outsourcing:
In business, outsourcing involves the contracting out of a business process to another party (compare business process outsourcing). The concept "outsourcing" came from American Glossary 'outside resourcing' and it dates back to at least 1981.[1][2] Outsourcing sometimes involves transferring employees and assets from one firm to another, but not always.[3] Outsourcing is also the practice of handing over control of public services to for-profit corporations.[4]
Outsourcing includes both foreign and domestic contracting,[5] and sometimes includes offshoring (relocating a business function to another country).[6] Financial savings from lower international labor rates can provide a major motivation for outsourcing or offshoring.
The opposite of outsourcing, insourcing, 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.
Overview
Two organizations may enter into a contractual agreement involving an exchange of services and payments. Outsourcing is said to help firms to perform well in their core competencies and mitigate shortage of skill or expertise in the areas where they want to outsource.[7]
In the early 21st century, businesses increasingly outsourced to suppliers outside their own country, sometimes referred to as offshoring or offshore outsourcing. Several related terms have emerged to refer to various aspects of the complex relationship between economic organizations or networks, such as nearshoring, crowdsourcing, multisourcing[8][9]and strategic outsourcing.[10]
Outsourcing can offer greater budget flexibility and control. Outsourcing lets organizations pay for only the services they need, when they need them. It also reduces the need to hire and train specialized staff, brings in fresh engineering expertise, and reduces capital and operating expenses.[11]
“Do what you do best and outsource the rest” has become an internationally recognized business tagline first “coined and developed”[12] in the 1990s by the “legendary management consultant” Peter Drucker.[13] The slogan was primarily used to advocate outsourcing as a viable business strategy. It has been said that Mr. Drucker began explaining the concept of “Outsourcing” as early as 1989 in his Wall Street Journal (WSJ) article entitled “Sell the Mailroom.”
From Drucker’s perspective, a company should only seek to subcontract in those areas in which it demonstrated no special ability.[14] The business strategy outlined by his slogan recommended that companies should take advantage of a specialist provider’s knowledge and economies of scale to improve performance and achieve the service needed.[15]
In 2009 by way of recognition, Peter Drucker posthumously received a significant honor, when he was inducted into the Outsourcing Hall of Fame for his outstanding work in the field.[16]
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