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 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.
The concept started with Ross Perot when he founded
Electronic Data Systems in 1962. EDS would tell a
prospective client, "You are familiar with designing,
manufacturing and selling furniture, but we're familiar
with managing information technology. We can sell you the
information technology you need, and you pay us monthly
for the service with a minimum commitment of two to ten
years." 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.
Outsourcing business is characterized by expertise not
inherent to the core of the client organization.
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.
In the corporate environment, the term “outsourcing”
often refers to a particular type of outsourcing, business
process outsourcing (BPO). BPO occurs when an organization
turns over the management of a particular business process
(such as accounting or payroll) to a third party that
specializes in that process. The underlying theory is that
the BPO firm can complete the process more efficiently,
leaving the original firm free to concentrate on its core
competency.