Meaning of Outsourcing

In the recent times Outsourcing has become a very popular. It means “acquiring a product or service rather than producing it your self”. According to the Wikipedia Outsourcing means “transfer or delegation to an external service provider the operation and day-to-day management of a business process”. It is used by every organization in one way or the other. The functions being outsourced by the business are basically considered non core to the business itself.

For instance, a car company requires a variety of screws and bolts. Rather than manufacturing screws and bolts themselves, the company might outsource their production to some other company or firms that specialize in making screws and bolts. Such outside companies or firms that provide the outsourcing services are referred to as “third-party providers”, or as they are more commonly called, “service providers”.

Even though outsourcing exists ever since work specialization, but in the recent past, companies have started employing the outsourcing model for functions, like payroll, billing and data entry. These functions can be carried out more efficiently and cost-effectively, by the companies that acquire specialized tools and facilities and specially trained personnel for such functions.

Outsourcing has taken many forms in recent times. Like the past organizations still hire service providers to handle diverse business functions. But now many organizations prefer to outsource whole operations to another company or firm. These outsourcing companies are most commonly known as Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO). These are also the most common form of outsourcing.

A Business process outsourcing usually includes Call Center Outsourcing, Human Resources Outsourcing (HRO), Finance and Accounting Outsourcing, and Claims Processing Outsourcing. Fundamentally these deals comprise of contracts that can extend for a number of years and cost the client company hundreds of millions of dollars. Often, the employees of the client firm who used to perform their work internally are transferred to the service provider and become their employees. IBM, EDS, CSC, HP, ACS, Accenture, etc are some of the leading outsourcing service providers in the Information Technology Outsourcing and Business Process Outsourcing fields.

The success of an outsourcing company depends on mainly three factors. Firstly a proper executive-level support from the client’s organization for the outsourcing mission. Secondly, there should be frequent communication between the client organizations (that is hiring services) and the service providing firm or company. And last but certainly not the least a lot depends on the client's ability to manage and handle its service providers.