Outsourcing Made Simple

The term "outsourcing" is derived from "business process outsourcing", which has become increasingly popular (if controversial) in the last ten years. It is similar to contracting, though it is generally more complex and involves a separate business entity that is contracted to perform a particular business process rather than a single project. This business process is usually undertaken at a remote location, rather than on-site, and depending on the process, can be anywhere in the world.

Outsourcing is a simple concept and can be applied to a wide range of business functions and processes. It is common for outsourcing to be undertaken in the realm of software development or design, manufacturing, or production, but increasingly companies are choosing to outsource human resources and accounting processes, which are functions that have traditionally been performed in-house.

In certain extreme cases, some companies have acted only as management entities, while all aspects of the business workflow are outsourced to companies around the corner or around the world. These "management façades" can be little more than an office and a computer.

Outsourcing is clearly having a major effect on the traditional business model. The reason for this, quite simply, is cost savings and efficiency. With this said, however, one should be aware of the complexity of outsourcing in modern business.

Two more terms to know are "offshoring" and "multishoring" which are forms of outsourcing. Offshoring is the process of moving the functions of a business (or in some instances, the business itself) to a foreign location. This is a common element of outsourcing, as many outsourcing companies in certain business sectors are located in China or India.

A complicating element of outsourcing, and certainly one that one should be aware of in regard to outsourcing a potentially sensitive business process such as email, is multishoring. Multishoring is outsourcing of a project by an outsourcing company, creating a buffer between the originating business and the company actually doing the work. This is prevalent in manufacturing, though it is increasingly relevant to information technology and the outsourcing of digital business functions.

One example of this might find a U.S. company outsourcing a business function to a firm in India. The outsourcing company in India might find that it is cheaper to outsource that function to a firm in Vietnam, where the U.S. dollar is even stronger, then collect the difference for having done little more than broker a process outsource between two companies who otherwise would never have worked together.