Derived from the phrase outside sourcing, outsourcing refers to a business practice that uses third-party service providers to perform certain functions that traditionally were done in-house.
Outsourcing has been present since the Industrial Revolution, when some companies started to shift the manufacturing of goods to developing countries in order to cut down on labor costs. In the 1960s, tasks like data processing were outsourced to external providers because of the cost and physical computer storage requirements. In the 1970s, it became common for computer companies to outsource their payroll processing. By 1980, outsourcing became part of the business vocabulary, but it was only in 1989 that it was recognized as a business strategy. From this point on, outsourcing continued to progress and became a growing industry in the latter part of the 1990s.
Today, there are different types of outsourced services that companies can utilize to fit the needs of their industries. Outsourcing can be onshore (in the same country), nearshore (in a nearby country but with lower labor costs), or offshore (to a country far from the domestic company and could be located in another continent). Other service types include business process outsourcing, IT, and manufacturer outsourcing.
Furthermore, there are types of outsourcing that provide specialized services to accomplish very specific tasks. These include professional outsourcing, process-specific outsourcing, and project outsourcing.
Outsourcing Specialized Services
1.Professional Outsourcing
Through professional outsourcing, companies can access a wide range of specialized services such as accounting, legal, digital marketing, computer-aided-design (CAD), administration, and purchasing. Sometimes, there are tasks that require additional training to be accomplished or need to be done by a licensed professional. Companies that require such tasks should consider professional outsourcing. For example, a business can get the services of a licensed accountant to help them comply with tax filing duties, or outsource the managing of their marketing needs like advertisem*nts and promotions.
2.Process-specific Outsourcing
It has become a common practice for companies to contract an external provider that specializes in a particular operation-related service. This is called process-specific outsourcing, where the contract of service includes a delivery timeline, product costs, and customer contacts. Under this type of outsourcing are three categories: (a) Knowledge process outsourcing (KPO), which deals with improving products or services through research and data analysis; (b) Legal process outsourcing (LPO), which involves providing legal needs such as litigation and regulatory compliance; and (c) Recruitment process outsourcing (RPO), which covers outsourcing recruitment and includes managing job postings, shortlisting applications, and evaluating candidates.
3.Project Outsourcing
When a company lacks the time, needed skills, manpower, or funds to manage a project, a portion of it, or several projects that need to be completed at the same time, they can opt for the service of an external provider. Examples of projects that can be outsourced are website design and production of marketing or sales collaterals such as advertisem*nts.
Whether big or small, most companies today outsource a certain process or specific tasks. Thus, besides knowing what outsourcing is, it is also important to study and be familiar with the different types of outsourcing to enable companies to choose the services they need to run their businesses. Consider the cost-effectiveness of outsourcing as a business strategy and how it could help boost overall productivity and efficiency.
