History of outsourcing.
The modern languages deal with an increasing number of new concepts and ideas. To cope with an ever-evolving vocabulary, languages use abstraction to help create the new concepts and ideas. Yet an unpleasant consequence of abstraction is that it tends to obscure the historical context of these ideas and concepts, erasing the potential for a better understanding of their true legacy and nature.
Outsourcing is one such abstracted term that has, over time, amassed considerable positive momentum as well as negative baggage. Outsourcing has been around since the time of the hunters and gatherers. Those who were strong hunters hunted and those who were strong gatherers gathered. Simply put, the primitive society perhaps subconsciously recognised the importance of specialisation and outsourced certain functions to those who excelled at them or, in economic terms, performed them more efficiently.
Over a period of time, many started equating outsourcing with specialisation (or division of labour). Outsourcing is a utilitarian concept used in business and accounting. From the accounting point of view, it is defined as the transfer of an internal service function to an outside vendor.
Outsourcing was not formally identified as a business strategy until 1989. However, most organizations were not totally self-sufficient; they outsourced those functions for which they had no competency internally. Outsourcing support services is the next stage. In the 1990s, as 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. Managers contracted with emerging service companies to deliver accounting, human resources, data processing, internal mail distribution, security, plant maintenance, and the like as a matter of "good housekeeping" (Alexander & Young, 1996). Outsourcing components to effect cost savings in key functions is yet another stage as managers seeks to improve their finances.
Why is it advantageous to buy services from the outside rather than conduct them from within the company?
The answer to this question, which is clearly outlined, is because the service providers who specialise in these services have developed efficiencies and learned how to offer high quality and competitive pricing.
Traditionally, companies have outsourced for tactical reasons - reduce costs, free up cash, obtain resources not available internally, and improve their performance. Outsourcing some functions can shift costs from fixed to variable, thus enhancing a company's ability to manage costs more effectively. If a company is moving into a new arena, outsourcing enables it to add new functions with minimal impact on internal resources. It is difficult to quarrel with cost savings, and the companies that approach outsourcing with careful planning save money. Surveying 30 companies, the Outsourcing Institute found they averaged a 9 percent cost savings and a 15 percent increase in capacity by outsourcing.