The word "outsourcing" means different things to different people. Dictionary publisher Mirriam Webster thinks the word has too many meanings! The word is so overused that Webster will replace it with "expertise augmentation". The wordsmith's at Merriam Webster have hit upon something interesting. We've become so used to saying "outsourcing" that we don't think about what it means. Over time outsourcing has changed. By understanding how the term has evolved, we might be able to predict the next big steps for outsourcing.
Outsourcing has a long history. As long as individuals and corporations have pursued profit, they have pursued ways to improve profitability. Outsourcing has been part of this process for centuries. We've used different words and forgotten the history of outsourcing. Consider this as an early attempt to examine the history of outsourcing, and to divide it into 10 distinct stages.
Colonial (Pre-1900s): International trade began before the pyramids of Egypt, with finished goods and raw materials trading around the world. In 1600 the British used a new legal invention… the "corporation" for large scale trading. Larger and more aggressive than their predecessors, the East India Tea Company was still a traditional trading group. Later, difficulty with procuring tea from China, led to an innovation, "Why not pick a similar climate and grow tea there?" Helped by the British government, tea production moved to recently conquered Lands: Assam in India, Ceylon, and Kenya. The British paid "planters" to contract with families and move them to new colonies to produce goods (cotton, molasses, wool, etc.). Colonies were profit-making ventures, producing goods at a lower price than the UK or Europe.
Cottage (early 1800s): The industrial revolution required an alliance between homes (cottage) and factories. Factory machines produced cheap products quickly, but only simple goods. Power looms out-performed hand looms, but human hands were needed for intricate details on a coat or lace work. Factories created major components and finishing work went to women working at home. This combined typical elements of outsourcing: non-employee labor and labor arbitrage (women were the low cost work force). Sewing machines and "automated" looms eventually led to "insourcing" work back to the factory and then outsourcing again by the 1960s.
Specialized (late 1800s): As the number of corporations (and corporate employees) grew, questions arose on how corporate services should work. Some built services departments (accounting, legal, food services, cleaning, mail and package delivery, etc.), others used outside firms. New services (public relations, advertising, financial printing) created "build or buy" questions. Some industries were built on a "partnership model: soft drink distributors and car dealerships. Complex corporations created relationships with the people, corporations, and affiliates that do the work of the corporation.
Industrial (1970s): Ford revolutionized car radio manufacturing, by building in South America. Corporations explored Taiwan , known for making toys, as a location for manufacturing electronics. Corporate executives were stunned at the results, and high quality products at a low cost were soon streaming out of Taiwan, followed by Singapore, Korea and other Asian countries.
Managerial (1980s): The microchip and personal computers lowered the cost of services. Corporations "insourced" functions once sent to outside firms: printing, copying, accounting, research, document centers, etc. Having services in-house was convenient, but managing services was a burden. Soon outsourcers (Xerox, Williams Lea, Pitney Bowes, etc.) moved on-site, taking over services, and staff.
Domestic (1980s-90s): Huge corporations bought computers and wrote their own software. There were no desktop computers and little commercial software. Then the PC arrived, quickly followed by Microsoft. Everyone could afford a computer, software companies were everywhere and every college now taught programming. Southern states built technology centers to draw high-tech jobs from higher cost states. Corporate owned centers, partnerships and pure outsourcing centers were created, but management of these agreements became complex.
Contractual (1990s): The 90s started with management restructuring as email flattened the corporation. Temporary workers evolved into "perm-a-temps" with open ended engagements, who could step in during hiring freezes, and can be cut when the firm needs cost savings during a dip in business.
Offshore (1990s): Industry and IT were already offshore, and now business and knowledge processes could move to... former colonies! The West rediscovered India, Brazil and other locations with a colonial past that provided the language, cultural and educational skills to become top offshore locations. By the 90s, many corporations were reviewing internal services, finding better cost and quality offshore. The move offshore was supercharged by the 2008 financial collapse.
Cloud (2010): Early outsourcing moved positions in a department; now, underlying functions can be outsourced. Corporations once developed their own software, now software is bought off the shelf. File storage, document management, e-discovery, etc. are available as subscriptions.
Sourcing (2013?): The process of identifying a source for a service is called, "sourcing." When you outsource you don't just swap one person in your London office for one in Mumbai, you restructure business processes. Services can be converted into products or subscription. Restructuring can be combined with staff outsourcing and vendor partnerships in infinite ways. Decisions to move work back in-house or to domestic centers is a refinement of your model, not a failed "sourcing" project.
Webster's is right! Outsourcing means everything to everyone, and significant outsourcing innovations are missed because it is called something else. The history of outsourcing started before we used that word, and will continue after we invent new terms. The concept of refining our work processes to be more efficient and more cost effective is a never ending process, regardless of the words we use!