What do we mean by 'outsourcing'?

Reading all the statistics that come out regarding outsourcing has made me wonder if there is any consistency in the usage of the word "outsourcing".

At its simplest and broadest, outsourcing is a relationship where one party acquires services from another. This definition makes no distinction regarding, either the types of services or the nature of the relationship between the two parties (eg. a series of individual projects or continuous services).

More commonly used terminology of ITO (information outsourcing) and BPO (business process outsourcing) is often used to attempt to more clearly define a subset of service types. Such terms are generally understood to exclude services such as cleaning and food preparation, for example, and to exclude project type work (eg. printing of business cards).

Why do we care about this vagueness? Consider two publications.

The first is the most recognized and authoritative data on the ITO and BPO markets published by TPI in its TPI Index. One of the reasons this data is so well respected is that it defines attributes of the market that it measures. Specifically, it sets a lower limit on contract values and it excludes outsourcing where the buyer is government. While that naturally yields data on a subset of the outsourcing market in its broadest terms, it does provide consistency and reliability that is so often lacking in our industry.

The second is an article in China Daily that says: "According to the Chinese Ministry of Commerce, TCV of contracts awarded to China's outsourcing industry in 1H09 increased by 32.5 percent to US$2.6 billion. More than 1,400 new firms were set up and 297,000 people joined the industry during the first half." In no way am I challenging the accuracy of that data but as a reader, the lack of definition regarding what is being measured is such that the usability of the data is greatly reduced. Just think how much more powerful that data would be if it was linked to attributes that were as clear as those used by TPI.

As outsourcing continues to mature as a professional management technique, clarity will undoubtedly take on greater importance. If you've got examples, good or bad, of such clarity, please share them via Talkback.

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Michael Rehkopf

Michael has more than 20 years of experience in operations, strategy and sourcing covering all major parts of the globe. He has also worked for Australian, Canadian, German and Japanese companies in both business process outsourcing and IT outsourcing.
Michael's industry experience includes the financial services, manufacturing, telecommunications and travel sectors. He leverages this diverse industry experience and his university background in accounting, IT and his Master of Dispute Resolution, to assist clients in the development of business strategies and the implementation of sourcing strategies. These include the associated evaluation, negotiation and organizational change.
Michael is currently a partner at TPI, the world's oldest and largest sourcing advisory firm. Prior to joining TPI, Michael held leadership positions with Siemens Business Services, OpenPlus International, Mitsubishi Electric and Netron.