Date: 20.05.2004 :: Page: 1of 1

Very often we ask companies how much they know about outsourcing. Interestingly, the terminology is not clear. People use and interchange various terms, even in one sentence. This whole problematic boils down to the segmentation and terminology of outsourcing.

When people, in Europe or the US, talk about outsourcing, they more often than not, mean on-shore - off site outsourcing. When an offshore provider hears them, they think they talk about offshore outsourcing. It is important to understand that there is no standard terminology or definitions. In our practice however we use the following segmentation and terminology.

Outsourcing: delegating one or more IT or IT intensive, core or non-core function(s) of a business to one or more external partners within a framework of a result oriented partnership.

Outsourcing partners:

Buyer/outsourcer/customer: the organisation which buys services from one or more service providers.

Supplier, service provider, outsource service provider (OSP): the organisation(s) which provide(s) services to the buyer/outsourcer.

Segmentation 1 - by the type of functions outsourced:

IT Outsourcing (ITO): delegating some (or all) of the IT functions to one or more external partner(s).

Software related services:

Candidates for outsourcing are: coding, testing, localisation, re-engineering, maintenance, (web) application development, web site development, etc. Any or all parts of a lifecycle model, key process/practice area (engineering, project management, quality assurance) or product component might be outsourced.

IT infrastructure services:

Service candidates are: remote maintenance and monitoring, product support (hardware, software), IT security, network monitoring and management, etc.

IT Enabled Services (ITES):

Digitization, CAD/CAM, CAE, GIS, animation, graphics design, document/content management etc.

Business Process Outsourcing (BPO): delegating fully or partially of (non-core), IT intensive business functions to one or more external partner(s). Candidates include: finance/accounting, human resource management, payment services, customer care, supply management, marketing, transcription (medical, legal), back office operation, data entry etc.

Segmentation 2: geographical proximity of the outsourcing partners:

On-shore: outsourcing within the country

Near shore: outsourcing to a firm whose main base of operation (delivery of service) is not far outside the country (nearby territory, accessible by short travel in the same or neighboring time zone) where the work is performed. Not far outside the country - to any EU country, for example, Romania, Bulgaria are considered near shore. In this segmentation, near shore outsourcing is geographically closer than offshore outsourcing and may involve a less significant time change and/or cultural differences.

Offshore: a global service delivery model to outsource to a firm whose main base of operation (delivery of service) is outside the country (accessible by long travel several time zones away) where the work is performed. Outside the country or overseas - to an EU country, for example, India, Israel and the Philippines are all considered offshore. In this segmentation, offshore outsourcing is usually the farthest geographically and may involve a significant time change and/or cultural differences.

Segmentation 3: where the outsourced service is provided:

On site: the service is provided at the customer site

Off site: the service is provided off customer site

In practice, it is common, that a buyer diversifies its outsourcing portfolio (to manage and mitigate risks for instance) by using various service providers, in different geographical areas while the services are provided as a blend of on-shore/offshore activities. This is called the outsourcing portfolio or outsourcing mix. Each element of the portfolio has its own associated business value, delivery model, management strategies, governance structure and processes as well as risks.