From Outsourcing to Offshoring and Virtual Organizations: How Management Redefines the Boundaries of Companies

Outsourcing functions, processes and activities normally developed inside organizations through outsourcing contracts is not a new phenomenon. In recent years, however, outsourcing strategies have undergone a profound evolution, from simple forms of production contracts made with third parties to agreements that involve functions and activities which, requiring “core competencies”, or being part of the “core business”, were until then considered inseparable from the company and not capable of being outsourced. Outsourcing has shifted the center of gravity from “tactical” choices – reducing production and structure costs – to “strategic” ones, which have led management to redefine the very boundaries of the company. Outsourcing has thus become a true strategic orientation that concentrates the company's resources on distinctive capacities, on the “core competencies”, relying on an external network of other companies for those activities held not to be distinctive or strategic. The tendency today is to attain “global sourcing” and offshoring; that is, outsourcing that involves outsourcers located in countries other than that of the outsourcee. This tendency to outsource most of the functions and processes can take on an extreme form, which we can define as “extreme outsourcing”, and lead to the formation of a virtual organization, a company characterized by the pure business coordination of its businesses, where all the productive and economic processes have been outsourced through the formation of a stable but flexible network. Precisely for this reason, the greater the strategic importance assigned to outsourcing is, the more important it is that the responsibility for managing the relationships between the two sides shifts to the highest levels of management of both sides