Definition of Outsourcing
The Webster's Universal Dictionary meaning of "Outsourcing" is: "A
company or person that provides information; to find a supplier or
service, to identify a source". It is very important to be clear
about what is meant by outsourcing. Outsourcing essentially refers
to how things are done rather than what is done. It describes how
for example IT services are obtained; not what the services are.
Very simply outsourcing can be defined as a process in which a
company delegates some of its in-house operations/processes to a
third party. Thus outsourcing is a contracting transaction through
which one company purchases services from another while keeping
ownership and ultimate responsibility for the underlying processes.
The clients inform their provider what they want and how they want
the work performed. So the client can authorize the provider to
operate as well as redesign basic processes in order to ensure even
greater cost and efficiency benefits.
Although the above definition of outsourcing may seem very
similar to contracting, it is to be said that contracting and
outsourcing are in no way related. Generally in contracting the
ownership or control of the operation or process being contracted is
with the parent company, whereas in outsourcing the control of the
process is with the third party instead of the parent company. So in
other words, outsourcing can be defined as phenomena in which a
company delegates a part of its in-house operations to a third party
with the third party gaining full control over that
operation/process.
One way of looking at it is that outsourcing is just a name for
already existing practices. Services such as, bureau services,
contract programming and project management have been outsourced for
a long time. In its present meaning, however, outsourcing refers to
a greater level of handing over ownership and/or managerial control
than has before been the case.
Companies turn to resources outside their organizational structure
usually to save money and/or make use of the skilled professionals.
For instance, a company might outsource its IT management because it
is cheaper to contract a third-party to do so than it would be to
build its own in-house IT management team. Or a company could
outsource all of its data storage needs because it is easier and
cheaper than buying and maintaining its own data storage devices. A
business might also outsource its human resource tasks to another
enterprise instead of having its own dedicated human resources
staff.
