the vendor management costs are lower (you co-habit with them, after all!), and secondly, you are not being charged for facility costs assuming you already have an office lease which is committed to and not part of your P&L; it’s also lower cost compared with inhouse, due to cost savings a BPO can drive through the application of operational excellence and improvement
  • Access to best practice and benchmarking. A BPO brings to the table expert personnel, years of refinement through hundreds of client implementations, and access to benchmarking data with others in your industry.
  • In comparison to an inhouse model, insourcing creates bandwidth to focus on what your company does best. A contact centre, for example, is often a by-product set up to manage sales and then post sales customer service. It is mostly not a core competency which defines the value proposition of a company, therefore generating a need for third party assistance.
  • Shared services functions don’t need to be reinvented – a BPO can provide support functions very cost-effectively by amortising them across all its clients, offering economy of scale and ready-to-go capability.
  • External accountability for delivery of goals, underpinned by a contractual risk and reward regime. You as the client may be offered guarantees in continuous improvement – such as increased productivity,  better customer experience metrics (as a result of more up-to-date technology such as knowledge management systems or web chat) and lower cost to serve (for example, as the third party applies analytics to fix repeat issues or complaints)
  • Daily physical access to the contact centre on your premises offers peace of mind, particularly where a sense of control is desired by management. Training updates can be delivered instantly onsite, as new products, services or initiatives are rolled out.

What is the cost difference between outsourcing and insourcing?

In comparison to an onshore outsource model, insourcing is generally 10-20% cheaper because the client bears the cost of the facility, including workstations and utilities, as well as some of the components of technology and training.

In comparison to inhouse, cost savings are usually realised with the first three months and generally grow over time with the uplift in efficiencies gleaned through better technology and operational processes.

When comparing costs, it’s important to recognise the true, fully loaded cost of a contact centre agent. A back-of-the envelope calculation to arrive at the true cost of an agent is to double the agent’s direct cost. For example, a contact centre agent in Australia may cost a company $30/hour including salary, superannuation, workers compensation and payroll tax. The other $30 (bringing the true cost to $60+/hour) comprises a portion or allocation of:

  1. team leader costs (every 10-15 agents requires a team leader)
  2. operations or site manager costs
  3. performance-based bonuses, incentives, reward and recognition schemes
  4. operations support costs – training, workforce management, quality assurance
  5. recruitment fees
  6. HR management costs
  7. technology costs
  8. telephony costs
  9. facility costs (workstations, headsets, office supplies, lease, utilities, cleaning)
  10. upper management overhead

Most companies instinctively challenge their cost could be as high as $60/hour or more per agent, but it doesn’t take long to realise that this is true once the above 10 items are accounted for.

When is insourcing most likely to be a suitable model?

Insourcing is a preferred model in distinct scenarios, such as when:

  • the type of work is highly complex or specialised and requires access to on-site product or technical experts. A third party then brings the operational excellence overlay.
  • the labour environment is regulated and staff cannot be perceived to be external
  • the organisation is extremely security-sensitive and risk-averse and wants the operation on-site, under the existing physical and data security framework, yet with all the best practices and value a BPO partner adds.
  • management are “control freaks” and need the contact centre under their nose – at least initially, until trust and confidence in the BPO partner are established. In this scenario, outsourcing to a lower cost location becomes a “Phase 2” on the roadmap.
  • there is pressure to reduce cost and improve customer experience, without politically sensitive offshoring.

What type of business would NOT be suitable for insourcing?

The obvious deal breaker for insourcing is if your business does not have sufficient infrastructure / space to host the contact centre onsite. In this case, outsourcing should be considered, with a shortlist of outsourcing companies having the opportunity to address any objections raised internally. For example, the “control freaks” mentioned above may be heartened by the opportunity to embed a company representative at the BPO’s facility, and have real-time access to a web-based dashboard platform showing exactly what’s going on in the outsourced contact centre.

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Last updated on: April 16, 2024