Definition

outsourcing

Also see nearshore outsourcingonshore outsourcing, offshore outsourcing and business process outsourcing.

Outsourcing is a practice in which an individual or company performs tasks, provides services or manufactures products for another company -- functions that could have been or is usually done in-house. Outsourcing is typically used by companies to save costs.

Outsourcing is a common trend in information technology and other industries. Businesses outsource for services that are seen as intrinsic to managing a business and serving internal and external customers. Products, such as computer parts, and services, such as payroll and bookkeeping, can be outsourced. In some cases, the entire information management of a company is outsourced, including planning and business analysis as well as the installation, management, and servicing of the network and workstations.

Reasons for outsourcing

In addition to saving on overhead and labor costs, the reasons companies employ outsourcing include improved efficiency, greater productivity and the opportunity to focus on core products and functions of the business. Furthermore, more companies are looking to outsourcing providers as innovation centers. According to Deloitte's 2016 outsourcing survey, 35% of respondents said they are focused on measuring innovation value in their outsourcing partnerships.

Insourcing vs. outsourcing

The term outsourcing often refers to offshore outsourcing, or the practice of exporting work outside of the United States to companies in less-developed countries, where there tends to be lower labor costs. However, outsourcing is not always the most effective way for companies to save costs. Insourcing, or assigning tasks to people or departments in-house, is sometimes more cost-effective for businesses than hiring outside staff or companies. The term insourcing is sometimes used to refer to employing the U.S.-based subsidiaries of foreign global corporations, a practice also referred to as onshore outsourcing or domestic outsourcing.

Outsourcing can range from a large contract, in which a company like IBM manages IT services for a company like Xerox, to the practice of hiring independent contractors and temporary office workers on an individual basis.

This was last updated in August 2016

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