We are constantly being asked for a definition of outsourcing, especially by students and researchers.  Following is a high-level definition covering outsourcing in general, IT outsourcing, business process outsourcing and knowledge process outsourcing.

Outsourcing 

Outsourcing is the process of contracting a third party to manage or operate a non-core business function in order to reduce cost and increase efficiency.  Outsourcing is typically conducted offsite by companies who have the infrastructure, manpower and know how to run the business function at a profit. Offshore outsourcing or “offshoring” is the process of outsourcing a business function in another country, typically to take advantage of lower labor costs and greater access to technical skill sets. In contrast, nearshore outsourcing or “nearshoring” is the process of outsourcing a business function in a contiguous or same-continent country. The advantage of this, according to proponents, is time zone, language and cultural similarities which enable business to flow more smoothly.

 IT Outsourcing

IT Outsourcing involves the external management of an IT process or system by a third party in order to reduce cost and improve efficiency.  IT Outsourcing is typically conducted offsite by companies who have the infrastructure, manpower and know how to run the IT process or system at a profit.  The term IT outsourcing encompasses a variety of IT services, from mainframe management to remote systems administration, database administration, security management, application hosting, website design and hosting, and custom software design, development and maintenance.

Business Process Outsourcing

The term business process outsourcing (BPO) was coined to differentiate IT outsourcing services from more manual or manpower-intensive services, such as back office, call center and human resources (HR) services.   The most common types of BPO projects involve high-volume data entry, data processing, document scanning and coding.

Knowledge Process Outsourcing

Knowledge process outsourcing (KPO) is the outsourcing of white collar knowledge work, such as research, analysis, writing, report preparation and professional consulting support. Heralded as a step up the value chain from BPO, KPO is harder to commoditize and less capital and infrastructure-intensive. India, with its large English-speaking talent pool, is uniquely positioned to ride the KPO wave. India’s leadership in IT outsourcing plays a big part in this ride, as many KPO services require the use of publishing, business intelligence, computer-aided design and search technologies. Other KPO rising stars include the Czech Republic, China, Ireland, Israel and Russia.

Some of the challenges facing KPO include a lack of domain experts to fill the demand, confidentiality and security concerns, and the need to maintain high standards. Western companies that work closely with their KPO vendors to recruit, train and groom offshore knowledge workers will reap the greatest rewards.