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July 1, 2020

ORIGIN AND DEVELOPMENT OF OUTSOURCING

Few out of the seven ‘Wh’ words (What, Why, When, Where, Which, Whose and How) often juggle in our minds when we hear about something.  The intellect of 21st Century is always curious to explore, to go the depth of everything.  So, when we discuss about Outsourcing, the first thing that comes in our mind is what is outsourcing and how it became a contemporary trend.  Through this blog I will take you on a virtual tour. So you can experience and understand the industrial revolution of 20th century, its impact and how the concept of Outsourcing developed.

Outsourcing is a business practice that allows companies of all sizes to grow and develop as needed, without any major risk and investment.  But the concept never developed over night.  The model for most of 20th century was for large integrated companies that can directly control and manage its assets. Since the Industrial Revolution, companies have grappled how they can exploit their competitive advantage to increase their markets and their profits.  In the 1950’s and 1960’s, the rallying cry was diversification to broaden corporate base and take advantage of economy of scale.  By diversifying, companies expected to protect profits, even though expansion required multiple layers of management. Subsequently Organizations attempting to compete globally in the 1970’s and 1980’s were handicapped by a lack of agility that resulted from bloated management structures.  To increase their flexibility and creativity, many large companies developed a new strategy of focusing on their core business, which required identifying non-value added processes and deciding which ones to outsource.

The practice of Outsourcing started in 1970’s and grew popular in 1980’s as a way for companies to reduce their internal cost structure.  Outsourcing was not formally identified as a business strategy until 1989 (Mullin,1996).  Organizations started using outsourcing as a way of hiring cheaper talent.  They used outside resources to complete tasks they were not self-sufficient in; they outsourced functions for which they have no competency internally.  Technology resources like engineers and developers were a big part of this.  In the 1990’s,organizations began to focus more on cost saving measures; they started to outsource those functions necessary to run a company but not related specifically to the core business.  The scope of outsourcing started changed tremendously.  Managers contracted with emerging service companies to deliver accounting, data entry, call center, human resources, data processing, email support, virtual security, and many other services.  Outsourcing functions for cost savings is something that’s still heavily exercised today. And now more than ever COVID19 put a whole new spin on outsourcing,organizations of all size and industries have started using this process of engaging a third party, either locally or internationally to handle certain business activities for them at a lower cost. The use of remote teams, virtual assistant and the ability to work from anywhere in the world has made during business easier, faster and lower in cost.  

By: Sharmistha (Sam) Singha Roy

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