Understanding Outsourcing and Offshoring

While interacting with my colleagues and customers, I have seen the terms Offshoring and Outsourcing used interchangably. Sometimes they say Outsourcing whereas they really are talking about Offshroing and vice versa. Sometimes they are talking about both. Here is my attempt to compare and contrast the two terms and to also show the relationship between the two.

Basically, Outsourcing and Offshoring while often used together can also be used in a mutually exclusive manner. Let me explain what I am thinking using the following 4 basic combinational models. I will use the same definitions of the terms Owner and Outsourcer from my earlier post on Outsourcing Models.

  1. No outsourcing, No offshoring - Onshore, Internal:
    Nickname: In-On : In this model, the Owner does not really Outsource, but might be delegating the activity to an internal group within the Owner's company. This activity is performed by the internal group onshore. No outsourcing, No offshoring
  2. No Outsourcing, Internal Offshoring - Offshore, Internal:
    Nickname: In-Off : This is same as the above model, except that the activity even though is within the same company, is shifted to be performed offshore at the company's location in another country than the Owner's home country. This is offshoring without outsourcing.
  3. Outsourcing, No Offshoring - Onshore, External:
    Nickname: Out-On : This is the first model of outsourcing where the Outsourcer is basically in the same location/country as the Owner.
  4. Outsourcing, Offshoring - Offshore, External:
    Nickname: Out-Off : This is the second model of outsourcing where the Outsource is offshore. This model is the one that gets most attention in the industry thus leading to the two terms (Outsourcing and Offshoring) being used interchangeably in my opinion.

In defining the models above, I am tempted to use the term Insourcing to describe In-On and In-Off models, because that is what it is. But there are other usages of that term that led me to avoid using it for the time being. In-Off and Out-On models demostrate the mutually exclusive nature of outsourcing and offshoring.

YouRIt

Posted on: May 26, 2005

Posted by: alur

Category: Architecture

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Comments:

I'm glad to see somebody else is making yet another valiant attempt to get the terminology straight. That said, I wonder if your revised terminology may only add to the confusion and maybe only amount to preaching to the choir. And how about that ship they're talking about archoring off the coast of California... whould that be in-shore offshoring? Remember the backlash against "downsizing", so people shifted to "rightsizing"? Maybe we should just have "rightshoring" and "rightsourcing", and everybody winks and nods and knows that "right" is synonymous with "out". Keep up the good fight. -- Jack Krupansky

Posted by Jack Krupansky on May 27, 2005 at 11:11 AM PDT #

Hi Jack, Just visited your blog, like it a lot. You foresight might be accurate that the terms "rightsourcing" and "rightshoring" may not be far off. I think at this time, I am struggling to get this straight from two perspectives:
  1. <EM>Shore</EM> = location - i.e. onshore or offshore. From that perspective, even that ship might be offshore or maybe "nearshore"! who knows.
  2. <EM>Source</EM> = who does the job - i.e. internal (IT) or external (outsource).
Thanks for the interesting comments.

Posted by Deepak Alur on May 27, 2005 at 11:34 AM PDT #

Hi Deepak, Cool Blog... Do check out the forthcoming book on Offshoring and Outsourcing at http://www.offshoringmanagement.com - MB

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