Is it time to dump the term “outsourcing”?

Sunset_2Having worked on a large number of "O" initiatives with enterprises over the last few years, the term outsourcing has given me nothing but problems. The minute the "O" word is uttered, staff get defensive, passions get stirred, resistance occurs.  Often staff quickly brush up their CVs for a hasty exit before the axe falls.  Staff and management tend to associate outsourcing with job losses, and their firms using low-cost labor from service providers. 

But what else can you use when you are looking to move into a multi-year engagement with  third-party service provider, where you will use their staff, technology and processes and likely reduce your own inhouse overhead?  I have experienced companies trying to disguise the fact they are outsourcing by labeling their service initiative as "out-tasking", "co-sourcing", "right-sizing", or even "resource-optimizing" (oh, there is more…).   Peter Allen also chips in with his preferred term "services contracting".  However you want to spin it, your staff will view it as outsourcing, and the more you try and disguise the taboo term, the more suspicious your staff will be that you are simply trying to ship them out for lower-cost labor.   

Personally, I prefer the term "managed services", as staff are not always transitioned out of the organization, and management responsibility for running the contracted services is transitioned over to the third-party provider.  However, outsourcing has become ingrained in modern business vernacular, not dissimilar to information technology.  It describes the activity a company goes through when it engages a third-party to take on the management of specific IT or business services on a long-term basis.  However, I would stress that outsourcing these days describes the activity of evaluating and transitioning the processes and not normally the long-term management of them.  For example, if a company decides to engage ADP to take on its payroll services, it will say "we’re outsourcing our payroll to ADP".  However, ask the same company how they run their payroll a couple of years later, and it will say "we use ADP for payroll".  It won’t say "we outsource our payroll to ADP".

So all-in-all, if you are looking to outsource processes, be upfront with your staff and tell them you are looking at outsourcing opportunities.  Explain they are a key part of making this outsourcing initiative successful and you need them onboard to support the initiative.  It will be good for their career, and they will have the chance to take on new tasks that are more core the the business – for example vendor and service-level management and higher-level business activities that directly impact senior management decision-making.   The more upfront you are with what you are doing, the more your key staff will appreciate the honest communication, and the more likely they will be supportive and proactive in making it work.  If they still resist and try to derail the process, at least you know who the dissenters are and who may not be onboard the train once it has left the station.

If you have any preferred terms for outsourcing, I’d love to hear from you…

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47 Comments

  1. Posted April 27, 2008 at 3:48 pm | Permalink

    Phil:

    I think that, over time, “outsourcing” will become obsolete as a term simply because a mixture of “local and distributed human resources” will be so ubiquitous.

    I work in Internet consulting, and today I work with “local” colleagues across the greater LA/Orange County area. We regularly meet in person, but whenever possible we use IM, Skype and phones/texting to connect, allowing all of us greater productivity and time with our families. I also work on a weekly basis with colleagues in other parts of the U.S., from big cities to isolated rural areas, as well as those in Canada, Europe, and Asia. This arrangement allows me to pull together a highly specialized team with the ideal background for a client’s needs. It also sometimes allows me to save money, although that’s rarely the only motive for working with a remote resource. Frankly, it’s just more efficient than relying on the vagaries of the local job market to meet all my needs.

    While all of us find it sobering to know that we’re competing with a much broader resource pool than before, that can also open up new opportunities. I only ask that, as businesses and as a country, we avoid working with business partners who fail to maintain a reasonable level of worker and environmental protections, such as prohibiting child labor, etc. Beyond that, work can and should be distributed to the optimal workforce, wherever it can be found. I think you’ll agree that “optimal” is rarely a question of cost alone, but usually more of an overall value measure that includes education, reliability, expertise, etc. Now, let’s just make sure that we as individuals, and as a country, qualify as “optimal” for the great jobs of the future!

    Kathryn

  2. Posted April 27, 2008 at 7:07 pm | Permalink

    I know you are not looking for this answer(but this is my opinion):

    If it looks like a wolf, sounds like a wolf, eats like a wolf, snares like a wolf and walks like a wolf then I think you should call it a wolf.

    On another note if the term is giving such problems I can hardly imagine what the real actions generate ;-)

    And you can always call them external solutions for inside opportunities ;-)

  3. Posted April 27, 2008 at 7:14 pm | Permalink

    Dr. Coase got a Nobel prize for suggesting the mechanics that might define a firm’s boundaries. His work done in the thirties got him a Nobel prize for economics. It does not matter what this phenomenon is called – end of the day it is a classic “make-buy” conundrum that all organizations face.

    If you really ask me, there has never been anything revolutionary or new about outsourcing to begin with and never a need to call it anything different. It is a pure make vs. buy scenario.

  4. Posted April 27, 2008 at 8:06 pm | Permalink

    Phil:

    Having worked in x-sourcing before we had the name, I haven’t found a term that makes potentially affected audiences feel any less threatened. I use “global sourcing”, because it encompasses all the prefixes.

    It struck me recently, while doing my first work with the US federal govt and defense sector, that government has been doing outsourcing for decades under the terms “contracting”, “sub-contracting”, and “third party procurement”. They’ve developed a whole body of knowledge and expertise base that the outsourcing industry never really borrowed from, though it is at times over-engineered and can result in the proverbial $400 hammer.

    To me, global sourcing is the leading edge of a shift to “global talent networks” and the “horizontal organization”, but both of these terms are a little conceptual for the boardroom.

    Good luck in finding a term that doesn’t feel euphemistic and cynical. Unfortunately enough execs have used high-flying words to sell short-term, badly designed sourcing deals to associate “outsourcing” with fear and dissent among the rank-and-file, and I fear a rebranding won’t change that.

    Allan Tear
    http://www.aptuscollaborative.com

  5. Posted April 27, 2008 at 8:23 pm | Permalink

    I’d use “Distributed Delivery Model”. The term “Distributed” implies there’s a team involved, not a streambed change. And be assured, there will be components you can’t outsource – requirements gathering, architectural plans, and all those Prince 2 documents you need to keep the outsourced resources on track. You can’t outsource those, your your service provider will steal you blind.

  6. Posted April 27, 2008 at 8:42 pm | Permalink

    Phil:

    The software industry is amongst the most frictionless industries, yet the organizational lines are so rigid – its either “us” or “them”, hence the genesis of the term “outsourcing”. We (at Gridsolv) believe that the “global development” model needs to reinvent itself, through a network of suppliers (aka developers), akin to a global supply chain in the manufacturing industry.

    A “Global Software Development Network (SDN)” allows multiple vendors to collaborate with the host organization to create an efficient global business process.

    GLOOP is a collaborative platform, built by GridSolv to help subscribers realize the vision of a Global SDN.

    The word “outsourcing” will be history, only when the underlying business model changes – and that change would require service providers to offer real differentiation through hard, reusable assets and not just talk about their “engagement model”.

    BMW may have an extensive supply chain, but the core engine is built by them and is not sold on the open market. In that vein, our flagship “asset”, GLOOP is not available as a product, but packaged along with our “asset based services”.

    Girish in his comment says .. “if it is a wolf, you have to call it a wolf. I actually would agree with that comment. If “global development” continues to be practiced in the current manner, why bother calling it something else.

    The challenge is for service providers to re-invent themselves and when that happens, all sorts of replacement terms will begin to pop up.

    For now, we are going with a “Global Software Development Network”.

  7. Posted April 27, 2008 at 8:48 pm | Permalink

    Vikul:

    A shameless sales pitch, but great points… so I’ll let it ride :)

    Phil

  8. Posted April 27, 2008 at 9:02 pm | Permalink

    Interesting post Phil. I think we should start applying the acronym “WSL”. I’ve met with several heads of function who say, “boy, we really suck at (insert required outsourced service)”. The answer from the provider? We Suck Less. With enough repetition, WSL will really take the world by storm.

    By the way, I hope the sarcasm is coming through loud and clear. :)

  9. Sameer Bhatia
    Posted April 28, 2008 at 7:04 am | Permalink

    Suggesting one specific word for all outsourcing projects is a difficult task & may not meet expectations of all.

    You can use the word “Rightshoring”.

  10. Posted April 28, 2008 at 7:08 am | Permalink

    Phil:

    I think you’re right. No matter what term you might want to use, people are smart about sniffing out “outsourcing.” So, perhaps it’s best to use that term from the get-go & not get caught up in an argument over labels.

    And I also agree with your approach: Be upfront with people about the decision and what it entails. Ultimately, people care about one thing — ‘What does this mean for me and my job?’ Try to answer that question as best you can. If your outsourcing vendor has a history of absorbing staff and retaining them, then trot out some good examples for your own people.

    Outsourcing is a tough discussion no matter how you slice it. But if you’re up-front and honest all the way, then at least you’re focusing on the *real* issues and not the ones that uninformed minds can fabricate.

    best,

    Tom

  11. Posted April 28, 2008 at 7:09 am | Permalink

    I was going through the responses on this topic various experts. I tend to agree with Prof. Girish on this subject. It is purely a make or buy decision for an organization. There is never a challenge when we make such decisions in manufacturing as it is accepted way of doing business. But when we do the same in blue collar jobs, the impacts are signficant. In the first instance, the labor cost to the product is hardly 30% whereas in the blue collar process the labor cost to the service is more than 70%. Job displacement ratios are signficantly different and hence we see a lot of heart burn when we talk about and implementing outsourcing. There is no point in coining a new term for outsourcing as the bottom line is that we are moving work outside and people will lose their jobs.

    We have to ensure that we engage the people affected by the decision early in the cycle and work with them to ensure that organization as well as individual requirements are met as effectively as possible.

  12. Posted April 28, 2008 at 7:11 am | Permalink

    Phil,

    Didnt have much to add to the discussion there. But seeing alternate words being thrown around to suggest outsourcing, I thought I would state this:

    Satyam’s Global Delivery Model is called Right Sourcing™. This term conveys the idea of providing a value-add to the customer in terms of best deliverables and ideal cost-benefit scenario.

    Anil Gangaraju, PMP

  13. Posted April 28, 2008 at 7:13 am | Permalink

    I can relate to this from a wide range of experiences over about 25 years in the UK when a group of major players started to accumulate IT services contracts in the public sector. I can remember at that time being astonished at the sums being bandied around, in terms of millions. Recently I was just as surprised to learn that the outsourcing of IT for UK Post Offices works out at a billion UK pounds a years.

    On the other side of the coin as a direct supplier, my trivial contract with them for £400 doesn’t get paid.

    With them now entrenched firmly in government, I find myself dealing with fiefdoms who demand of me free consultancy, one having come between me and a government customer toterminate my contract for not having responded to their demands.

    A friend who handles outsourcing for a major US bank told me (about 4 years ago) that their overall costs for outsourcing to India worked out at $600/day, exactly half the cost of hiring local expertise at the time. At that time, I knew that developers in Ukraine were being paid $200/month.

    With my social enterprise activities in Eastern Europe I’ve observed how the first wave arrive to exploit lack of employment security and low wages. In one instance, a local single mother paid the minimum wage of $40/month with the promise of marriage, who was discarded in fovour of outsourcing her work as accountant.

    Some of those I now deal with are using the ‘managed services’ tag, but that hasn’t changed the attitudes to either paying on time or retaining a supplier relationship.

    I understand the resistance, not least from people who want to keep their jobs, but from an attitude toward business that considers the greatest asset of of any company to be their own staff.

    So, yes the word oursourcing is tainted, and deservedly so. Behind the rhetoric, invariably, there are those who want to maximise profit at the expense of commitment .

    Jeff Mowatt

  14. Posted April 28, 2008 at 7:27 am | Permalink

    IMHO, focusing on clever ways to spin outsourcing to your remaining badged employee base is a semantic trap. If you’ve hired well, your staff will be smart. Smart people generally figure out what’s going on. So I’ve always tried to be very up front with people about the business drivers behind sourcing partnerships. If you outsource work, you ultimately do it for one of four reasons – faster, cheaper, better, or closer to your markets. Making this clear and well understood to your staff pays you back by reducing the FUD within your team.

    Call your outsourcing programs whatever you want. I generally prefer “outsourcing” because it’s simple and well understood, but I use it interchangeably with “global sourcing.” More important than the semantics is the need to be clear and direct about the business drivers behind your sourcing decisions. Explain your business drivers to your staff, and your partners. Establish a well articulated governance model that makes performance of the outsourcing partner measurable and transparent. Lastly, make it clear to your remaining staff that the partnership is now part of the new definition of “team.”

    If you do this, you have a chance that your badged employees will embrace the outsourcing partnership. If you don’t, you’ll have a tough up-hill battle winning them over.

    Similar to Phil, I blog on this topic frequently, at insideoutsource.blogspot.com.

    There are a few links I’ll add to entries that are tangentially related to this question. Read and enjoy.

    Links:
    http://insideoutsource.blogspot.com/2008/04/first-fear-then-hatred.html
    http://insideoutsource.blogspot.com/2008/03/its-us-or-them.html

  15. Posted April 28, 2008 at 11:29 am | Permalink

    I think that, over time, “outsourcing” will become obsolete as a term simply because a mixture of “local and distributed human resources” will be so ubiquitous.

  16. Posted April 28, 2008 at 7:57 pm | Permalink

    I often use the word subcontracting instead of outsourcing. Subcontracting seems to be not as harsh to some people. Often new jobs which are higher paying are created to manage the new partner. The front line workers are the ones taking the hit but often the new partner will absorb the employees.

  17. Posted April 29, 2008 at 2:10 pm | Permalink

    Phil,

    I would agree with the term “sub-contracting” at one hand, while disagree on another. I think “OUT” in the word outsourcing creates the most issues – as it somehow makes you feel as if the processes are going “out” of the control of the organization – existing human resources will be thrown “out” of the company, and somebody “out” of the planet will be tampering with your organizational security.

    The word sub-contracting and esp. “sub” gives your team the confidence that the lower value work is being delegated to a vendor, which is not as important to the company as the work that they’re doing is.

    However on the flip side, the outsourcing provider being called “sub-contractor” might not feel that good and might perceive the work sub-contracted to be of lower-value and not be maximally motivated.

    On whatever business objectives you base your outsourcing decisions on, your vendor selection has to be focused on the quality of the team you’re going to work with not the cost minimization alone. (else in a short while you’ll find that Tom in your inhouse IT team laughing at your face on making a wrong decision)

    When it comes to offshoring, I see it this way:

    Pay a person $7k per month in US and he’ll be reasonably motivated. Pay a person $3k offshore, and he’ll be highly motivated. Now if you manage to find the skills of the offshore resource equal or greater than your onshore one, then you’ve got a REAL outsourcing success story (not just that you saved $4k per month but got the additional motivation to produce oustanding results), but if the offshore resource skills are not at par or atleast comparable to the onshore one, you’re wasting $3k per month per resource for nothing.

    Btws, when I say skills, I don’t mean technical skills alone, but equally importantly communication, business analysis, project management and end-to-end delivery skills.

    M. Ali Nasim

  18. Posted April 30, 2008 at 12:45 pm | Permalink

    I’ve come to learn over the past 20 years from being involved in outsourcing in every vertical market imaginable that it doesn’t really matter what the provider calls it – but to pay attention to a) what the customer calls it (as it tends to define the engagement) AND b) to the type of culture the customer has created: if the customer has a culture of mistrust, it doesn’t really matter what you call it, staff will fear your presence.

    A few other comments:

    ? The customer that says outsourcing but then like the patient that tells the doctor what prescription to write, tells the provider EXACTLY how to provide the desired service should instead be talking about out -tasking or contracting.

    ? Likewise, the customer that talks about contracting but leaves it to the provider to define an effective way to meet the customer’s objectives really is talking about TRUE outsourcing.

    ? TRUE outsourcing is about innovation, not replication; it is about a strategic initiative not tactical abdication. It comes about through a dialogue process not a bid spec.

    Nevertheless, in the end, it is as much about how the customer company approaches the process as it about what the provider calls it.

  19. Posted April 30, 2008 at 1:09 pm | Permalink

    If you put lipstick on a pig, is it still a pig? Yes, and people may resent the new label.

    That being said, I echo the sentiments of others here in giving specific labels. Outsourcing is a very broad term. If you can give something a label, and it more specifically describes what you are doing, this seems to be the optimal choice.

    However, maybe you should also target the root cause: Staff’s reluctance to outsource. They probably don’t realize how much they do it professionally and personally. The focus should be on getting them to agree that in certain functions, outsourcing can be the easy-to-see superior option… then close the deal.

  20. Posted May 2, 2008 at 3:42 pm | Permalink

    I have been working in the IT Services field as a remote dba provider for over 10 years, but I like to consider myself a provider of needed services, not an outsourcer. Whether you call it outsourcing, right sourcing, smart sourcing, etc, sourcing is still sourcing. Instead of displacing people by sourcing something, we provide a value-added and needed IT service. Yes, sometimes that service eliminates the need for internal staff, but that is not our ultimate goal or our intent.

    One particular pet peeve I have with the term outsourcing is that almost always gets confused with “off-shoring”. As many of you have stated, this is most likely due to the broad definition. However, according to an Information Week study from 2006, 75% of the money spent on outsourcing actually goes to on-shore providers.

    Michael

  21. Bora Gungoren
    Posted May 3, 2008 at 9:10 am | Permalink

    Inventing terminology does generate confusion and can sound more like marketing-hype.

    After the great crisis of 1930s, people hated the term “business administration” because the office that did the lay-offs had that title. So business schools changed their name from “business administration” to “management”. It was not until the 80s that many schools changed back.

    So let us admit, outsourcing is outsourcing :)

  22. Posted May 3, 2008 at 12:31 pm | Permalink

    Hi, Phil

    First of all, I think the primary confusion is between the terms “outsourcing” and “offshoring” — two VERY different practices.

    Outsourcing means hiring out an internal process, most often to a local company. This can be anything from staff augmentation to server hosting to hiring an accounting firm when you don’t have the funds for a full time CFO. This can be done to get talent in place quickly that you don’t have, to minimize a need for office space, benefits, etc., to prevent the dilution of company stock for a larger company that grants options to full time employees, etc….in many cases outsourcing simply supplements what a company already does and, most importantly, doesn’t cost existing employees their jobs.

    Offshoring on the other hand, is pure and simple about replacing more expensive local talent with less expensive talent elsewhere where economic realities are different. In the long run, I would argue that this doesn’t often turn out to provide the savings envisioned, but that’s a discussion for another day :-)

    The real issue is that many, many people, including those in the media often conflate the two terms as one and the same which is a mistake that often causes confusion and suspicion, particularly when outsourcing is wrongly thought of as offshoring.

    The long and the short of it, from the perspective of someone within an organization that is contemplating either, is that it sounds a lot different to say (no matter how you say it) “we’re going to bring in some additional developers to make this launch” vs. “we’re going to start sending some of our development work offshore to save money”

    People know which you mean. And, coincidentally, customers notice when you do the latter poorly and without a very close handle on quality and timelines. Lead paint on toys anyone? Massive delays on delivering a certain “globally built” jetliner? Cost savings have to be sustained over the long run in concert with increased value….if you save money in the short term with cheaper labor costs but kill your customer relationships, I’d argue that the choice to offshore cost you more than you might have thought it would.

    Sincerely,
    Richard

  23. Lara De Ubago-Sia
    Posted May 5, 2008 at 2:42 pm | Permalink

    Hello Phil:

    The word “outsourcing” does give a off a negative vibe to employees of an organization that wishes to add offshore/outsourced staff to their company. Personally, I’d prefer the term “management partner” or if there is such a term “management partnering”.

    I work in a call center services company and we work very closely with our client-partners. To drive excellence and the number we need to succeed, both parties share the responsibility of rolling out and implementing plans that would benefit both the client and us. What I’m driving at really is that the actions toward excellence that are taken are managed by both parties with equal accountabilities and the same goals.

  24. Posted May 6, 2008 at 11:10 pm | Permalink

    I’m going to give you several magic terms. They’re accurate, they’re descriptive, they’re honest and they’re truthful.

    Work.
    Team Assignments.
    Teams.
    Project(s).

    Why are you calling it outsourcing in the first place? You’re hiring people to perform a job. You don’t need to give them a name. Haven’t for years. If the people involved on the project(s) you’re doing don’t understand that all that is happening is that certain portions of the work in the over all project are being performed by contracted or vendor assignments then you’ve already blown it.

    People fear outsourcing for one reason … if the work is being sent “outside” then it’s not being done “in-house” and that means that “in-house” is not benefiting the project. What part of the project is being done by in-house resources? Focus them on the work they need to be doing instead of making them wonder why they’re not doing the other work.

    The people (the Team) on the project needs to know what they’re supposed to be doing. And you need to specify this in advance and let everyone understand their role. If someone says, “Hey why are we doing in house?”, be honest. “Because it’s not beneficial to do it that way. We get more benefit out of having our in-house team members working on “.

    Don’t sugar coat it. But don’t be all gloom and doom either. Just tell them the truth why – and show them what their roles are. If they worry about long term roles in the company – then you need to show them the work you have for them and reduce those fears. If on the other hand … they have a reason to be worried then you need to let them know that as well.

    If people are going to be outsourced – if they’re jobs are going away you are not doing them a service by candy coating it or deflecting the question. There is a reason why Doctors tell patients the truth even if it’s brutally painful. It’s easier on the patient.

    Be honest – if you are often enough, people trust you regardless.

    Calling it outsourcing isn’t accurate. It’s just a vendor – a contractor. And the work being done is just work. You’re not “outsourcing” it. The work is no different if it’s done in India than if it’s done in the next state. If it’s not “in-house” it’s still just work. Pointing out that it’s being done somewhere else globally should not make a difference.

  25. Posted May 7, 2008 at 4:12 pm | Permalink

    Hi Phil and others,

    This is my personal opinion, the word Outsourcing changes its depiction by the relationship an outsource partner carries with the outsources. There are various new comers into this segment who consider this to be a traditional vendor-supplier relation. These outsources would handle an outsource partner similar to their caferteria vendors. And this is purely because of their limited exporsure to this segment. On the other hand their are professional and experienced Outsourcers who deal with professional outsource partners and they carry a very different level of 2 way relation.

    In my opinion, the outsourcing industry/segment has reached a level where most outsource partners are more experienced and knowledgeable than the outsourcers. I know a few outsourcers who take pride in admitting it and use the outsource partner’s knowldege to their benefits.

    I am employed with an outsource partner and currently consulting my client (outsources) on their processes. My ideas and suggestions are always welcome and chges are implemented on my recommendations.

    This type of mutual relation is commonly called Shared Skills where both parties have common business objectives and each party respects and understands the business model of the other.

    Nothing wrong with the old word Outsourcing but more than the word we need to change the operating model and perceptions.

    Aman

  26. Posted May 7, 2008 at 4:55 pm | Permalink

    it is not the name that matters but how you handle outsourcing into your company. it is right that in outsourcing you need trust and honest service provider.

  27. Posted May 8, 2008 at 7:40 am | Permalink

    Phil – Don’t blame the terminology for an idea that doesn’t sit well with staff.
    Calling it managed services, rightsizing, resource optimization, or even creative human resourcing won’t do anything about the perception of the idea.

    As others have said, I think that it is important to be honest and upfront with people when making this decision. It is also important to set the same standards for resources obtained through outsourcing that you would use with regular employees and to teach them about the culture of your organization before they begin to interact with staff or work on any project. The culture of the organization itself should be a factor in hiring someone on an outsourcing basis as well.

    To often, inhouse staff is kept away from these folks, who are instead communicate with only one or two people within the company. Individuals hired on through outsourcing should be made a part of the company directory, should have contact numbers, and if they are focused and permanent resources should be in the company’s email system. People generally are more accepting and more trusting of those they can get to know or whose presence isn’t rendered nearly invisible.
    At the same time, people who do work in an outsourcing arrangement should have to follow the same policies, adhere to the same rules and be held to the same expectations as regular staff. I know people who have worked in companies where outsourcing was done where the rules were entirely different for people outside of the company.

    If outsourcing is designed to create new efficiencies within an office setting, it is important that these people be made as much a part of the team as anyone else. Until this becomes a standard part of the business culture, outsourcing will always be met with unease.

  28. Posted May 8, 2008 at 1:16 pm | Permalink

    We can certainly try but rebranding is not as easy…remember we xerox things and fedex them!! Try to replace these words, tough, right!

  29. Richard Van Deusen
    Posted May 8, 2008 at 1:17 pm | Permalink

    As other responders have said, outsourcing by any other name is still outsourcing. Although companies have been sub-contracting parts manufacturing and some services for well over a century (which was also outsourcing), the term became accepted when Kodak began outsourcing IT services in the late 1980′s. In fact, Kodak was one of the first companies to develop managed outsourcing procedures with which just about everything they did was evaluated as a candidate for outsourcing. IT has now moved on to calling it Managed Services.

    It made good sense, and still does, for companies to outsource commodity work, whether that is to a company or to independent contractors, temporary workers or freelancers. Why should a company employ cafeteria workers, janitors or computer programmers who can perform exactly the same function for any company.

    Where outsourcing got an undeserved bad name is the loss of US manufacturing jobs and corporate downsizing. If your job is at risk, you look for scapegoats. Right now offshoring (more than outsourcing) NAFTA and China are the scapegoats.

    I definitely agree with your solutions, Phil. It is important to engage the staff, even down to the lowest levels, in the process. Let’s also be sure of the distinction between outsourcing, where the staff might have a shot at moving to another company, and just plain downsizing where a company is looking to reduce headcount through job elimination.

    In the area of creative and media production services where I consult, outsourcing and co-sourcing have been an accepted practice ever since we were doing filmstrips.

    Incidentally, one company that provides contract staff to run training center and conferencing facilities for corporations calls that “in-sourcing.” By whatever you call it, it’s still outsourcing.

  30. Kevin Singel
    Posted May 8, 2008 at 1:19 pm | Permalink

    I think we have to stick with the term ‘Outsourcing’ simply because that is the straight talk about what is happening in those situations. The phrasing that makes me cross-eyed is when offshoring and outsourcing are confused. They are not neccessarily the same thing.

  31. Shreya Shah
    Posted May 8, 2008 at 1:20 pm | Permalink

    Hi Phil,

    My point of view is not the word “outsourcing ” but the feel of making the staff that they are the key part of any new project which the organisation looks forward to start with.
    I agree with you on this statement. the succes of any oganisation grows only when it considers human capital to be very much important and their complete involvement in the project helps the organisation to grow faster.

    Nowadays i have read many articles saying that the organisations consider more and thinks more about the employees. Their requirements, their problems and above all the skill and knowledge which they posses. “Right candidate must be paid a lucrative amount”, this is the funda of any organisation. This ultimately helps them to grow and make a good repo with the employees as well.

    Shreya Shah

  32. Parikshat Chawla
    Posted May 8, 2008 at 2:00 pm | Permalink

    I prefer ‘Smart-sourcing’ as it covers the gamut of generic terms from Outsourcing, near-shoring, off-shoring, managed services, etc etc.

    The term seems a bit elitist, but with both companies and service providers looking to various options for managing their labor / cost arbitrage – it does come across with least negative or binding connotations.

  33. John Hindle
    Posted May 8, 2008 at 5:00 pm | Permalink

    I’ve always held that outsourcing is a phenomenon, not an industry — it’s a bit of jargon we use to describe the process of transforming legacy organizations from the old Alfred P. Sloan vertical silo model (think General Motors, with “up-across-and-down” information flows) to a flatter, more flexible, responsive, and highly networked model of interdependent specialist providers. The enablers, of course, are communications and data exchange capabilities that couldn’t have been imagined 75 years ago. Our available tools shape what we can build.

    In 10 years’ time, we won’t talk about outsourcing, because nearly everyone will have done it (or they may well not be around). The terminology will morph into “business services,” and we’ll talk about buying HR or F&A or Procurement services in much the same way we buy delivery and logistics support today from UPS or Fedex or Ryder.

    To draw upon the roots of this blog’s name, it’s about horses for courses…

  34. Posted May 9, 2008 at 1:02 am | Permalink

    I agree with a lot of the commenters that “services” is the more preferable term to outsourcing and perhaps over time this will evolve, but we will be stuck with the term for some time.

    But the fact is that outsourcing has become a pejorative term. And the strongest critics of outsourcing are those that decry the move of jobs to lower cost offshore locations. Per Richard Law’s comment, I don’t think that there’s a confusion between offshoring and outsourcing, but an intentional effort by critics of outsourcing to illcit a jingoistic response to strengthen the effect of their criticisms.

  35. Posted May 9, 2008 at 1:11 pm | Permalink

    The term outsourcing has picked up numerous negative connotations over the last fifteen years. This is due in large part because when work and or positions are outsourced, work (and wealth) are transferred from one group to another. There is always a winner and a loser, and in many cases management fails to a) fully explain the rationale for the decision b) share with employees how the decision benefits them and the company or c) both. The key is to maintain a positive communication strategy that accentuates the positives and addresses the potential employee concerns head-on. No need to hide out. Employees may not like the overall message initially, but they will respect you less and your credibility will be eroded if you try to “dress it up”. Positive examples might include, “we need to outsource this specific function because we do not have the in- house bandwidth to support this tactical ramp-up for a short period of time and hiring temporary employees does not meet our needs” or “we need to outsource XYZ, because this has become a function that is outside our core business model. In so doing, we can shed expenses, continue our expansion plan and actually add more positions.” Let me pose this question, “If your company were to take back work and Insource a function or process, would you hesistate to use the term Insource?” Probably not as this word has a positive connotation. “Outsource” itself is not a bad term. How management applies the communication surrounding it (and change in general) drives its perception.

  36. Ratnesh Mathur
    Posted May 9, 2008 at 1:16 pm | Permalink

    Interesting to note that your post on “Globalisation” got 5 responses, but this discussion on the word “Outsourcing” has generated 30+ inspired responses. This outsource term is still hot, Phil – so keep your horse on the course some bit more …& enjoy the ride !

    I think we all recognise that – Outsourcing – is basically, an age-old Build vs Buy business decision and – Offshore Outsourcing – is a mix of Build vs Buy & Globalisation decision. Whats in a word – there will always be someone selling old wine in new bottles . Just as some organisation structures today use – International , Worldwide, Global, Emerging markets, HQ & regional/country – & many more nomenclatures , you can expect to see various labels for this nature of – Global Build-Buy – decision-makers inside large corporations. On the supplier-side, don’t expect this new industry tag – Outsourcing – to go away too soon. Some countries (like India, US etc) already have a registered trade called “Outsourcing” or “BPO” but there are slow regulatory changes underway in some other parts of the world (eg. several CEE countries) to offer licenses for “Outsourcing” trade, in addition to current trades likes – SSCs , Call Centers etc. Government incentives for this new trade will continue to be good enough incentive for suppliers to call a spade, a spade !

    The word SOURCE in english today largely means ” a text from which information or ideas are derived”. However, etymology of the word SOURCE is bit different. Its from the old French word – SOURSE – which finds its roots in Latin word – SURGO – which translates to – To Rise ( also root of the English words – Insurgence, Resurgence). Given the surging importance of this – Global Build-Buy – nature of activity, SOURCE or SOURCING or its various other forms, don’t seem too inappropriate.

    Transparency & ethics are important in all forms of business. While much of the focus in the offshore-outsourcing world has thus far put the spotlight of transparency & ethics on the supplier, as you rightly state, the buyer/builder of these services should be honest & upfront in the communication with its own employees too.

  37. Posted May 10, 2008 at 2:37 am | Permalink

    What is basically being provided by an “outsourcer” is a service. That the service (say developing or maintaining an application or handling a business process) is being provided by a team (or organization) that is legally “outside” the client’s organization or is delivered by people at a location half-way across the earth (although this is not always the case) is incidental. Using the above definition, conventional management consulting services, I-Banking and janitorial services too can be described as being “outsourced”- but nobody ever refers to them using the O word.

    Admittedly, there is a huge emotional element associated with the term “outsourcing”. Many people automatically assume that “outsourcing” is synonymous with asking a vendor in India, the Philippines or wherever else- and therefore, jobs are inevitably lost. And this is why there is a strong reaction to the term. Forget the economics for a moment. If a client invites a service provider from across the street to deliver the services, would the negative connotation associated with the word “Outsourcing” be as strong? I think not. And to an extent, this is because the client’s employees currently responsible for delivering the service can more easily keep an eye on and control the service providers across the road than on a team based in Bangalore or Shanghai. And push come to shove, they can always leave the client (their current employer) and join the service provider.

    Personally, I think the debate should be less about what it should be called, and more about how clients (and service providers) can both realize greater value by looking at new contracting models, enhancing the scope of services, using new service models etc.

  38. Posted May 11, 2008 at 5:53 pm | Permalink

    I think “Outsourcing” should be replaced by “Right Sourcing”.

    It could include decisions on “Near-shoring”, “Offshoring”, “Managed Services”… esentially taking a cost out of your balance sheet and transfering it to an Optimal Organization which can provide those services at Lowest Total Cost and the correct Solution

  39. Posted May 12, 2008 at 1:54 am | Permalink

    Is the Term “Outsourcing” appropiate?

    Came acroos this excellent article followed by discussions from various people in the Fersht’s Outsourcing Blog. Fersht’s says in his blog-”Having worked on a large number of “O” initiatives with enterprises over the last few years, the term outsourcing h

  40. Art Miller
    Posted May 12, 2008 at 7:01 am | Permalink

    Aren’t euphomisms wonderful?

    We don’t have used cars anymore, we have pre-owned cars.

    Back in the 80s, when lots of US companies were cutting jobs, OD people decided it was better to say it was rightsizing rather than firing people. Even downsizing sounded too harsh. “Charlie, we’re not firing you, we’re just rightsizing the company. Have a nice life.”

    Suggestions that outsoucing sounds better if we call it “rightsourcing” or “rightshoring” are absurd. It is what it is.

    Economics is a cruel science. Get used to it!

  41. Posted May 12, 2008 at 7:09 am | Permalink

    Art,

    You have a great point. However, outsourcing is often adding far more to a firm than simply reducing costs through staff reductions, for example, adding skills in scarce areas, access to new technologies and improving process flows. My concern is that “outsourcing” comes with a stigma that isn’t always justified. But dressing up the word doesn’t seem to help much either!

    Phil

  42. Posted May 12, 2008 at 7:48 am | Permalink

    Phil,

    Outsourcing simply reflects a point in time in the delivery lifecycle of a particular service. If this service is perceived as being part of internal operations, then the migration to an external provider is appropriately called outsourcing. Several years later, managed services may be a more appropriate term, as you point out. The key distinction is whether the business case needs to include costs associated with transitioning of internal people and dispositioning of related assets. For those contracted services that are net new to a company, but are of similar levels of sophistication to outsourcing, I tend to use the term “complex services sourcing”.

  43. Subir Dhar
    Posted May 13, 2008 at 2:27 pm | Permalink

    Phil,

    I think there is nothing wrong in the word “Outsourcing” – but how “Outsourcing” is handled, makes all the difference.

    In many organizations, it becomes imperative that they outsource tasks to be lean and focus on core tasks, which possibly enables them to be competitive. At the same time, it is surprising that the managers fail to communicate well, and create an environment of trust.

    I strongly feel that the managers should consider – what they can do to ease the pain of the people, or better still, what they can do to enable affected people to earn, say 30% more than the current levels. So, for example, how about asking the incoming service provider to take certain number of people, or train them in emerging and high paying skills and technologies. So, a software developer gets trained in Project Management or SAP technologies, and ends up earning more. This way the goodwill and trust will be created in the employee community.(In other words, the management should aim to increase the NPV of the affected employees).

    Regards

    Subir Dhar
    Bangalore

  44. Posted May 13, 2008 at 5:11 pm | Permalink

    Phil,
    Great question! You have also received some good answers.

    As a consultant, I also find the “O” word dreaded in most organizations. However on drilling down a bit deeper, one finds that things are not so severe with companies that have defined (or are defining) “O” as a strategy to grow the business. The strategy could be – get our existing services contracted out to a third party, while the in-house team focuses on a new service line (or vice versa), or even as simple as – in the case of work over flow we will also turn to service providers. Obviously this has to be defined by management and ingrained in the work culture of the company – which is not easy.

    Most problems tend to arise, when outsourcing is a reaction to an event. For example – our competitor down the street has saved millions, or we have to transfer X jobs offshore to offset our dwindling profits. Significant resistance is expected in these situations and buy-in gets difficult.

    The O word is here to stay.

    Thank you.

    Uttiya Dasgupta

  45. Jason Brown
    Posted May 15, 2008 at 6:16 am | Permalink

    To tell you the truth it is really irrelevant what sobriquet you give the term. The reality is that when an employee hears the word they also hear..

    “You are not good enough”
    “Your value to us is diminishing.”
    “You job may not be here in 6 months”

    Imagine if the CEO came to you as a manager and told you that they were “insert clever moniker here” your job. That is the equivalent of “It’s not you it’s me,” while getting dumped. Remember that it is not about the truth here, it is about the perceived truth by the employee. Stop saying “It won’t affect you at all.” That is untrue. It might not affect them today, but it will affect them.

  46. Posted May 15, 2008 at 6:17 am | Permalink

    Hi Phil

    Outsourcing became part of our language when globalisation came into force. And certainly many millions of people have lost their jobs through this process. It’s scary for anyone to hear the word and I agree with your idea about explaining to people what you mean by the word.

    Whatever word you change it to it will still mean the same thing so as professionals we have to be good at explaining what we’re talking about in this circumstance but most importantly to be honest as to what we’re doing and not try to package it up sweetly when it’s not sweet at all.

    Best wishes
    Merydith Willoughby

  47. Posted September 5, 2008 at 5:04 pm | Permalink

    Interesting article.

    You know the old saying : “If it walks like a duck and sounds like a duck…”

    I think that no matter how hard a business tries to soften the announcement of “outsourcing” employees will get nervous about their jobs.

    I’ts only human nature.

    That is why businesses thinking about third party logistics outsourcing need to think of how they can redistribute their employee’s strengths to other departments.

    By planning ahead and communicating this to the employees in advance, outsourcing benifits the business as well as the workers morale.

3 Trackbacks

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  3. [...] we drop the word “outsourcing”? The debate’s been raging for years, since we first broached this topic over four years ago, where the common consensus was pretty much “we’re stuck with it, so might [...]

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