What Is Outsourcing?

Outsourcing is when an organization hires an external provider to deliver a function, service, or outcome that could be done in-house. This guide explains the main models, why firms use them, and how to evaluate trade-offs.

Plain-English definition

In practice, outsourcing is a business arrangement: you define a scope of work, you choose a provider, and you manage performance against agreed expectations. It can involve people, processes, technology, or a blend of all three.

Outsourcing can be short-term (a project) or long-term (an ongoing service). It can be local, regional, or global.

Why companies outsource

• Focus: free internal teams to work on core products or customer value.
• Capability: access specialized skills or tooling faster than building it internally.
• Speed: scale up (or down) without long hiring cycles.
• Cost: shift fixed costs to variable costs (sometimes with savings, sometimes not).

Important: “cheaper” is not guaranteed. Poorly-scoped outsourcing can cost more than doing it in-house.

Common outsourcing models

• Project-based: a defined deliverable (e.g., build a system, migrate data).
• Managed services: provider owns day-to-day operations and service levels.
• Staff augmentation: provider supplies people who work under your direction.
• BPO: provider runs a business process (e.g., payroll, customer support).

Decision checklist

• What outcome do you need (not just activities)?
• What must stay in-house (data, IP, customer experience)?
• How will you measure success (KPIs / SLAs)?
• What risks matter most (security, compliance, continuity, reputation)?
• Who owns governance internally (one accountable person/team)?

Note: This page is educational and general. It is not legal, tax, HR, or security advice. For decisions with real risk, consult qualified professionals.