History of Outsourcing

Jodee Redmond
Customer service duties can be outsourced.
Customer service duties can be outsourced.

The history of outsourcing goes back a lot further than you may think. Ever since people have been performing tasks for employers, some duties have been performed off site. When a staff member didn't have the necessary expertise to perform a certain type of work, the task was delegated to someone else who did. Over time, this practice of outsourcing led to people being trained in specific, specialized professions.

Definition of Outsourcing

Outsourcing simply refers to having someone who is not an employee of a company perform certain duties that could be performed by someone who is on the company payroll.

The History of Outsourcing

When people started living together in villages, as opposed to smaller family groups, they also started producing food and goods. These items were traded within their home communities first, and over time the practice expanded to include trading with other villages, regions, and countries. Since people weren't able to produce all the items they needed to survive for themselves, you could consider this trading as being an early form of outsourcing.

Outsourcing in the 19th and Early 20th Centuries

If we fast forward to business practices in the 19th and early 20th century, companies didn't use outsourcing as a business practice. Many manufacturers would take a product from the raw materials stage through the production portion without seeking outside assistance. When the goods were ready to be shipped, they used their own resources to make sure that the products were delivered to company-owned stores, ready to be bought by consumers.

Companies hired the expertise they needed to work in-house, including legal, insurance, and accounting professionals. If the company had the resources, the organization also employed workers to design and construct company factories and warehouses.

Industrial Revolution

The Industrial Revolution changed the way companies did business. During this period, company owners started to outsource some services, as opposed to keeping them in house. Independent architecture, engineering, and insurance companies started opening their doors to serve multiple clients. Most often, they were located in the same city as the companies they were performing services for.

Outsourcing Manufacturing

Over time, manufacturing companies discovered that they could outsource the production of consumer goods, such as clothing items, shoes, and toys. By the 1970s, many consumer electronics products were manufactured overseas. Companies looked to workers in foreign countries to work in factories due to lower labor costs. Once company owners were confident they could outsource manufacturing functions and shipping costs to get the goods to market decreased, more of them decided to outsource this portion of their business to other countries.

Outsourcing for Payroll Services

Computer companies were the first ones to start outsourcing their payroll services. By the time the 1980s rolled around, other services, including billing, accounting, and word processing started to be outsourced more often by businesses looking to keep costs manageable.

Outsourcing Today

Now, the outsourcing of many business functions is quite common. Call center companies are kept busy from a steady stream of clients looking to outsource these duties. When a customer calls an insurance company's 800 number with a question or a concern, he or she will likely be speaking with someone who is working for a separate company, even though that person has been trained to handle customer service duties.

Not all outsourcing involves foreign workers. Many people work as independent contractors providing services to businesses of all sizes. Outsourcing is a growing trend that is not likely to slow down in the future. The days when someone worked for one employer for all of their working life is becoming a thing of the past, and more more employees may be finding that they are being replaced by outsourced workers. Some individuals may find that they are laid off from the company they work for, and are then hired back to that some company as a contractor!

History of Outsourcing