• Log in / create account

• Home
• Categories
• Manuals
• Directories
• News Wire
• Blog
• Help
• Contributor Tools

Outsourcing is often defined as the delegation of non-core Business operations or jobs from internal production within a business to an external entity (such as a subcontractor) or freelancer that specializes in that operation. Outsourcing is a business decision that is often made to focus on core competences. A subset of the term (offshoring) also implies transferring jobs to another country, either by hiring local subcontractors or building a facility in an area where labor is cheap. It became a popular buzzword in business and management in the 1990s. Providing outsourced services to a larger business and to other small business is the focus of many small businesses and independent contractors.

Overview

Outsourcing is defined as the management and/or day-to-day execution of an entire business function by a third party service provider.

Outsourcing and/or out-tasking involve transferring a significant amount of management control to the supplier. Buying products from another entity is not outsourcing or out-tasking, but merely a vendor relationship. Likewise, buying services from a provider is not necessarily outsourcing or out-tasking. Outsourcing always involves a considerable degree of two-way information exchange, co-ordination, and trust.

Organizations that deliver such services feel that outsourcing requires the turning over of management responsibility for running a segment of business. In theory, this business segment should not be mission-critical, but practice often dictates otherwise. Many companies look to employ expert organizations in the areas targeted for outsourcing. Business segments typically outsourced include Information Technology, Human Resources, Facilities and Real Estate Management and Accounting. Many companies also outsource customer support and call center functions, manufacturing and engineering. Outsourcing business is characterized by expertise not inherent to the core of the client organization.

The overhead costs of customer service are typically less where outsourcing has been used, leading to many companies, from utilities to manufacturers, closing their in-house customer relations departments and outsourcing their customer service to third party call centers. The logical extension of these decisions was of outsourcing labor overseas to countries with lower labor costs, this trend is often referred to as offshoring of customer service.

A related term is out-tasking: turning over a narrowly-defined segment of business to another business, typically on an annual contract, or sometimes a shorter one. This usually involves continued direct or indirect management and decision-making by the client of the out-tasking business.

The term "outsourcing" became more well known largely because of a growth in the number of high-tech companies in the early 1990s that were often not large enough to be able to easily maintain large customer service departments of their own. In some cases these companies hired technical writers to simplify the usage instructions of their products, index the key points of information and contracted with temporary employment agencies to find, train and hire generally low-skilled workers to answer their telephone technical support and customer service calls. These agents generally worked in call centers where the information needed to assist the calling customer was indexed in a computer system. The agents were often not able to tell the customer they did not actually directly work for the original manufacturer. In some cases, the agents are not allowed to even give out their real name.

Source: Material in the original entry came from this Wikipedia article.

See Also

SmallBusiness.com Glossary