Outsourcing

Outsourcing became part of the business lexicon during the 1980s and refers to the delegation of non-core operations from internal production to an external entity specializing in the management of that operation. Outsourcing is utilizing experts from outside the entity to perform specific tasks that the entity once performed itself.

The process of outsourcing formalizes the description of the non-core operation into a contractual relationship between the client and the supplier. Under the new contractual agreement the supplier acquires the means of production which may include people, processes, technology, intellectual property and assets. The structure of the client organization changes as the client agrees to procure the services of the outsourcer for the term of the contractual agreement.

The decision to outsource is often made in the interest of lowering firm costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of labor, capital, technology and resources.

Outsourcing involves the transfer of the management and/or day-to-day execution of an entire business function to an external service provider.[1] The client organization and the supplier enter into a contractual agreement that defines the transferred services. Under the agreement the supplier acquires the means of production in the form of a transfer of people, assets and other resources from the client. The client agrees to procure the services from the supplier for the term of the contract. Business segments typically outsourced include information technology, human resources, facilities and real estate management, and accounting. Many companies also outsource customer support and call center functions, manufacturing and engineering.

Outsourcing and offshoring are used interchangeably in public discourse despite important technical differences. Outsourcing involves contracting with a supplier, this may or may not involve some degree of offshoring. Offshoring is the transfer of an organizational function to another country, regardless of whether the work is outsourced or stays within the same corporation[2][3] . With the globalization of outsourcing companies the distinction between outsourcing and offshoring will become less clear over-time. This is evident in the increasing presence of Indian outsourcing companies in the U.S. and UK. The globalization of outsourcing operating models has resulted in new terms such as nearshoring and rightshoring that reflect the changing mix of locations. This is seen in the opening of offices and operations centers by Indian companies in the U.S. and UK.[4].[5]

Multisourcing refers to large (predominantly IT) outsourcing agreements. [6] Multisourcing is a framework to enable different parts of the client business to be sourced from different suppliers. This requires a governance model that communicates strategy, clearly defines responsibility and has end-to-end integration.[7]

Outsourcing suppliers include; BT, Capgemini, Capita, CSC, EDS, Fujitsu, Infosys, LogicaCMG, PricewaterhouseCoopers, Unisys and Wipro.

Process of outsourcing

[edit] Deciding to outsource

The decision to outsource is taken at a strategic level and normally requires board approval. Outsourcing is the divestiture of a business function involving the transfer of people and the sale of assets to the Supplier. The process begins with the Client identifying what is to be outsourced and building a business case to justify the decision. Only once a high level business case has been established for the scope of services will a search begin to choose an outsourcing partner.

[edit] Supplier competition

A competition is held where the Client marks and scores the supplier proposals. This may involve a number of face-to-face meetings to clarify the client requirements and the supplier response. The suppliers will be qualified out until only a few remain. This is known as down select in the industry. It is normal to go into the due diligence stage with two suppliers to maintain the competition. Following due diligence the suppliers submit a Best and Final