Customer Service Glossary

Outsourcing vs. Insourcing

The outsourcing versus insourcing debate has become increasingly common during strategic planning sessions. As businesses grow, managers and executives must decide between hiring customer service representatives or outsourcing operations to onshore, nearshore, or offshore locations. 

What is Outsourcing?

Outsourcing – also known as business process outsourcing (BPO) or knowledge process outsourcing (KPO) – occurs when businesses shift certain tasks to third-party organizations. 

When a business moves toward outsourcing, it typically signs a contract with an outsourcing service provider. While contractual terms may vary, most service providers manage every aspect of the outsourcing process, including: 

  • Recruiting skilled agents
  • Training customer service representatives 
  • Managing day-to-day operations 

Types of Outsourcing

Outsourcing can take one of three forms based on the needs and preferences of the organization. The three categories include: 

  • Onshoring. Onshoring shifts the customer service operations of a United States-based company to an inexpensive market within the country, often in another city or state. 
  • Nearshoring. Nearshoring relocates operational or decision-making tasks to employees in bordering countries, such as transitioning a customer service department from the United States to Mexico.  
  • Offshoring. Finally, offshoring occurs when a company moves non-core functions like customer support to distant developing countries, such as India or Malaysia. 

Benefits of Outsourcing Customer Service Agents

Many companies enjoy the enhanced flexibility and innovation that comes with an outsourced talent pool. Alongside new ideas and a knowledgable workforce, benefits of outsourcing include: 

Reduced Labor Costs

Often, outsourcing companies exist in nearby or distant countries where labor costs are significantly lower. By outsourcing jobs, companies can cut the price of labor by 20-30% or more, helping improve their bottom lines while redirecting resources to other areas. 

International Talent Pool

Many organizations turn to outsourced labor due to a lack of qualified local employees. BPO providers ensure that their staff receives ongoing training and has the expertise needed to assist customers in multiple industries. 

Improved Customer Response Times

Finally, outsourced customer service departments can provide shoppers with 24/7 assistance. Despite significant time differences, many service providers rotate their staff’s shifts, ensuring that customers can ask questions, receive help, and place orders at any time of the day or night. 

What is Insourcing? 

Unlike outsourcing, insourcing either brings new employees into the corporate framework or assigns new tasks to an existing individual or department. While some companies may create satellite offices to house an insourced team, many staff members join management at the home office. 

When businesses expand their insourcing activities, they typically hire temporary or permanent employees to assist with in-house client support operations. In doing so, the organizations are responsible for recruiting, training, and managing their representatives.  

Benefits of Insourcing Customer Service Agents

Enhanced Control

Internal client support agents usually work within the walls of a company. With that in mind, managers can closely oversee their training, performance, and metrics, reducing mistakes and ensuring consistent quality. 

Reduced Security Concerns

In-house employees operate under shared data protection laws and contracts, providing enhanced security coverage for company and customer information. 

Improved Organizational Alignment

Finally, insourced employees have the opportunity to develop relationships with other staff members. At the same time, they become immersed in company culture, helping align their performance with organizational goals. 

Why Businesses Outsource or Insource Customer Service Departments 

The decision to outsource or insource customer service departments varies based on several factors, including costs, goals, and the company’s preferences. 

Organizations who prefer a hands-off approach to their customer service department and don’t mind a long flight may opt for the low cost of outsourced employees. That said, some companies prefer the proximity and security that comes from insourced staff members, despite the added expense. 

Related Resources and Information