What’s in a name? Horses for Sources asks – whither Outsourcing?

Horses for Sources is the incredibly successful outsourcing advisory service (based on a excellent website / blog social media approach) run by Phil Fersht. Recently, they’ve been questioning the “outsourcing” terminology, and whether the industry around it needs to reinvent itself – and probably get a new name.

Some of that I’m sure is driven by the way President  Obama has demonised outsourcing (he means offshoring actually) as an election issue - a way of hitting Romney, who worked for private equity firm Bain Capital and used those techniques widely.

But the re-invention issue is a good question. And on looking back through my personal archives, I came across a presentation I gave at an outsourcing conference in 2003. Here’s the content from one of my slides:

  • Outsourcing:  used to mean transferring services, usually non-core, from internal provision to an external 3rd party, and then purchasing that service
  • Is it still outsourcing if:

–        The service has never been provided internally?

–        The service becomes a profit centre rather than a cost?

–        The service is jointly bought with or provided in conjunction with partner organisations?

–        A new organisation is created to provide the service, with equity held by the buyer?

I’m not claiming any crystal ball gazing ability here, but it was clear 10 years ago that provision of services to an organisation was something broader than “outsourcing” in its classic definition, and that terminology caused confusion. A classic case was my first big outsourcing task. Back in the 1980s I led a project to find external manufacturers for the Mars chocolate Easter Egg range. It felt like an “outsourcing”, we talked about is as outsourcing, and we certainly considered the option of insourcing as an alternative. But the work had never really been done in house previously, so how could it be “outsourcing”?

So what is it that the whole “outsourcing” industry, including Horses for Sources,  actually focuses on? What really defines this field?

It seems to me it is all about the delivery of complex business services to an organisation, where those services could be provided by the external market. The “could” element has to come in because part of the strategic task here must be in the analysis around that insource / outsource decision – as in the case of our Easter Eggs.

The “services” word may need some debate as well, because you can outsource manufacturing, as we said in that same example. But arguably we are then buying the service of manufacturing – as opposed to, for example, Mars buying milk powder or cardboard boxes as specified raw materials for the internal production process.  But there’s room for debate around the edges of the definition, certainly.

The focus in outsourcing may have been strongly on IT for some time, but that probably just reflects the general growth and focus on that topic over the last 20 years. But now the outsourcing industry talks about HR outsourcing (payroll, recruitment), Finance (back-office, pension administration), even Marketing (media buying, production) as outsourcing genres. Pharma companies now outsource the development of drugs, as well as production, testing and other functions.

But hang on, I hear our procurement audience say. If we accept your definition, isn’t that what we in the profession like to call “procurement”?  Sourcing complex services from the market... and all that sort of thing? Isn’t that what we do?

Well, maybe, maybe not. In part 2 we’ll get into that discussion in a bit more detail.

Courtesy Horses for Sources

 

Voices (3)

  1. RJ:

    Call me a purist but I’ve always thought of “outsourcing” as taking something that you currently do in-house and moving it to an external provider. This brings with it certain specific considerations, most notably TUPE on the legal side and other associated personnel issues, but also all of the debates around the retained organisation and contract/supplier management. Anything else, is simply “sourcing” or, possibly if you’re transferring from your original outsourced provider, “re-sourcing”.

    To my mind the name barely matters: from a procurement perspective it’s about the quality of service provision and the total cost of ownership, although from an ethical perspective there needs to be a very different debate, especially when outsourcing = offshoring as well.

    I speak as one who works for a procurement outsource provider as an adviser on “outsourcing” projects, amongst other things – does that make me an “outsourced outsourcer”?

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