In business, outsourcing is an agreement in which one company contracts its own internal activity to a different company.
It involves the contracting out of a business process (e.g. payroll processing, claims to process) and operational, and/or non-core functions (e.g. manufacturing, facility management, call center support) to another party (see also business process outsourcing).
The concept “outsourcing” came from the American Glossary ‘outside resourcing’ and it dates back to at least 1981. Outsourcing sometimes, though not always, involves transferring employees and assets from one firm to another. Outsourcing is also the practice of handing over control of public services to private enterprise.
BOT (Build Operate Transfer) – a model of outsourcing wherein the customer works contractually with an in-country service provider to build, staff and handle a development or processing center. Once the center is fully operational, ownership is transferred to the customer.
BPO – engaging the services of an external provider to manage certain non-core yet critical processes of an organization. BPO services come under the larger outsourcing umbrella.
Captive Center – a model of outsourcing that is an extension of the customer’s facilities in an offshore location. Customers have complete ownership and control over total operations offshore.
Cloud Computing – the logical computational resources (data, software) accessible via a computer network (through WAN or Internet) rather than from a local computer. The online service can be offered from a cloud provider or by a private organization from a facility located elsewhere.
Core Competency – the field of core expertise of a particular business. In terms of outsourcing, this is the valuation of knowledge and workability by an outsourcer in a particular field or industry.
E-Outsourcing – a new trend, it is the activity of a company purchasing its IT products or services using the Internet, instead of using its in-house entities to manage and facilitate its IT requirements.
Globalization – the increasing unification of the world\’s economic order through reduction of barriers to international trade such as tariffs, export fees, and import quotas. In the outsourcing plane, this concept is very pertinent as business functions and extensions of companies are being facilitated by BPO firms and taking place far from the home base of companies.
Governance Structure – one or more persons appointed to a position to formulate strategies, draw out plans, make key decisions and manage execution of business processes. These bodies are set up on both sides of an outsourcing partnership.
Innovation – an outsourcer’s focus on a client’s priorities to enable them to compete with knowledge by making operations more efficient, productive and profitable through process excellence, domain expertise and the application of new ideas to forecast and tackle new challenges and opportunities.
Intelligent Growth – refers to a method of creating sustainable value for customers by their outsourcing partners. Execution of this concept requires to focus on chosen core competencies in conjunction with customer values.
ITeS – short for Information Technology Enabled Services, this is another way to refer to BPO services as most of the services are automated and use information technology as an enabler for processing and delivery.
Joint Venture –a model of outsourcing wherein an in-country and a foreign organization join up to share responsibility in terms of management, as well as risks and rewards that correspond to their investments.
Knowledge Process Outsourcing (KPO) – refers to judgment-based research and analytics and activities within an organization that requires a higher skill set, and domain-specific knowledge and experience. These knowledge-intensive services support and enable executive decision-making.
Legal Process Outsourcing (LPO) – involves providing legal support services to a law firm or enterprise legal department and functions within the general counsel’s office using the outsourcing model.
Nearshoring – outsourcing business processes to a facility that is located at a nearby country in order to gain benefits such as reduced travel costs, maintaining communication methods and expenses while lowering other operational costs.
Offshoring – outsourcing business processes to locations around the globe to reduce labor, tax, and operational costs.
Offshore Development Center – a model of outsourcing also known as third-party offshoring that essentially creates and supports a dedicated facility under contract to the customer. This model is particularly effective for customers seeking to quickly enter the market and minimize their start-up costs and partner with a service provider who can scale up and down to suit needs.
Onshoring – outsourcing business processes to a BPO firm that is within the same country. While the company gains benefits that come with intimate knowledge of in-country logistics, this method can be more expensive than other methods of outsourcing.
Outcoming – an increased level of transparency and information-sharing to gain a better delivery approach that is measured in ‘outcomes’. This method of outsourcing is geared toward a long-term partnership and strives to maintain a healthy communication line and high levels of trust.
Outsourcing – a strategic initiative that organizations take to employ external resources to conduct functions and run business processes that are both core and non-core activities and critical for business success.
Rightshoring – outsourcing business processes to locations that provide the best combination of cost and efficiency. It refers to maintaining a balance between processes that can remain domestic and those that can be outsourced overseas.
Shared Services Center – the management of administrative functions that are common to several business units into a centralized center that reduces duplication of work and offers superior service levels and lower costs with streamlined services. A shared services center enjoys the semi-autonomous status and is often the first step that an organization takes towards third-party outsourcing with a higher delegation of authority. The typical shared services center functions are human resource management, finance, and accounting, CRM activities, IT and supply chain.
SLA – short for Service Level Agreement, SLA is usually part of a larger negotiated agreement between customers and outsourcers that define different aspects of services. Outsourcers and their customers enter into SLAs to outline the level of services, the rate of services, monitoring of services, methods of measuring services and details of payment of services.
TCO – stands for Total Cost of Outsourcing and refers to financial estimates whose purposes are to determine the labor cost, tax rate, and other expenses included in the total business venture.
Transformation – sculpting business processes by an outsourcer for a customer that would facilitate operational excellence, save costs, enhance the brand image and create continuous value for the customer’s business.