Although the practice has been in existence since the idea of work delegation and division of labor emerged centuries ago, the word ‘outsourcing’ was not used until the 1980s. It simply means the process of contracting the goods and/or employing the services of another company to conduct certain activities or areas of business. Thus, these companies are commonly called third-party or service providers.
Since then, several bywords or “branches” of outsourcing came into the picture. There’s Business Process Outsourcing (BPO) which would deal with payroll, compensation and benefits management, and other functions that are not part of the main business strategy. Another is Information Technology Outsourcing (ITO) or IT-Enabled Services (ITES) which concentrates on IT-related tasks, including applications development and management, data center and testing operations.
Some more spin-offs of outsourcing are the Knowledge Process Outsourcing (KPO) and Business Transformation Outsourcing (BTO). The former encompasses methods that need greater skills and expertise like research and development, quality assurance, and legal functions; while the latter involves service providers that play a part in creating more dynamic and adaptable ventures for the company.
Many others have been in existence before but are being given a new life in conjunction to the outsourcing boom, such as Software R&D to develop and enhance computer programs, and Marketing Outsourcing (i.e., advertising agencies) to promote the company’s image.
The location of the service provider is also used to classify outsourcing. When the contractor is in the client’s own country, it is called ‘onshore.’ For those outside, it is called ‘offshore’ except when it’s a neighbouring country, it becomes ‘nearshore.’
The idea of outsourcing has a lot to do with specialization. Outsourced functions are usually those that are not central or strategic to the business, such as payroll or janitorial services. There are companies who dedicate themselves to these services so you can be sure of adequate and competent staff. Also, outsourcing would oftentimes mean less expenses and hassle than when it is done in-house.
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