In business, outsourcing involves the contracting out of a business process to another party (compare business process outsourcing). The concept "outsourcing" came from American Glossary 'outside resourcing' and it dates back to at least 1981. Outsourcing sometimes involves transferring employees and assets from one firm to another, but not always.
Outsourcing is also the practice of handing over control of public services to for-profit corporations. Outsourcing can also be viewed as any assistance from an intermediary that is more capable of or familiar with certain practices than us. It is just a way of seeking for assistance. Outsourcing includes both foreign and domestic contracting and sometimes includes offshoring (relocating a business function to another country). Financial savings from lower international labor rates can provide a major motivation for outsourcing or offshoring. The opposite of outsourcing, insourcing, entails bringing processes handled by third-party firms in-house, and is sometimes accomplished via vertical integration. However, a business can provide a contract service to another business without necessarily insourcing that business process.
Outsourcing is a very important tool for reducing cost and improving quality. If an organization does one or all its work by itself, its work may affect its production quality. So, an organization must recognize some important areas where it can reduce its costs and maintain high quality in its products and/or services.
Greater physical distance between higher management and the production-floor employees often requires a change in management methodologies, as inspection and feedback may not be as direct and frequent as in internal processes. This often requires the assimilation of new communication methods such as voice over IP, instant messaging, and Issue tracking systems, new time management methods such as time tracking software, and new cost- and schedule-assessment tools such as cost estimation software.
Communications and customer service
In the area of call centers end-user-experience is deemed to be of lower quality when a service is outsourced. This is exacerbated when outsourcing is combined with offshoring to regions where the first language and culture are different. Foreign call center agents may speak with different linguistic features such as accents, word use and phraseology, which may impede comprehension. The visual cues that are missing in a telephone call may lead to misunderstandings and difficulties.
Before outsourcing, an organization is responsible for the actions of their entire staff, sometimes a substantial liability. When these same people are transferred to an outsourcer, they may not even change desks. But their legal status changes. They are no longer directly employed by (and responsible to) the organization. This creates legal, security and compliance issues that are often addressed through the contract between the client and the suppliers. This is one of the most complex areas of outsourcing and sometimes involves a specialist third-party adviser.
Outsourcing has gone through many iterations and reinventions. Some outsourcing contracts have been partially or fully reversed, citing an inability to execute strategy, lost transparency & control, onerous contractual models, a lack of competition, recurring costs, hidden costs, and so on. Many companies are now moving to more tailored models where along with outsource vendor diversification, key parts of what was previously outsourced has been insourced. Insourcing has been identified as a means to ensure control, compliance and to gain competitive differentiation through vertical integration or the development of shared services. Insourcing at some level also tends to be leveraged to enable organizations to undergo significant transformational change. Further, the label outsourcing has been found to be used for too many different kinds of exchanges in confusing ways. For example, global software development, which often involves people working in different countries, cannot simply be called outsourcing. The outsourcing-based market model fails to explain why these development projects are jointly developed, and not simply bought and sold in the marketplace. Recently, a study has identified an additional system of governance, termed algocracy, that appears to govern global software projects alongside bureaucratic and market-based mechanisms.
The study distinguishes code-based governance system from bureaucracy and the market, and underscores the prominent features of each organizational form in terms of its ruling mechanism: bureaucracy (legal-rational), the market (price), and algocracy (programming or algorithm). So, global software development projects, though not insourced, are not outsourced either. They are in-between, in a process that is sometimes termed "remote in-sourcing". Projects are developed together where a common software platform allows different teams around the world to work on the same project together.