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.
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