Outsourcing is a business practice in which companies use external providers to carry out business processes that would otherwise be handled internally, ^[1][2] or in-house.^[3] Outsourcing sometimes involves transferring employees and assets from one firm to another.

The term outsourcing, which came from the phrase outside resourcing, originated no later than 1981 at a time when industrial jobs in the United States were being moved overseas, contributing to the economic and cultural collapse of small, industrial towns.^[4][5][6]

The concept, which The Economist says has "made its presence felt since the time of the Second World War",^[7] often involves the contracting out of a business process (e.g., payroll processing, claims processing), operational, and/or non-core functions, such as manufacturing, facility management, call center/call center support.

The practice of handing over control of public services to private enterprises (privatization), even if conducted on a limited, short-term basis,^[8] may also be described as outsourcing.^[9]

Outsourcing includes both foreign and domestic contracting,^[10] and therefore should not be confused with offshoring which is relocating a business process to another country but does not imply or preclude another company.^[11] In practice, the concepts can be intertwined, i.e. offshore outsourcing, and can be individually or jointly, partially or completely reversed,^[12] as described by terms such as reshoring, inshoring, and insourcing.

Motivation

Global labor arbitrage can provide major financial savings from lower international labor rates, which could be a major motivation for offshoring. Cost savings from economies of scale and specialization can also motivate outsourcing, even if not offshoring. Since about 2015 indirect revenue benefits have increasingly become additional motivators.^[13][14]

Another motivation is speed to market. To make this work, a new process was developed: "outsource the outsourcing process".^[15] Details of managing DuPont's chief information officer Cinda Hallman's $4 billion 10-year outsourcing contract with Computer Sciences Corporation and Accenture were outsourced, thus avoiding "inventing a process if we'd done it in-house". A term subsequently developed to describe this is midsourcing.^[16][17][18]

Outsourcing can offer greater budget flexibility and control by allowing organizations to pay for the services and business functions they need, when they need them. It is often perceived to reduce hiring and training specialized staff, to make available specialized expertise, and to decrease capital, operating expenses,^[19] and risk.

"Do what you do best and outsource the rest" has become an internationally recognized business tagline first "coined and developed"^[20] in the 1990s by management consultant Peter Drucker. The slogan was primarily used to advocate outsourcing as a viable business strategy. Drucker began explaining the concept of "outsourcing" as early as 1989 in his Wall Street Journal article entitled "Sell the Mailroom".^[21]

From Drucker's perspective, a company should only seek to subcontract in those areas in which it demonstrated no special ability.^[22] 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.^[23]

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.^[22]

The biggest difference between outsourcing and in-house provision is with regards to the difference in ownership: outsourcing usually presupposes the integration of business processes under a different ownership, over which the client business has minimal or no control. This requires the use of outsourcing relationship management.^[24]

Sometimes the effect of what looks like outsourcing from one side and insourcing from the other side can be unexpected; The New York Times reported in 2001 that "6.4 million Americans .. worked for foreign companies as of 2001, more jobs are being outsourced than" .^[25]

Reasons for outsourcing

While U.S. companies do not outsource to reduce high top level executive or managerial costs,^[26] they primarily outsource to reduce peripheral and "non-core" business expenses.^[27] Further reasons are higher taxes, high energy costs, and excessive government regulation or mandates.

Mandated benefits like social security, Medicare, and safety protection (e.g. Occupational Safety and Health Administration regulations) are also motivators.^[28] By contrast, executive pay in the U.S. in 2007, which could exceed 400 times more than average workers—a gap 20 times bigger than it was in 1965,^[26] is not a factor.^{[citation needed]}

Other reasons include reducing and controlling operating costs,^[29] improving company focus, gaining access to world-class capabilities, tax credits,^[30] freeing internal resources for other purposes, streamlining or increasing efficiency for time-consuming functions, and maximizing use of external resources. For small businesses, contracting/subcontracting/"outsourcing" might be done to improve work-life balance.^[31]

History

20th century

Following the adding of management layers in the 1950s and 1960s to support expansion for the sake of economy of scale, corporations found that agility and added profits could be obtained by focusing on core strengths; the 1970s and 1980s were the beginnings of what later was named outsourcing.^[32] Kodak's 1989 "outsourcing most of its information technology systems"^[33] was followed by others during the 1990s.^[33]

In 2013, the International Association of Outsourcing Professionals gave recognition to Electronic Data Systems Corporation's Morton H. Meyerson^[34] who, in 1967, proposed the business model that eventually became known as outsourcing.^[35]

IT-enabled services offshore outsourcing

The growth of offshoring of IT-enabled services, although not universally accepted,^[36][37] both to subsidiaries and to outside companies (offshore outsourcing) is linked to the availability of large amounts of reliable and affordable communication infrastructure following the telecommunication and Internet expansion of the late 1990s.^[38] Services making use of low-cost countries included:

• back-office and administrative functions, such as finance and accounting, HR, and legal
• call centers and other customer-facing departments, such as marketing and sales services
• IT infrastructure and application development
• knowledge services, including engineering support,^[39] product design, research and development, and analytics

Early 21st century

In the early 21st century, businesses increasingly outsourced to suppliers outside their own country, sometimes referred to as offshoring or offshore outsourcing. Other options subsequently emerged including: nearshoring, crowdsourcing, multisourcing,^[40][41] strategic alliances/strategic partnerships, strategic outsourcing.^[42]

Forbes considered the 2016 U.S. presidential election "the most disruptive change agent for the outsourcing industry",^[43] especially the renewed "invest in America" goal highlighted in campaigning, but the magazine tepidly reversed direction in 2019 as to the outcome for employment.^[44] In the case of armament acquisition, section 323 of the National Defense Authorization Act for 2014 requires military personnel "to solicit information from all U.S.-owned arsenals regarding the capability of that arsenal to fulfill the manufacturing requirement" when undertaking a make-or-buy analysis.^[45]

Furthermore, there are growing legal requirements for data protection, where obligations and implementation details must be understood by both sides.^[46][47] This includes dealing with customer rights.^[48]

UK government policy notes that certain services must remain in-house, citing the development of policy, stewardship of tax spend and retention of certain critical knowledge as examples. Guidance states that specific criteria must govern the identification of such services, and that "everything else" could potentially be outsourced.^[49]

Limitations due to growth

Inflation, high domestic interest rates, and economic growth pushed India's IT salaries 10–15%, making some jobs relatively "too" expensive, compared to other offshoring destinations. Areas for advancing within the value chain included research and development, equity analysis, tax-return processing, radiological analysis, and medical transcription.

Growth of white-collar outsourcing

Although offshoring initially focused on manufacturing, white-collar offshoring/outsourcing has grown rapidly since the early 21st century. The digital workforce of countries like India and China are only paid a fraction of what would be minimum wage in the United States. On average, software engineers are getting paid between 250,000 and 1,500,000 rupees (US$4,000 to US$23,000) in India as opposed to $40,000–$100,000 in countries such as the U.S. and Canada.^[50] Closer to the U.S., Costa Rica has become a major source for the advantages of a highly educated labor force, a large bilingual population, stable democratic government, and similar time zones as the U.S. It takes only a few hours to travel between Costa Rica and U.S. Companies such as Intel, Procter & Gamble, HP, Gensler, Amazon and Bank of America have big operations in Costa Rica.^[51]

Unlike outsourced manufacturing, outsourced white collar workers have flextime and can choose their working hours, and for which companies to work. Clients benefit from remote work, reduced office space, management salary, and employee benefits as these individuals are independent contractors.^[52]

Ending a government outsourcing arrangement poses difficulties.^[53]

Variations

There are many outsourcing models, with variations^[54] by country,^[55] year^[56][57] and industry.^[58] Japanese companies often outsource to China, particularly to formerly Japanese-occupied cities.^[59] German companies have outsourced to Eastern European countries with German-language affiliation, such as Poland and Romania.^[60] French companies outsource to North Africa for similar reasons. For Australian IT companies, Indonesia is one of the major choice of offshoring destination. Near-shore location, common time zone and adequate IT work force are the reasons for offshoring IT services to Indonesia.^{[citation needed]}

Another approach is to differentiate between tactical and strategic outsourcing models. Tactical models include:

• Staff augmentation
• Project-based
• To gain expertise not available in-house

Strategic consultancy includes for business process improvement.^[61]

Innovation outsourcing

When offshore outsourcing knowledge work, firms heavily rely on the availability of technical personnel at offshore locations. One of the challenges in offshoring engineering innovation is a reduction in quality.^[62]

Co-sourcing

Co-sourcing is a hybrid of internal staff supplemented by an external service provider.^[63][64] Co-sourcing can minimize sourcing risks, increase transparency, clarity and lend toward better control than fully outsourced.^[65]

Co-sourcing services can supplement internal audit staff with specialized skills such as information risk management or integrity services, or help during peak periods, or similarly for other areas such as software development or human resources.

Identity management co-sourcing

Zdroj:https://en.wikipedia.org?pojem=In-house
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