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Organizations of all sizes have always called on specialist external expertise to deal with specific problems that are outside the skill set of their in-house staff (common examples include accountants, lawyers, electricians and plumbers). However from the 1970's 1970's onwards particularly in leading US companies, this practice was taken well beyond these peripheral areas to include core business functions. The pioneer function for "outsourcing" was generally the development and operation of the organisation's computer systems (then referred to as data processing). Now referred to as Information Technology (or Information and Communications Technology), this has continued to be the most popular field for outsourcing, with most major US and European companies now making some use of it. Other business functions that are commonly outsourced include human resources, call centres and the administration of financial services products.
The starting point for consideration of outsourcing any organisational function is the business case. This will cover the impact on costs, service delivery, turnaround and ease of innovation. One of the implications of outsourcing that work, expertise and jobs are transferred to the supplier. This can cause industrial relations and/or political problems at the implementation phase, particularly if the transfer is "out-of-state" or even offshore. It is important to establish very comprehensive and precise service level agreements and key performance indicators, to ensure that cost benefits are achieved and service delivery is adequate.
An inherent problem in outsourcing can be when not only are the systems, procedures and personnel are outsourced, but also the management that can assess delivery quality and potentially reinstate the in-house service. In a worst-case situation this can make disengagement from the outsourcing supplier extremely difficult.
The advent of the Internet has provided a great stimulus to the concept since it facilitates the creation of substantially virtual organisations at little cost with substantial business processes replaced by electronic equivalents. Initially intuitive sectors such as the sale of computer software, and now been supplemented by such diverse trades as groceries, books, music, financial services and adult entertainment.
