Definition of Outsourcing

Outsourcing is usually the term used when a company takes a part of its business and gives that part to another company. In recent times, the terms has been most commonly used for technology related initiatives such as handing over the IT help-desk to a third-party. But it can also refer to non-technical services such as handing over the telephone-based customer service department.

The recipients for outsourced activities are generally in the same country. When a company on another continent is involved e.g. India, the correct term to use is offshore outsourcing. Nearshore outsourcing refers to outsourced projects that are outside the country, but on the same continent e.g. a US company outsourcing activities to a company in Canada would be called nearshore outsourcing.

Although the main objective of outsourcing is often cost reduction, many companies fail to realize any cost benefits. In particular, Gartner is predicting that by 2007, 80% of organizations that outsource customer service projects with the primary goal of cutting costs, will fail in that attempt. Part of the reasoning behind this statistic is the high staff attrition rates at outsourcing companies, sometimes
as high as 80% to 100%. Combine this added cost from attrition along with the hidden costs of client loss due to increased frustration and it's clear that an outsourcing engagement, if not careful monitored, can easily fail.

Related Terms

• Nearshore Outsourcing
• Offshore Outsourcing

Other Definitions