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Outsourcing has a long history

Outsourcing has a long history

Outsourcing, or as it was then labeled „contracting out‟, has been in use on an industrial or commercial scale since the advent of the industrial revolution in England during the 1700‟s (Brown & Wilson 2005; Kakabadse & Kakabadse 2003), with firms facing the "make or buy‟ conundrum that resulted from the greater production efficiencies that characterized eighteenth century England (Domberger & Hall 1995). In support of this contention, Greaver (1999, p.10) wrote that "outsourcing is similar to subcontracting, joint venturing, and strategic partnering concepts, which date back hundreds of years‟, citing the following examples: farmers hiring migrant workers; construction companies subcontracting electrical and plumbing activities; and governments subcontracting defence materiél production to private companies.

The first systematic use of outsourcing can be traced back to the 1940's, during World War II, when organizations provided systems facilities management services to the U.S. government (Greaver 1999). However, it was the growing dissatisfaction with the underperforming post World War II ideal of economy-of-scale driven conglomeration (Hunter & Cooksey 2004) and the introduction of timesharing mainframe computer services in the 1950's and 1960's (Factor 2002) that set the scene for the wider adoption of outsourcing methodologies.

Is there a way to distinguish between good outsourcing and bad outsourcing? What are the tell-tale signs? In a later chapter we will deal with the objective measure, but at this point I want to note a few tell-tale signs that generally apply.


The debate on outsourcing is centered around Core Competence

Ask any executive, when to outsource, and when not to outsource – you will get a quick answer. If it is a core competence, do not outsource. If it is not a core competence then consider outsourcing.

 But are there situations when you must NOT outsource? We were faced with a situation like this in one of our projects. One of the directors was dogmatically against outsourcing of any kind. In his executive career, prior to becoming a non-executive director, he had faced several outsourcing situations where the outsourcing service providers did not deliver the promise. In addition, he had seen an erosion of capability within his own company to an extent where it lead to dependence on the outsourced service provider, even for minor tasks related to the service. At times, he felt that the service providers charged inordinately high prices for these minor services, especially if they were not covered by the initial contract. All these memories had created a bias which is not uncommon.

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Vivek Sood

I write about "The Supply Chain CEOs", "The 5-STAR Business Networks", and, how to "Unchain Your Corporation". In my work, I help create extraordinary corporate results using several 'unique' supply chain methodologies. Contact me for interesting, high impact projects, or, to get access to my IP for creating transformations using these methodologies.

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