What is “IT Outsourcing”? What is “IT Offshoring”?
There are many different definitions and uses to terms like IT Outsourcing, Offshoring, Offshore Outsourcing, Business Process Outsourcing, Freelancing, Open Outsourcing, Hosted Service Provider, Application Service Provider and so on. They are different aspects and perspectives to a business domain I call “IT Outsourcing”.
As another starting point you may take some vague descriptions from Wikipedia, the free encyclopedia, gives us:
- Outsourcing (or contracting out) is often defined as the delegation of non-core operations or jobs from internal production within a business to an external entity (such as a subcontractor) that specializes in that operation. Outsourcing is a business decision that is often made to lower costs or focus on core competences. A related term, offshoring, means transferring work to another country, typically overseas. Offshoring is similar to outsourcing when companies hire overseas subcontractors, but differs when companies transfer work to the same company in another country. Outsourcing became a popular buzzword in business and management in the 1990s. EDS was the first company to establish the outsourcing business.
- Business Process Outsourcing (BPO) is the leveraging of technology or specialist process vendors to provide and manage an organisation’s critical and/or non-critical enterprise processes and applications. The most common examples of BPO are call centres, human resources, accounting and payroll outsourcing. Business process outsourcing may involve the use of off-shore resources. Use of a BPO as opposed to an application service provider (ASP) usually also means that a certain amount of risk is transferred to the company that is running the process elements on behalf of the outsourcer. BPO includes the software, the process management, and the people to operate the service, while a typical ASP model includes only the provision of access to functionalities and features provided or ’served up’ through the use of software, usually via web browser to the customer.
- An application service provider (ASP) is a business that provides computer-based services to customers over a network. The most limited sense of this business is that of providing access to a particular application program (such as medical billing) using a standard protocol such as HTTP. The importance of this marketplace is reflected by its size. As of early 2003, estimates of the United States market range from 1.5 to 4 billion dollars. Clients for ASP services include businesses, government organizations, non-profits, and membership organizations.
- Outsourcing, Offshoring, and Offshore Outsourcing: Note that “outsourcing,” “offshore outsourcing,” and “offshoring” are used interchangeably in public discourse despite important technical differences. To be consistent, “outsourcing,” in corporate context, represents an organizational practice that involves the transfer of an organizational function to a third party. When this third party is located in another country the term “offshore outsourcing” makes more sense. “Offshoring,” in contrast, represents the transfer of an organizational function to another country, regardless of whether the work stays in the corporation or not. In short, “outsourcing” means sharing organizational control with another organization, or a process of establishing network relations within an organizational field. “Offshoring,” on the other hand, represents a relocation of an organizational function to a foreign country, not necessarily a transformation of internal organizational control.
- Shared services: Organizations now often establish shared services within their firm as an alternative to outsourcing. Shared Services are the convergence and streamlining of an organization’s functions to ensure that they deliver the organization the services required of them as effectively and efficiently as possible. Rather than having a department (e.g. human resources) devolved over a number of offices, a shared service is the centralizing and convergence of these. This often involves the centralizing of back office functions such as HR and Finance but can also be applied to the middle or front offices. A key advantage of this convergence is that it enables the appreciation of economies of scale within the function and can enable multi function working (e.g. linking HR and Finance together, where there is the potential to create synergies). A large scale cultural and process transformation is often a key component of a move to shared services. This transformation often results in a better quality of work life for employees.
- Selective Outsourcing or Out-tasking is a term used to describe the turning over a narrowly-defined segment of business to another business, typically on an annual contract, or sometimes a shorter one. This usually involves continued direct or indirect management and decision-making by the client of the out-tasking business.
