Comprehensive Outsourcing Glossary: Key Terms Explained

Table Of Contents


The business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company's own employees and staff.


Relocating a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, like accounting.


Outsourcing business processes to companies in a nearby country, often sharing a border with the target country.


Outsourcing services or production to a service provider in the same country as the business.

Business Process Outsourcing (BPO)

The practice of contracting a specific work process or processes to an external service provider.

Information Technology Outsourcing (ITO)

The outsourcing of computer or Internet related work, such as programming, to other companies.

Knowledge Process Outsourcing (KPO):

Outsourcing in which knowledge- and information-related work is carried out by workers in a different company or by a subsidiary of the same organization.

Information Technology Outsourcing (ITO)

The outsourcing of computer or Internet related work, such as programming, to other companies.

Knowledge Process Outsourcing (KPO)

Outsourcing in which knowledge- and information-related work is carried out by workers in a different company or by a subsidiary of the same organization.

Managed Services

The practice of outsourcing on a proactive basis certain processes and functions intended to improve operations and cut expenses.

Service Level Agreement (SLA)

A contract between a service provider and the end user that defines the level of service expected from the service provider.


A company or a person that sells goods or services to another entity.


A legally-binding agreement between two or more parties.


The service provider who performs the outsourced work.


The practice of performing tasks or providing services in-house.


Individuals offering services to various employers without a long-term contract.

Global Delivery Model

A model that provides for the seamless delivery of services across geographies.

Core Competencies

The main strengths or strategic advantages of a business.

Non-Core Activities

Secondary or supportive functions that are not a part of the core competencies of a business.

Third-Party Provider

An external provider or service vendor that is not part of the hiring company.

Transition Management

The process of managing the change from an in-house team to an outsourced provider.

Offshore Development Center (ODC)

A branch or office of a company that performs development activities abroad.

Turnkey Solution

A type of solution that is designed, supplied, built, or installed fully complete and ready to operate.

Outsourcing Agreement

A formal contract specifying the terms and conditions under which outsourcing arrangements are agreed upon between a client and a service provider.

Task Outsourcing

Assigning specific tasks or projects to an external service provider, often for a defined period.

Project Outsourcing

Contracting an external organization to manage and complete a project with specific deliverables.

Operational Cost Savings

Reductions in costs achieved by outsourcing certain business operations to a third-party provider.

Strategic Outsourcing

The use of external service providers to effectively deliver a strategic business process or set of activities.

Back Office Outsourcing 

The outsourcing of internal business functions, such as human resources or finance and accounting, to third-party providers.

Front Office Outsourcing

The outsourcing of customer-related services such as contact center services.

Outsourcing Consultant 

A professional advisor who specializes in helping businesses determine what to outsource, to whom, and how.


The practice of using multiple vendors to deliver a single or set of services.

Captive Center

A facility that is set up and owned by the parent company to provide internal services and perform business processes.

Selective Outsourcing

Choosing to outsource certain functions or processes while keeping others in-house.

Full Outsourcing

The practice of having all aspects of a particular business function handled by a service provider.


A situation where a company retains some portion of a particular business process or function in-house and outsources the remainder to an external provider.

Outsourcing Governance

The framework and processes through which the outsourcing is managed and the relationship with the service provider is regulated.


Bringing back in-house operations that were previously outsourced.

Cloud Sourcing 

Outsourcing services or functions to cloud-based service providers.

Value-Added Services

Additional services offered by an outsourcing provider that go beyond the basic or standard services.


The process of comparing one's business processes and performance metrics to industry bests or best practices from other industries.

Process Improvement

The proactive task of identifying, analyzing, and improving upon existing business processes within an organization for optimization.


The practice of bringing outsourced services back in-house, often to regain control or to consolidate business processes.

Outsourcing Lifecycle

The stages through which an outsourcing relationship progresses, typically including assessment, selection, contract negotiation, transition, management, and either renewal or termination.


Choosing the best shore based on the needs of the business, which could be onshoring, nearshoring, or offshoring.


The strategic placement of business processes to the most advantageous location, whether onshore, nearshore, or offshore.

Outsourcing Readiness

The state of being prepared to engage in outsourcing, including having the right infrastructure, processes, and mindset in place.

Capacity Planning

The process of determining the production capacity needed by an organization to meet changing demands for its products or services.

Contract Manufacturing

Outsourcing of certain production activities that were previously performed by the manufacturer to a third-party.

Outsourcing Risk Management

The identification, assessment, and prioritization of risks associated with outsourcing, followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events.

Business Continuity Planning

A strategy that involves creating systems of prevention and recovery to deal with potential threats to a company, including those that may affect outsourced operations.

Compliance Management 

Ensuring that the company and its outsourced providers are adhering to laws, regulations, guidelines, and specifications relevant to the business.

Intellectual Property (IP) Protection 

Safeguarding a company's intellectual assets, especially when outsourcing could involve sharing sensitive information with third-party providers.

Cultural Alignment

Ensuring that the outsourced provider's corporate culture aligns with that of the hiring company to ensure smooth cooperation and communication.

Performance Metrics 

Standards or measurements used to assess the performance of an outsourcing provider.

Quality Assurance (QA)

A way of preventing mistakes or defects in manufactured products and avoiding problems when delivering solutions or services to customers.

Request for Proposal (RFP): 

A document that solicits proposal, often made through a bidding process, by an agency or company interested in procurement of a commodity, service, or valuable asset, to potential suppliers to submit business proposals.

Outsourcing Ecosystem

The network of relationships between a company and its outsourcing partners, including the interdependencies and interactions among them.

Vendor Management System (VMS)

A web-based application that allows an organization to secure and manage staffing services on a temporary, permanent, or contract basis.

Transition Service Agreement (TSA)

An agreement that is made between a buyer and seller and contemplates having the seller provide infrastructure support such as accounting, IT, and HR after the transaction has closed.

Outsourcing Audit 

An examination and evaluation of an organization's information technology infrastructure, policies, and operations.


The use of technology to perform tasks without human intervention, which can be a component of an outsourcing strategy.

Total Cost of Engagement (TCE) 

A comprehensive assessment of costs associated with outsourcing, including indirect costs and long-term implications, not just the contract price.

Resource Augmentation 

Temporarily hiring external resources to supplement an organization's capacity.

Transition Management Plan (TMP)

A detailed plan that outlines how services will be transferred from one provider to another or back in-house, ensuring minimal disruption.

Outsourcing Hub 

A region or country known for its favorable business environment for outsourcing services, often due to cost advantages, skilled labor, and supportive government policies. Countries like India , Philippines etc  

Business Transformation Outsourcing (BTO)

Outsourcing with the goal of reengineering business processes and workflows to achieve significant improvements in critical measures of performance.

Outsourcing Portfolio

The collection of different outsourcing agreements and vendors managed by an organization.

Scale Economies 

Cost advantages that an enterprise obtains due to size, output, or scale of operation, often realized through outsourcing.

Fixed Price Contract

An outsourcing contract where the service provider is paid a set amount for a specific scope of work, regardless of the resources used or time expended.

Time and Materials Contract: 

A contract where the client pays the supplier based on the time spent by the supplier's employees and subcontractors to perform the work, and for materials used in the project.

Outsourcing Strategy 

The plan developed by an organization that defines how outsourcing will be used to support the overall business strategy.

Data Security 

The protection of data from unauthorized access, corruption, or theft throughout its lifecycle, particularly important in outsourcing arrangements.

Confidentiality Agreement 

A legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes but wish to restrict access to or by third parties.

Operational Level Agreement (OLA)

An agreement between an IT service provider and another part of the same organization that assists with the provision of services.

Outsourcing Feasibility Study 

An analysis conducted to determine whether it is a good decision for an organization to outsource certain tasks or functions.

Incident Management

The process used by an organization's IT service desk to respond to an unplanned event or service interruption to restore the service to its operational state.

Change Management

A systematic approach to dealing with the transition or transformation of an organization's goals, processes, or technologies, particularly relevant when outsourcing services.

Outsourcing Decision Matrix

A tool used to determine the appropriate outsourcing strategy by evaluating the potential benefits and risks associated with outsourcing specific business functions or processes.

Global Sourcing 

Procuring goods or services from around the globe, taking advantage of global efficiencies such as lower-cost skilled labor, cheaper raw materials, and other economic factors like tax breaks and low trade tariffs.

Innovation Management 

The process of managing an organization's innovation procedure, starting from the initial stage of ideation, to its final stage of successful implementation. It includes the decisions, activities, and practices of devising and implementing an innovation strategy.

Outsourcing Analytics

The use of data analysis tools and methodologies to understand, predict, and improve outsourcing strategies and outcomes.

Demand Management 

The process of forecasting, planning for, and managing the demand for products and services. This can include strategies for managing demand for services that are outsourced.

Vendor Consolidation

The process of reducing the number of vendors that an organization uses to streamline operations and reduce costs, often as part of an outsourcing strategy.

Outsourcing Maturity Model

 A framework that describes the stages through which an organization passes as it becomes more experienced and effective in managing outsourcing relationships.

Contingent Workforce

A labor pool whose members are hired by an organization on an on-demand basis, typically consisting of freelancers, independent professionals, temporary contract workers, and consultants.

Outsourcing Arbitrage 

The practice of taking advantage of a price differential between two or more markets, by outsourcing work to a market where the cost is lower.

Reverse Outsourcing

When a company that previously outsourced its operations decides to bring those operations back in-house.

Outsourcing Synergy 

The combined effect that is greater than the sum of individual effects, achieved when outsourcing relationships work harmoniously.

Outsourcing Alliance 

A strategic partnership between an organization and its outsourcing service provider(s) aimed at achieving specific business objectives.


A method of sourcing where a company uses one supplier for a component and another supplier for another component, even when both suppliers offer both components.

Outsourcing Lifecycle Costing: 

The process of calculating the total costs involved in outsourcing, including the initial setup, ongoing operations, and any transition costs.

Outsourcing Exit Strategy 

A plan for ending an outsourcing relationship, which includes details on transitioning services back in-house or to another provider.

Due Diligence

The comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential, often before outsourcing.

Outsourcing Efficacy 

The effectiveness with which an outsourcing relationship meets the desired outcomes and objectives.

Resource Allocation 

The process of assigning and managing assets in a manner that supports an organization's strategic goals, which can include decisions about what to outsource.

Outsourcing Agility 

The ability of an organization to rapidly adapt or evolve its outsourcing strategies in response to changes in the market or business environment.

Outsourcing Integration 

The process of combining outsourced services with internal processes to create a seamless operation.

Outsourcing Blueprint 

A detailed plan that outlines the objectives, scope, and processes of an outsourcing initiative.

Outsourcing Ecosystem Management 

The practice of overseeing and coordinating the various elements and parties involved in an organization's outsourcing arrangements.

Outsourcing Advocacy

The act of promoting or supporting the use of outsourcing within an organization or industry.

Outsourcing Stewardship 

The responsibility for overseeing and protecting the interests of an organization in its outsourcing relationships, ensuring that the benefits of outsourcing are realized and risks are managed.

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