By the
Mind Tools
Editorial Team

Words Used in Outsourcing

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Outsourcing can be scaled to fit your business needs.

Most of us are somewhat familiar with outsourcing. It's simply when one company hires a separate company to perform work that, in the past, it has done itself.

So instead of having a payroll department, an organization may decide to outsource its payroll function to another company that specializes in such work.

What are the key motivations and expected benefits of outsourcing work versus doing it in-house?

  • Companies hope that the work will be done quicker, and more efficiently.
  • They hope it will decrease costs.
  • They expect that it will free resources that can be applied to core competencies.

When outsourcing first became popular, there was understandable resistance to it, particularly from the workers whose jobs were replaced. In the 1980s and 1990s, outsourcing and downsizing were often viewed as the same thing. The practice earned a bad reputation, because it made people think of massive job losses, and corporate greed.

Now, however, many see outsourcing as a valuable strategic choice. It makes more efficient use of people, and financial resources. It can be done on a very small scale, with one specific function – or on a very large scale, where complete departments are outsourced.

Because the influence of outsourcing is felt across all industries, and across companies of all sizes, the chances are that you'll encounter outsourced work during your career.

This glossary explains outsourcing terms, helping you to understand the circumstances and implications of outsourcing in your workplace. It covers the following terms:


Location of outsourced service providers

Outsourcing strategies

Outsource contracting

Types of outsourcing



Service Provider


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