Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Co-Sourcing — Definition, Differences + How It Works
What is co-sourcing?
- Co-sourcing is a model where an organization partners with an external provider to jointly deliver a function while keeping internal control and ownership.
- Co-sourcing means sharing responsibilities between an in-house team and a third party to add expertise, capacity, or tools without fully outsourcing.
- Co-sourcing is a collaborative arrangement in which internal staff and an external specialist work together under a single operating plan to achieve agreed-upon results.
Whatis Co-Sourcing?
Co-sourcing is a partnership in which a company partners with an external procurement service provider or vendor while its internal team remains actively involved in delivering the task or project. In practice, internal staff and the external organization collaborate side by side to complete a specific assignment. Once the project is finished, the service provider’s role typically ends.
Co-sourcing differs from consulting because employees participate directly in the work instead of relying on a consultant to operate independently. In consulting, the consultant usually analyzes the situation and delivers recommendations or a plan for the company to implement. Co-sourcing is often used when a company needs temporary expertise to deploy or integrate new systems or to bring in specialized professionals for short-term assignments.
8 Steps To How Co-Sourcing Works
Companies implement co-sourcing through a structured set of steps that combines external expertise with active internal involvement. The goal is to keep direct control while gaining extra capacity, specialized skills, and measurable results.
1. Define the goal and scope
Start by identifying the exact problem you want co-sourcing to solve (capacity gap, missing expertise, compliance risk, faster delivery). Define what is included and excluded, the expected outcomes, and what “done” looks like. Be clear on timelines, budget model (often fixed cost or capped fees), and key constraints. This step prevents scope creep and sets the foundation for a structured engagement.
2. Choose the co-sourcing model and responsibilities
Decide how work will be split between internal staff and the provider, including who owns decisions and who executes tasks. Map responsibilities across the workflow (planning, execution, reviews, approvals, reporting). Establish who has final sign-off, especially for sensitive areas like internal audit or financial controls. The key is to keep direct control while still gaining external strength.
3. Select the right partner and validate fit
Shortlist providers based on proven experience in your domain and the specific service you need (e.g., internal audit support, diagnostic review, staff evaluation). Evaluate their methods, tools, data security practices, and the quality of the team they will assign. Confirm they can work “alongside” your team rather than operate as a black box. The best partner is one who can deliver results and transfer knowledge.
4. Set governance, rules, and success metrics
Create a simple governance setup: roles, escalation path, meeting cadence, and reporting format. Agree on success metrics such as turnaround time, quality targets, compliance outcomes, or cost control. Define rules for confidentiality, conflict of interest, and documentation standards. Strong governance protects corporate knowledge and keeps the partnership aligned with strategy.
5. Onboard the provider and integrate workflows
Give the provider access to the right systems, data, and stakeholders, but only at the minimum level needed. Align on processes: how requests are submitted, how approvals happen, how changes are handled, and how work is documented. Run a short kickoff to confirm priorities, timeline, and communication channels. Smooth onboarding is what turns a contract into real collaboration.
6. Execute jointly and keep direct control
Internal employees stay actively involved while the provider supports delivery with expertise, tools, and extra capacity. Work is done in shared cycles (plan, execute, review) so decisions remain transparent. Use checkpoints to validate quality and ensure outputs match your standards. This is where co-sourcing differs most from outsourcing: you stay close to execution.
7. Monitor performance and adapt the scope
Track results against the agreed metrics and look for early warning signs such as delays, repeated rework, or unclear ownership. Adjust the scope when business needs change, but use a controlled change process to avoid constant price negotiations. Keep documentation updated so knowledge stays in the company, not only with the provider. Continuous monitoring ensures timely and accurate performance insight.
8. Close the engagement and retain knowledge
At the end, review results, lessons learned, and what should be improved for the next cycle. Collect all deliverables, documentation, and process updates into your internal knowledge base. Ensure your team can operate independently or smoothly continue the co-sourcing arrangement if needs are ongoing. A good close-out turns short-term support into long-term capability.
10 Key Differences between Co-Sourcing and Outsourcing
3 Real-Life Examples of Co-Sourcing
1. Carthage Savings
Carthage Savings (a mutual-bank organization in New York) faced a vacancy and restructuring in its internal audit function during a leadership transition. They first engaged Wolf & Company for outsourced internal audit support to maintain continuity and meet regulatory requirements while they built and trained their internal team. Over time, the relationship evolved into a co-sourced model, where Wolf supported the in-house auditor and handled more technical/specialized audits.
In the co-sourcing setup, Carthage Savings gradually moved most audits in-house while still using Wolf for subject-matter-expertise reviews. The outcome was a smoother transition, stronger audit processes, and internal capability-building through training and ongoing guidance. This is a clear example of co-sourcing being used as a bridge from dependency on an external provider to a stronger internal function with targeted external support
2. The Andover Companies
The Andover Companies (a large mutual insurance group in the U.S. Northeast) partnered with Johnson Lambert to strengthen internal audit and meet regulatory requirements as the company grew. The relationship began as outsourced internal audit support, and later shifted to co-sourced internal audit services, with Johnson Lambert working directly with Andover’s internal audit manager to run the function. Key drivers included regulatory compliance (e.g., NAIC Model Audit Rule thresholds), limited internal bandwidth, and the need to keep pace with technology and risk changes.
In practice, Johnson Lambert helped with risk assessment and audit planning, executed audits/advisory work, monitored remediation, and communicated results, while also supporting cybersecurity compliance mapping (e.g., NYDFS standards and NIST CSF 2.0). Reported results included streamlined controls and measurable reductions in cybersecurity findings over time. This is a strong real-life co-sourcing example because internal ownership exists (an internal audit manager), while external specialists expand capability and speed
3. Grant Thornton
Grant Thornton describes a commercial property and casualty insurance client expanding in North America whose back-office and internal audit maturity had not kept pace. Grant Thornton helped build a structured, risk-based internal audit methodology and plan, but the client lacked personnel to execute it. To fill that gap, Grant Thornton provided subject matter experts in a co-sourced arrangement, working alongside the client’s audit team while the client built its own capacity.
Beyond execution, the co-sourcing approach included working sessions to train client team members and improve how audits were performed and supported. In one third-party audit, the combined team identified a reimbursable deductible owed to the client worth more than $1 million, showing how co-sourcing can generate tangible financial impact. They also provided recommendations to better use existing tools (e.g., reducing reliance on spreadsheets where core systems could automate tasks).
5 Advantages and Disadvantages of Co-Sourcing
Co-sourcing has its fair share of advantages. With that, there will be disadvantages. Here are the advantages and disadvantages of Co-sourcing:
Conclusion
Co-sourcing is a shared partnership where internal teams stay actively involved while an external provider adds expertise, tools, and extra capacity. It differs from consulting because employees participate in execution, and it differs from outsourcing because the company retains closer control and ownership. When structured well, co-sourcing strengthens delivery without losing institutional knowledge.
A clear approach that covers scope, roles, partner selection, governance, onboarding, joint execution, monitoring, and close-out makes the model repeatable and effective. The biggest advantages are flexibility, access to specialists, and knowledge transfer, while the main risks are higher coordination needs, unclear responsibilities, and scope-driven cost increases. With strong governance and clear accountability, co-sourcing delivers results while building internal capability.
I have created a free-to-download, editable procurement process: a 7-step template. It’s a PowerPoint file, together with an Excel file, that can help you with your co-sourcing process. I even created a video where I’ll explain how you can use this template.
Frequentlyasked questions
What is co-sourcing?
Co-sourcing is the collaboration of external forces with your internal staff to work on a project.
How does co-sourcing work?
Co-sourcing works by having your internal team and an external provider work together to deliver a project or function. You keep decision control while the provider adds specialist expertise, tools, and extra capacity.
What is the difference between co-sourcing and outsourcing?
Co-sourcing hires a service provider that becomes a part of its team, which will collaborate to finish the project. However, outsourcing hires an outside contractor to finish the project without the active participation of internal staff.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
