What is Outsourcing?
If you’ve been anywhere near the IT industry, you probably heard the term Outsourcing and maybe even have a vague idea as to what it is exactly.
Let's put some clarity into it.
According to the Gartner Glossary, IT outsourcing is the use of external service providers to effectively deliver IT-enabled business processes, application services, and infrastructure solutions for business outcomes.
In other words, if you don’t have an in-house expert, you go next door and find an expert there.
The following are some of the IT services that are most frequently outsourced:
- Software development
- Web development
- Website maintenance
- Technical support
- Database development
How it Begun
Although outsourcing first appeared in the 1950s, it wasn't until the 1980s that the era of modern outsourcing had begun, and people started to see it as a viable economic strategy. By the late 80s, it was finally identified as a business strategy. (Mullin, 1996)
Before the rapid rise of outsourcing, it was standard practice to do all operations in-house, which reduced the effectiveness of finding the best specialists and constrained opportunities.
So, what was the turning point?
The First Case of IT Outsourcing
In 1962, H. Ross Perot founded Electronic Data Systems in Plano, Texas. The firm was a forerunner in managing IT facilities for banks, financial institutions, corporations, and government offices. In 1967, Morton H. Meyerson, one of EDS employees, proposed a business model that would later become known as “outsourcing,” which led to major business growth for EDS’s and ended with it being bought by General Motors for $2,5 billion.
With an example like this, it’s no wonder the others followed right after.
In 1989, Eastman Kodak announced that it was outsourcing its information systems function to IBM, DEC, and Businessland. Never before had such a renowned firm, whose information security was regarded as a strategic advantage, given it to outside vendors.
Many large companies adopted a new strategy of concentrating on their core business (in other words, what they do best) to boost their flexibility and inventiveness, which meant identifying crucial procedures and determining which might be outsourced.
The signing of several high-profile, multi-billion-dollar deals has increased awareness even further.
Without a doubt, it was the Internet that brought IT outsourcing to the level it is today. Without the Internet, it is impossible to imagine communication and collaboration in outsourcing.
IT Outsourcing Fast facts:
- 64% of businesses completely outsource their development process
- 92% of The Global 2000 companies use IT outsourcing services (ISG)
- IT services make up 72% of all global outsourcing contract values (ISG)
- 66% of large and medium-sized companies outsource software development.
- 37% of companies with fewer than 50 workers outsource their software development
- 1M+ Chinese employees join outsourcing every year
- 60% of companies turn to outsourcing for app development (Computer Economics)
- 43% of American businesses outsource work in the IT sector
- India is a leader in global outsourcing
- IT outsourcing costs in 2023 are expected to reach $519 billion.
- Small and large organizations are starting to outsource at similar frequency levels (Computer Economics)
- 25% to 40% savings can be obtained by outsourcing.
To sum up, outsourcing IT tasks and functions to those who can do them better, faster, and cheaper is usually a pretty good idea. Even if you have a dedicated internal software development team, outsourcing will free them up to concentrate on the jobs they enjoy and excel at.
Between the array of benefits, the chief reasons businesses use outsourcing is the ability to control expenses, focus on key competencies, and improve overall efficiency. On average, outsourcing spending generally correlates to company size, and by paying for services as you go, you can avoid making significant investments in employees, infrastructure, and software.