“Outsourcing” could be considered as a relatively new term for a process or a set of business practices that existed since the 1940s in the aftermath of World War II when the Allied Powers provided means to economically assist countries most affected by the War.

Then again it could be argued that “outsourcing” even existed during the ancient age of empires where specialized skills and products from such are sought after and bartered.

What is for sure is that outsourcing is currently realized in many fields of human effort: be it in business, media, sciences as well as in the government. Outsourcing, as a practice, begets more practices and processes that makes sure that things run smoothly in each respective.

And people, especially the professionals, have this certain tendency to be specific hence new labels such as off-shore outsourcing, near shore outsourcing, inshore outsourcing, and reverse outsourcing keeps cropping up.  It is a human thing, it is genetic, and it is we got it from Adam.

So you, as the business executive or the entrepreneur, in your endeavor into sourcing out your business for better services and better value should be very familiar with the terms so as not to have any misunderstanding, for knowing when to call a spade a spade makes things more efficient and makes you a more effective business leader.

Activity-based accounting (ABA). A form of accounting that focuses on the costs of performing specific functions (processes, activities, tasks, etc.) rather than on the costs of organizational units. ABA generates more accurate cost and performance information related to specific products and services than traditional cost accounting approaches.

Activity-based pricing (ABP). Clients agree to pay a flat fee to cover the service provider’s fixed and variable costs — including hardware and software, labor, infrastructure and administration and maintenance.

Activity-based costing is often used when establishing an off-shore development center (ODC) or putting together a build-operate-transfer model.

Application service provider model (ASP model). The rental of software. Proprietary software licenses are often acquired through lease, not purchase, for a particular term and even for a specific set of functions and services.

Back office functions. Those business processes such as accounting & finance, administration, human resources, procurement and payroll, legal accounting, benefits management, information technology, marketing, legal and logistics.

Backlash. The effect of public outcry that sometimes takes place when an organization announces its decision to outsource a function and transfer work to the service provider taking over that function and laying off employees.

Baseline. A snapshot of the state of inputs/outputs frozen at a point in time for a particular process.  It is recorded as a starting point to measure the changes achieved with any process improvement.

Best Practice. A way or method of accomplishing a business function or process that is considered to be superior to all other known methods. A lesson learned from one area of a business that can be passed on to another area of the business or between businesses.

Best shore. Service providers use this term to describe the strategy of having work performed at the optimal location, whether domestically or off-shore.

Build-Operate-Transfer (BOT). A firm contracts with an off-shore partner to build a shared services or off-shore development center and operate it for a fixed interim period. Organizations try this with the expectation that the off-shore partner can initiate operations and reach operating stability much faster than it can through an in-house effort.

Business process management (BPM). This is the orchestration of the interactions between the people, applications, and technologies that comprise a business process and in concert create customer value.

Business process management system (BPMS). A nine-step model that enables companies to model, deploy and manage mission-critical business processes that span multiple enterprise applications and departments. Usually, BPMS is performed for less- mature processes to make them repeatable and reliable.

Business process outsourcing (BPO). The transfer of internal business processes, such as finance & accounting, human resources and procurement, and customer relationship management  to an external service provider to improves these processes and administers these functions at an agreed service standard and, typically, at a reduced cost.

Business benefit contracting (BBC). A contractual agreement that defines the service provider’s contribution to the client in terms of specific benefits to the business and defines the payment the client will make based upon the service provider’s ability to deliver those benefits. The goal is to match costs with benefits and to share the risks.

Business outcome achievement. Framework in which the provider doesn’t receive any payment unless specified business outcomes are achieved. This typically means high risk for the provider, medium risk for the client and is only appropriate for transformation deals.

Call centers. A batch of operators who handle phone calls, usually for customer relationship management. Computer telephony integration has enabled automated resolution of calls and more efficiency in human calls.

Captive Centers/ Facilities. Off-shore companies set up by organizations to provide internal services and in some cases to sell those same services to clients. Often U.S. and European organizations set up captive centers in other regions for their outsourced work at lower costs.

Change management. A systematic approach that deals with organizational change. It encompasses planning, initiating, realizing, controlling and stabilizing change processes on both, corporate and personal level. Change may cover such diverse problems as strategic direction or employee development programs.

Comanagement process. Business strategies change during the course of a sourcing relationship. A comanagement process is the mechanism for communicating changes, by ensuring that the parties in the relationship understand and agree on the current business strategy, sourcing maxims, sourcing strategy and delivery strategy.

Continuous performance reporting. The on-going responsibility of communication, monitoring and reporting of service level agreement metrics. This addresses how performance is monitored and reported; how targets are established; who is responsible for reporting; when client reviews are scheduled; what the timeframe, content and format would be for standard reports; and when and how exceptions are to be reported.

Core competencies. Those aspects of an organization that are the drivers for its growth and success. A manufacturing firm may consider its product engineering, marketing and brand management a core competency, but not the actual manufacturing of the products it sells. During the 1990s, many large companies abandoned their ambitious diversification strategies — pursued to mediate risk — to focus on their sustainable competitive advantages.

Cosourcing. It is also known as “joint venture”. Cosourcing describes organizations that execute a shared services center with an external vendor.

Cost-plus pricing. Also known as “open-book” pricing. In this model, the client pays the service provider for the actual cost of the service plus a markup or profit margin. This is popular with off-shore development center (ODC) or build-operate-transfer models. Cost-plus pricing is frequently used as an interim contractual measure and only appropriate for efficiency deals.

Dashboards. A mechanism, typically software tools and processes, that collects, tracks and communicates the results of various key services and to link these results to business outcomes.

Data center operations. Information technology practices that encompass: computer operator training, disaster recovery/power backups, equipment leases, floor/space management, hardware and network operations, HVAC/Halon, job scheduling, monitoring mainframe/server performance, operations/end user support, security, server uptime, storage management/tape backup, trouble/help desk.

Delivery. An aspect of the outsourcing contract’s Terms and Conditions which specifies the dates, locations, responsibilities and any conditions relating to delivery of products and services to the customer site. It also sets out the responsibility for any site preparation work required prior to delivery.

Disaster recovery. Services that encompass getting the organization back to a running state when disaster or a natural calamity– small or large — has struck. In the context of outsourcing, this includes security, backup, power management and data recovery. One aspect of disaster recovery that’s important in an outsourcing arrangement is whether the service provider has an alternative facility in the event of a disaster — and in how many hours or days a client will be able to recover.

Economies of scale. A term used to describe the efficiencies a service provider or internal department can achieve through standardization, commodity negotiation and adherence to process management.

Efficiency sourcing deal. A sourcing relationship in which the focus is on efficiency of operations — primarily in the form of cost reduction or cost control. According to Gartner, these are the most prevalent type of sourcing engagement.

Enhancement sourcing deal. A sourcing relationship in which the focus is on improving the current state of an IT service or business process. The goal is to improve upon the current state and introduce enhanced operational performance or outcome.

Exit plan. The strategy developed for coping with the end of the contract — whether because the term is up or because termination clauses have been invoked. Assuming that the company will move on to a new service provider rather than renewing the contract, the exit plan also details what the organization will require to maintain service levels and to make a smooth transition to the next provider.

For future note:

Just-in-Time (JIT). A set of logistics and delivery techniques created by Toyota Motor Corporation of Japan, JIT boosts a company’s bottom line by reducing inventory and associated storage costs with a fluid system of on-time fulfillment.

Kanban. This Japanese term refers to the set of signals used to determine steps for JIT delivery from production to restocking of materials to shipment. The signal is often designated by the use of a card that includes details on the product.

Worldsourcing. A business strategy that taps global diversity and resources and distributes management, operations, processes, and production to create more efficiencies wherever they will function best to deliver the best value to customers. Worldsourcing is not about cutting costs, it is company value growth through the leverage of the right expertise in the right sectors to identify and serve both developed and emerging markets.
To be Continued, Part 1 of 5

Outsourcing Solutions, Inc. – your outsourcing partner!


  1. Walker, Reid. “What is WorldSourcing?”. Lenovo Website. Accessed 15 September 2008. Link here
  2. “Outsourcing Dictionary and Glossary.” Accessed 15 September 2008. Link here
  3. “Global Outsourcing Glossary of Terms.” International Outsourcing Services. Accessed 15 September 2008. Link here


You must be logged in to post a comment.

Recommended Providers

Recommended Articles

Ask the Expert

Please click here or send an email to with your questions about outsourcing.