Outsourcing—facts and fiction

As the E‐commerce revolution creates a frontal attack on industry after industry and threatens to transform traditional industry structures into new configurations, managers will be forced to rethink their outsourcing strategies in profound ways. Outsourcing—that is, the process of externalizing tasks and services previously performed in‐house, to outside vendors—is hardly a new idea in management. But the extent and character of outsourcing is changing radically. Studies have shown that more and more companies outsource still more complex activities. Also, a considerable reduction in supplier base can be detected, leading to closer relationships between companies. We argue that this development has called for a totally new way of doing business. Successful outsourcing has become a key to competitiveness. For the seller or vendor, the sale of total solutions has become a key to new and expanding markets. However, research is still on ‘virgin territory’ and has yet to provide the tools for a complete understanding and exploitation of this development. The angle in the academic literature is almost always from the company that is outsourcing a certain activity. The purpose of this article, therefore, is to provide an overview of the major motives behind outsourcing and the implications for the supplier. Also, a common framework for understanding and defining three basic concepts is offered. The article starts by reviewing some general trends in outsourcing. It then moves on to the concept of core competence—a concept, which is pivotal in the discussion on outsourcing but surprisingly vague and ‘non‐operational’. Finally, the article presents some empirical evidence of why companies actually outsource. Copyright © 2000 John Wiley & Sons, Ltd.