When it comes to business terminology, though the global market has spent nearly EUR 70 billion on these type of services on 9 of the last 10 years, there is hardly a more misunderstood term. Most of the time, when it is used, it is criticised; however, as with many aspects of business terminology, there are numerous instances where today’s tword can provide many positive impacts that often get overlooked. So, today, let’s try to shed a little light and gain a little better understanding of the often maligned term, outsourcing.
Outsourcing is simply defined as ‘the action of practice of obtaining goods or services by contract from outside sources’. Looking at the word itself, it is the noun form of the verb outsource, which itself comes from combining the words out, from the Old English ut and meaning ‘outside of’, and source, from the Old French sourse and meaning ‘base or origin’.
The first recorded use of the verb to outsource comes from 1979, when an American auto executive, writing to the Journal of the Royal Society of Arts, said that: “We are so short of professional engineers in the motor industry that we are having to outsource design work to Germany”, and the noun outsourcing first occurred in the August 31, 1981 edition of the periodical Business Week, again referring to the automotive industry and the United States offshoring jobs that require skilled labour: “The..decline in auto industry jobs..will make outsourcing a key issue.”
While its initial usage is, for many people, the most common understanding of our term, we have to be careful in thinking this. After all, outsourcing doesn’t necessarily mean offshoring. At its heart, outsourcing is the product of the concept of economic specialisation and was initially described by none other than Adam Smith in The Wealth of Nations as a way for a business (or entity) to do what it does best and, essentially, network with other businesses who do what they do best – take translation services, for example.
Beyond the misunderstood usage of the term outsourcing are the misunderstood reasons for it. Though it is correct to assume that outsourcing typically takes place to cut costs (59% of the time), it is also used in order to enable a company to focus on its core business (57%) as well as solve capacity issues (47%), among other things. Of course, if you still associate outsourcing with jobs being sent overseas, take heart: even these jobs are now being made obsolete, thanks to outsourcing to tech companies, due to advances in automation and Artificial Intelligence technology.