Organizations outsource because they cannot be good at all things and still remain competitive in their core business. About 100 years ago, during the automotive revolution, organizations tended to be vertically integrated --- from raw materials plants to finished products. Vertical integration hid the complexities and inefficiencies of numerous processes within the walls of an organization.
The forces of competition compelled organizations to focus on strategic processes of the supply chain and outsource all of the remaining processes to worldwide partners. Vertical integration was replaced by highly efficient supply chains.
Today, almost a century later, the manufacturing and retail world thrives on highly complex, interlinked supply chains that work in unison.
Business and IT services are undergoing similar transformation.
In their infancy, all of these processes were within the confines of one organization. But as the service organizations matured, they felt compelled to outsource competencies that an outside provider could perform better and be more cost competitive.
Starting with ''utility'' related functions that included help desk, call center, data center, desktop support, and network management, organizations realized that there is an economy-of-scale in utilizing highly functional and skilled providers that integrate well into their business and IT processes.
Today, organizations tend to outsource most of their back office IT and business processes that include data center services and HR. Focusing entirely on core competencies, these organizations are shedding processes that others can perform better, cheaper, and faster.
Outsourcing is the direct result of continuous improvement and globalization. As long as consumers demand products and services better, faster, and cheaper, products and services organizations will constantly need to innovate through the relentless and effective utilization of global raw materials -- from cotton producers in China to skilled IT programmers in India.
Business service/IT outsourcing is moving towards high-end, process outsourcing that involves multiple participants. Up until now, organizations have been outsourcing processes related to a single business function (payroll, help desk, etc.) that have been usually self-contained and these organizations have been able to manage their outsourced services/products because of clearly defined roles/responsibilities among all participants.
But, with process outsourcing going to more than one provider, organizations now need to wrestle with another layer of complexity that previously did not exist. This is called multi-sourcing; where organizations are increasingly mixing and matching various kinds of providers to obtain better services.
This approach mitigates the risks of outsourcing processes/data to only one provider -- a mistake that General Motors made with EDS in 1986 that has taken almost two decades to fix. Today, General Motors is moving aggressively towards multi-sourcing to foster innovation and agility by taking back the critical processes that were outside of their organization.