Outsourcing Business Strategy

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An Outsourcing Business Strategy is an business strategy that relocates a business function to be performed by some 3rd-party organization.

  • Context:
    • It can (often) involve outsourcing non-core or specialized business functions to external providers, such as payroll, customer support, IT services, or manufacturing.
    • It can (often) be motivated by cost savings, access to specialized skills, and improving operational efficiency by focusing internal resources on core competencies.
    • ...
    • It can range from Basic Operational Task Outsourcing Strategy to being a Specialized Service Outsourcing Strategy requiring technical or domain expertise.
    • It can range from being an Industry-Specific Outsourcing Business Strategy to being a General-Domain Outsourcing Business Strategy.
    • ...
    • It can involve strategic contracts with third-party organizations that define service level agreements (SLAs) to ensure performance and quality standards.
    • It can lead to increased flexibility and scalability.
    • It can pose risks, such as loss of control over certain business functions, dependence on external providers, and potential data security issues.
    • It can facilitate global collaboration, enabling businesses to tap into a worldwide talent pool and innovative solutions that may not be available internally.
    • It can also help companies focus on their core competencies while delegating non-core functions to specialized third-party providers.
    • It can result in variable cost structures instead of fixed costs, improving a company's financial flexibility.
    • It can be enhanced by modern communication technologies and cloud computing.
    • It can be linked to Offshoring Business Process Reengineering Pattern, which shifts specific processes to other regions.
    • It can overlap with strategies like Crowdsourcing System and Botsourcing Business Reengineering Pattern, where external entities (human or automated) are involved in fulfilling tasks.
    • It can also be part of broader Privatization Transaction or Managed Service arrangements that hand over control of public or private sector services to external organizations.
    • ...
  • Example(s):
    • Crowdsourcing (such as crowdworking), where tasks are distributed to a large, undefined group of people, often via online platforms.
    • Offshoring, where business functions are relocated to another country to take advantage of lower costs and favorable conditions.
    • Business Process Outsourcing (BPO), where entire processes such as HR, payroll, and customer support are outsourced to external service providers.
    • Knowledge Process Outsourcing (KPO), where specialized, knowledge-based tasks such as legal services, market research, or R&D are outsourced.
    • IT Outsourcing, where technology-related tasks, including software development, system maintenance, and network management, are outsourced to an external provider.
    • Logistics Outsourcing, where supply chain management functions like warehousing, transportation, and distribution are outsourced to third-party logistics providers (3PLs).
    • Call Center Outsourcing, where customer service and support are handled by external providers, often located in regions with lower labor costs.
    • …
  • Counter-Example(s):
    • Insourcing, where processes are brought back in-house to be performed by the company's internal team.
    • Onshoring, where business functions are relocated within the same country, often to a different region with lower costs.
    • Botsourcing, where robotic process automation (RPA) replaces human labor in performing repetitive, rules-based tasks instead of outsourcing to an external provider.
  • See: Production Costs, Pricing, Contract, Vertical Integration.

References

2024

  • (Wikipedia, 2024) ⇒ https://en.wikipedia.org/wiki/outsourcing Retrieved:2024-9-5.
    • Outsourcing is a business practice in which companies use external providers to carry out business processes that would otherwise be handled internally, [1] Outsourcing sometimes involves transferring employees and assets from one firm to another. The term outsourcing, which came from the phrase outside resourcing, originated no later than 1981 at a time when industrial jobs in the United States were being moved overseas, contributing to the economic and cultural collapse of small, industrial towns. [2] [3] In some contexts, the term smartsourcing is also used. [4] The concept, which The Economist says has "made its presence felt since the time of the Second World War", often involves the contracting out of a business process (e.g., payroll processing, claims processing), operational, and/or non-core functions, such as manufacturing, facility management, call center/call center support. The practice of handing over control of public services to private enterprises (privatization), even if conducted on a limited, short-term basis, may also be described as outsourcing. Outsourcing includes both foreign and domestic contracting, and therefore should not be confused with offshoring which is relocating a business process to another country but does not imply or preclude another company. [5] In practice, the concepts can be intertwined, i.e. offshore outsourcing, and can be individually or jointly, partially or completely reversed,[6] as described by terms such as reshoring, inshoring, and insourcing.

2014

  • (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/Outsourcing Retrieved:2014-6-5.
    • In business, outsourcing is the contracting out of a business process to a third-party. The term "outsourcing" became popular in the United States near the turn of the 21st century. Outsourcing sometimes involves transferring employees and assets from one firm to another, but not always. Outsourcing is also used to describe the practice of handing over control of public services to for-profit corporations. [7] Outsourcing includes both foreign and domestic contracting,[8] and sometimes includes offshoring or relocating a business function to another country. [9] Financial savings from lower international labor rates is a big motivation for outsourcing/offshoring.

      The opposite of outsourcing is called insourcing, which entails bringing processes handled by third-party firms in-house, and is sometimes accomplished via vertical integration. However, a business can provide a contract service to another business without necessarily insourcing that business process.

  1. ↑ Smale, T., In-House or Outsourced? How Do You Decide?, Entrepreneur, published 1 March 2017, accessed 24 December 2022
  2. ↑ Outsource 1979, outsourcing 1981:
  3. ↑ OED
  4. ↑ Nevin, M., Insourcing / Outsourcing / SmartSourcing - A new paradigm for innovating the IT Supply chain, accessed on 15 August 2024
  5. ↑ Davies, Paul. What's This India Business?: Offshoring, Outsourcing, and the Global Services Revolution. London: Nicholas Brealey International, 2004. Print.
  6. ↑ Cite error: Invalid <ref> tag; no text was provided for refs named DELL.back
  7. ↑ Jamieson, Dave, "Public Interest Group Challenges Privatization Of Local, State Government Services", The Huffington Post, July 1, 2013. Retrieved 2013-07-01.
  8. ↑ Hira, Ron, and Anil Hira. Outsourcing America: What's behind Our National Crisis and How We Can Reclaim American Jobs? New York: AMACOM, 2008. Print # 67-96.
  9. ↑ Davies, Paul. What's This India Business?: Offshoring, Outsourcing, and the Global Services Revolution. London: Nicholas Brealey International, 2004. Print.


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