Outsourcing is a business practice in which one company hires another company or individual to perform non-core tasks or handle operations previously done internally.
Outsourcing can involve working with freelancers, office workers, even FedEx Supply Chain for third-party logistics services, or Google Drive to store data on a cloud server.
This practice allows businesses to use external expertise to complete specific tasks, reduce costs, and focus on core activities.
While it benefits an organization, it comes with certain challenges.
Make sure you read this guide to learn more about it.
Historical Background of Outsourcing
Believe it or not, outsourcing has been around us for centuries. Yes, it is true.
The first known incident of outsourcing (or outside resourcing) happened during the American Revolution when the U.S. turned to France for help. France sent weapons, troops, and a navy, which played a key role in defeating the British.
This was one of the earliest examples of outsourcing support.
Then came the Industrial Revolution in the late 18th and early 19th centuries. Factories started outsourcing parts of production to other workshops to speed things up and cut costs.
By the 20th century, companies had grown too large to manage everything alone. So, they started outsourcing non-core tasks.
With the rise of technology in the 1980s, outsourcing became a full business strategy, and it is still growing today. It became a necessary part of business economics in the 1990s.
It is being used globally, including in the UK, the US & Canada.
Types of Outsourcing
Outsourcing can be categorized into many types depending on the location, function, etc.
Some common types of outsourcing are:
| Name | What Is Outsourced? | Tasks Involved |
| Professional Outsourcing | Non-core tasks of a company that require skilled professionals. | – Accounting – HR – Legal help – Marketing – Executive assistance |
| IT / Software Outsourcing | IT-related, technical functions | – Software development – App creation – Server management – Bug fixing – Cloud services |
| Business Process Outsourcing | General business operations that aren’t core to the company. | – Customer support – Billing – Payroll – Data entry – Call center work |
| Knowledge Process Outsourcing | Knowledge-intensive tasks that require specialized expertise. | – Data analysis – Legal research – Financial planning – Market research |
| Project Outsourcing | A complete project to handle from start to finish. | – Web development projects – Design projects – Research tasks – Product launches |
| Manufacturing Outsourcing | Designing, making, and/or packaging physical products. | – Product design – Assembly – Packaging – Production – Quality control |
That said, there are even some types of outsourcing that are categorized by location.
| Name | Definition | Tasks Involved |
| Onshore Outsourcing | Hiring a company within the same country to perform business tasks. | Any business function (IT, HR, customer service, logistics) |
| Nearshore Outsourcing | Working with a company in a nearby country to get help with business work. | – |
| Offshore Outsourcing | Outsourcing work to a company in a faraway country to cut costs and find skilled workers. | – |
IMPORTANT! What Are Core vs Non-Core Processes?
To clear up the confusion, let us tell you what core vs non-core business processes are.
Core processes are the key activities a company performs or the primary services that it provides to its customers and is known for.
Non-core processes support the core processes, but they don’t directly contribute to customer value or profit generation.
Let us give you an example of a bakery!
A bakery’s core process is baking fresh bread and cakes.
That is what customers come for.
But cleaning, bookkeeping, or answering phones are non-core tasks. They don’t bring in customers, but still need to be done.
So, the bakery can outsource those tasks and focus more on baking and selling.
Why Do Businesses or Companies Outsource Tasks?
Businesses outsource tasks primarily for two reasons:
- Save time
- Save on costs
Some tasks take up too much time and/or require special skills. Instead of hiring full-time staff for every job, companies hire outside experts.
This way, they can focus on what they do best—like creating products or serving customers.
For example, a law firm can partner with cloud-computing providers to store data and back up its files. This allows the firm to continue working on the client without investing time and money in technology.
Companies also outsource to access skilled labour without training anyone. It helps them work faster, stay competitive, and grow their business.
Many companies also outsource to handle customer support, IT, or payroll. These are important, but don’t directly grow the business.
A Few Cons of Outsourcing
Like anything, outsourcing does have some downsides (as it has advantages).
One major concern is losing control over how the work is done. Since the task is handled by someone outside the company, quality may not always meet expectations.
Communication issues can also happen during nearshore or offshore outsourcing. The hired team can have different time zones or languages.
Another risk is data security. Sharing sensitive information with third parties can lead to privacy problems if not handled properly.
Lastly, depending too much on an outside company can create problems if they fail to deliver.
So, while outsourcing helps in many ways, it needs careful planning and management.
Who Is the Right Outsourcing Solution Provider?
As just mentioned, outsourcing tasks can have a few downsides.
The best way to tackle them is to work with a company or service provider who is reliable.
Before taking any services, make sure they are a proper organization with satisfied customers. A company with proper organization can make your business fruitful.
So, before taking BPO services, there should be well-known organizations.
Trusted organizations provide the best services that ultimately result in increased business growth. After all, non-core processes also matter.
Conclusion
Outsourcing is important for every business or company that wants to grow with focus, without spending too much time on things that aren’t important.
From its early use in history to the many types we see now, outsourcing continues to grow.
But while it offers many benefits, it also comes with a few risks.
That is why the right outsourcing partner is so important. When done right, it can boost your business and make it more efficient.
