What is outsourcing? Definition
Outsourcing is a business practice where a company delegates specific tasks, processes or functions to an external service provider rather than handling them in-house. The idea is to let this third party perform the management and/or day-to-day execution of one or more business functions because it can do that better or more efficiently. This third party insources (takes in, receives) these processes. Outsourcing occurs when a company uses an outside firm to provide a necessary business function that might otherwise be done in-house.
It is different from Subcontracting, because the function is provided
on an ongoing basis, rather than for a specific project. It can be provided
on the same or another location, in the same country or in a separate country
(Offshoring).
In its most advanced form, outsourcing makes it possible to build a large,
entirely virtual company with only a single employee: the entrepreneur
himself.
Why business process outsourcing? Main Motives
The most important motives for outsourcing are:
- To make an organization more competitive, by staying focused on its
Core Competence.
- To achieve cost reduction and efficiency.
- Access to special resources or capabilities. Compare:
3rd Party Logistics (3PL)
- To stimulate entrepreneurship in small organizational entities.
outsourcing business models
At least three business process outsourcing models can be distinguished:
- Shared Service Center. (See below)
- Spin-off. This spin-off company leaves the parent company to specialize
in certain activities which are outsourced by the parent company.
- Outsourcing to an external organization. Compare:
Organization Chart.
Other Potential Benefits of Outsourcing
- Renewed focus on core business.
- Mitigation of risks by reliance on an expert.
- Improved customer satisfaction through improved processes not part of
the enterprise's culture or experience.
- Ability to reward workers with career opportunities in a specialty company.
- Project improvement.
- Service improvements.
- Skills upgrade.
- Skills retention.
- Skills access.
- Technology infusion.
- Cost accounting and overall visibility of accounting and performance
in a business process.
- Cost reduction.
- Management of volatility in costs through financial engineering.
- Asset conversion.
- Avoidance of capital investment.
Glossary of typical Outsourcing terminology:
Application Service Provider (ASP)
An ASP is a company that provides applications and related services
over the Internet. Examples include email, payroll processing and ERP
applications.
Business Process Outsourcing (BPO)
BPO is the outsourcing of Back Office and Front Office functions,
typically performed by white collar and clerical workers. Examples include
accounting, human resources and medical coding and transcription.
Competitive Insourcing
Competitive Insourcing is a process whereby internal employees are
competing in bidding against competitive, third-party bidders for a
defined scope of work. See also Insourcing.
Contract Manufacturing
Contract Manufacturing is the outsourcing of a manufacturing job
to an onshore or offshore third-party. With the necessary infrastructure
and know-how to perform the job.
Co-Sourcing or Cosourcing
Cosourcing is where a business function is performed by both internal
staff and external resources, such as consultants or outsourcing vendors,
with specialized knowledge of the business function.
A solution in which the customer entrusts to an external
services provider the responsibility for operations and maintenance
of one or more facilities. Compare:
Kraljic Model.
|
Insourcing
Insourcing is the transfer of an outsourced function to an internal
department of a company, to be managed entirely by employees. The term
has also been used to describe foreign companies that start facilities
in the United States and employ U.S. workers.
Nearshoring
Nearshoring is outsourcing within nearby territory, accessible by
short travel or telephone in the same or neighboring time zone.
Offshoring
Offshoring is outsourcing overseas or in a separate country. Outsourcing
to a contiguous country may be considered as Nearshoring (see above).
Service Level Agreement (or SLA)
An SLA is a contract or addendum to a contract that defines the type,
value and conditions of the outsourcing services to be provided. Typically,
SLAs deal with the quality of service conditions, such as response time,
availability, speed, et cetera.
Shared Services
Shared Services is the outsourcing of a business function within
an enterprise to a highly skilled internal department or group. For
example, the purchasing department at one plant, may provide purchasing
services to all other plants, within a given manufacturing company.
Shared services may also be provided to third parties.
|
|
Forum discussions about Outsourcing.
|
Disadvantages of Outsourcing
All the above mentioned benefits made me think: OK, but what are the limitations and disadvantages of outsourcing? I can think of these:
1. Less management control over the outsourced activities
2. ...
 39  15 comments |
|
|
What is Integral Outsourcing?
A term that came from the UK, is 'Integral Outsourcing', basically outsourcing the outsourcing.
In the past decennia, several (non-core) processes have been outsourced in many organizations. For exam...
8 |
|
|
|
Courses about Outsourcing.
Beginners Course
|
Advanced Course
|
Course for Experts
|
|
|
|
The best, top-rated topics about Outsourcing. Here you will find the most valuable ideas and practical suggestions.
|
🥇
|
When to Outsource Innovation?
According to Michael A. Stanko, Jonathan D. Bohlmann and Roger J. Calantone in the article “Outsourcing Innovation” (Executive Adviser, November 2009), outsourcing research and development and the cre...
104 22 comments
|
|
🥈
|
Public Services Outsourcing
Given 35 years of both private and public sector experience, I am very cautious of embracing outsourcing as a panacea for reducing costs and increasing performance in public services. As experience ha...
97 4 comments
|
|
🥉
|
Incentivised Outsourcing Contracts
I've been looking to see any proof that incentivised contracts in outsourcing really work i.e. do they actually increase quality or meet on-time delivery deadlines etc, etc? Anyone put any statistics ...
95 2 comments
|
|
What is Outsourcing - Definition
Is the management or day-to-day execution of an entire business function by a third-party service provider. Outsourced services may by provided on or off premises in the same country, or in a separate...
83 3 comments
|
|
|
Outsourcing Customer Services
My experience is the bigger the company moving to outsourcing of customer service, the higher the risk in customer satisfaction. Offshoring increases the risk even more....
41 1 comments
|
|
|
|
Advanced insights about Outsourcing. Here you will find professional advices by experts.
Consultancy Tips
|
Teaching Tips
|
Practical Implementation Tips
|
|
|
|
Outsourcing Alternative: Insourcing Insourcing
These outsourcing risks are the reasons why companies should first ponder on it before plunging in. In fact, a better al...
|
|
|
Offshoring of Creative Work and Knowledge Work The Future of High End Outsourcing
I recommend the amusing and instructive case by management writer Stephen Brown in Harvard Business Review September 200...
|
|
|
Benefits of Outsourcing Innovation Improving Innovation Performance
Michael A. Stanko, Jonathan D. Bohlmann and Roger J. Calantone (“Outsourcing Innovation”, Executive Adviser, November 20...
|
|
|
Onshoring Making Onshoring Work
In a recent article titled "How to Make Onshoring Work" by Aditya Pande (Harvard Business Review, March 2011), the autho...
|
|
|
Dimensions of Business Processes to Consider before Outsourcing Determining Outsourcing Viability of a Process
Researchers Deepa Mani, Anitesh Barua and Andrew B. Whinston have found that outsourcing arrangements stand a better cha...
|
|
|
When Should a Firm Consider to Outsource Innovation? Outsourcing Best Practices, Innovation
According to Michael A. Stanko, Jonathan D. Bohlmann and Roger J. Calantone in the article “Outsourcing Innovation” (Exe...
|
|
|
List of Reasons for Offshoring Offshoring, Outsourcing, Best Practices
Increasingly, companies no longer perceive offshoring as a way of cost cutting only, but also as a growth strategy. Rece...
|
|
|
Traditional versus Transformational Outsourcing Cost Reduction versus Adaptability
Nowadays, we can distinguish two types of outsourcing: traditional– and transformational outsourcing.
- Traditional out...
|
|
|
Service Level Agreements and Service Level Management Effective BPO Management
In today’s highly globalized and specialized business environment, characterized by frequent outsourcing of one or more ...
|
|
|
Outsourcing Trends Outsourcing, Market Development
In an article (How to be an Outsourcing Virtuoso) by Vinay Couto and Ashok Divakaran they mention 4 trends for outsourci...
|
|
|
|
Various sources of information regarding Outsourcing. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.
|
Governance Model for Outsoucing Outsourcing Organization
Studies reveal that half of the strategic outsourcing investments fail. PwC recommends a rigorous three-tiered approach ...
|
|
|
The Politics and Economics of Offshore Outsourcing Politics and Economics
Paper by N. Gregory Mankiw and Phillip Swagel reviews the uproar over offshore outsourcing and examines the differing wa...
|
|
Introduction to HR Outsourcing Human Resource Management Outsourcing, HR Outsourcing, HRM Outsourcing
Introduction into the outsourcing of HR, including the following sections:
1. Current HR status?
2. What is happening ...
|
|
|
International Business Process Outsourcing. Trends, Drivers, Objectives, Advantages, Risks, Reasons for Failure Business Process Outsourcing, BPO, Outsourcing to India,
1. Agenda
2. Business Process Outsourcing Definition
3. Industry trends for application outsourcing
4. Significant gr...
|
|
|
Outsourcing Benefits A 3-legged Stool
Paper by Monika Wienskowska and Waldemar Stronka develops Umesh Bhatia’s idea that service receivers should consider out...
|
|
|
Outsourcing to Global Business Service Providers and Sustainable Development Globalization, Outsourcing, Sustainable Development
This presentation covers the issue of globalization of services, thereby emphasizing business process outsourcing and IT...
|
|
|
Outsourcing and Technological Change Impact of IT / ICT on Outsourcing
In this paper, Ann P. Bartel, Saul Lach and Nachum Sicherman argue that an important source of the recent increase in ou...
|
|
|
Outcoursing in a 'Flattened' World Global Outsourcing, Business Process Outsourcing
Presentation about the subject of outsourcing, specifically focused on IT services. The presentation includes the follow...
|
|
|
Introduction to IT Outsourcing IT Outsourcing
Presentation that introduces the concept of outsourcing, and includes the following sections:
1. What is outsourcing?
...
|
|
|
|
Useful tools regarding Outsourcing.
News
|
Videos
|
Presentations
|
| |
Books
|
Academic
|
More
|
|
|
|
Compare with Outsourcing: Business Process
Reengineering |
Vertical Integration
| Horizontal Integration
| Co-Creation
| Value Stream Mapping
| Value Chain |
Core Competence |
Bricks and Clicks |
Delta Model |
Management Buy-out |
Acquisition
Integration Approaches |
SWOT Analysis |
Benchmarking |
3rd Party Logistics (3PL)
| Vendor Managed Inventory
Return to Management Hub: Change & Organization | Finance & Investing | Human
Resources | Program & Project Management |
Strategy & Innovation |
Supply Chain & Quality
More Management Methods, Models and Theory
|
|
|
Log in
