Outsourcing Types
The outsourcing industry has been reinvented for decades. The latest invention is cloud services that have relabeled traditional services (e.g., Software as a Service being a prime example—now a cloud service model) to attract clients. Today there are two major outsourcing types: technology outsourcing and business process outsourcing. To reflect the variety in today’s outsourcing offerings, some of the other out-sourcing types are mentioned below.
Technology Outsourcing
Technology outsourcing (TO) is the older of the two main outsourcing types. It allows a client to use the technical capabilities of an outsourcing company for its purposes. Clients do not require the computing power in-house anymore; instead, the outsourcing company provides its IT systems and shares them across many clients so that a required dedicated solution can be provided to a client.
Business Process Outsourcing
Business process outsourcing (BPO) allows an organization to out-source complete business functions instead of just technology. An outsourcing company offering BPO can provide services like human resources to a client so that the client does not need to invest in skilled personnel and office space. BPO usually involves business processes that are outside the core competency of a company. However, there has been a trend to also outsource more and more core business processes. Models like Software as a Service (SaaS) provide the foundation for companies like Salesforce.com to offer fully automated solutions in the BPO space, making them great examples for business process outsourcing.
Knowledge Process Outsourcing
Knowledge process outsourcing (KPO) is the fourth type of outsourcing that is becoming more common. It usually involves advanced research, analytical, and technical skills on the outsourcing company’s side. The pharmaceutical research and development companies are great examples of an industry that makes use of this type of outsourcing. An example outside the pharmaceutical space is Motorola, which had the operating system for their famous Razr phone developed by a Brazilian company. This type of outsourcing usually involves short-term and peripheral projects.
The Phases
Outsourcing deals usually follow a six-phase life cycle:
- Strategy—A company makes the strategic decision to out-source some or all of its IT or business operation.
- Selection—The company starts a high-level selection on which outsourcing companies potentially could provide the services that are in scope for the outsourcing initiative. At a later state of this phase a selection is made and an outsourcing company is chosen.
- Negotiation—In this phase the negotiations start between the two companies. The outsourcing company might request additional information or send personnel to gather a first set of information to prepare for the implementation phase.
- Implementation—During this phase the transitioning activities start in preparing for day one of the outsourcing operation. Usually the outsourcing company conducts interviews with client personnel, gathers more data, and revises financial estimates during this phase. Usually you will see the highest number of outsourcing personnel on-site, a mix between transition team and some early run-time team personnel during this phase.
- Management—This is the phase where normal outsourcing operation starts (day one). The run-time team has taken on responsibility from the transition team and is providing the services in the scope of the outsourcing deal.
- Completion—The final phase could mean that the outsourcing activities are transitioned back to the client or to another outsourcing company. This phase might never be executed if client and outsourcing company are both happy with the deal and keep extending it.