Scope of Services: The services provided under an outsourcing agreement.
Scorecard (Balanced Scorecard): A scorecard, or balanced scorecard, is a way of measuring how much value has been delivered through the outsourcing relationship. Scorecards attempt to look at benefits beyond the mere level of service (see Service Level Agreement, below) and may include measures of overall economic value achieved, such as revenue, share price, market share changes, or measures of business-wide achievements, such as, speed to market and innovation.
Service Level Agreement (SLA): Outsourcing is a service. The service level agreement, or SLA, defines the intended or expected level of service. For example, how quickly a service will be performed, what availability, quality and cost targets will be met, what level of customer satisfaction will be achieved. In essence, every outsourcing agreement is made up of three basic elements: a description of the services to be performed; a scorecard or SLA defining in objective, measurable terms the standards for the delivery of each service, and; a pricing formula for how the service provider will be compensated.
Service Provider: A company that provides outsourcing services. Terms such as provider, vendor, and partner are often used interchangeably each carrying a slightly different connotation intended by the user.
Shared Services (Shared Services Centers): Shared services are common activities that are used by more than one division or unit within the company. When these services are combined into a central operation they are often referred to as shared services centers.
Sourcing: Sourcing is generally the broadest term used in the field. It reflects the simple but essential point that everything the organization does has to be ‘sourced’ in some way – internally, externally, or a mix of the two.
Sourcing-as-Strategy: Sourcing-as-strategy is a powerful way to improve an organization’s ability to serve customers, compete in its markets, and grow. It’s a strategic approach to outsourcing that involves mapping the markets the organization plans to serve, the competitive advantages it seeks in each market, and then identifying the sources of those competitive advantages – whether they come from inside or outside the organization.
Strategic Outsourcing: Outsourcing to achieve better return on investment and accelerated growth. Strategic outsourcing is approached as a redirection of the organization's resources toward its highest value-creating activities — its core competencies.
Supply Chain: The interlinked chain of contractors and subcontractors that provide components, subcomponents, and services that become part of the company’s deliverable to its customers. Typically used to refer to the chain of suppliers in a manufacturing company’s operation, but is also used more generally in regard to any product or service.
Tactical Outsourcing: Outsourcing to achieve operational efficiencies. Tactical outsourcing is approached as a competition between existing internal operations and outside service providers.
Transactions: Business process outsourcing often involves transaction-intensive processes. Transactions, by their very nature, are clearly defined sets of related actions making them easy to describe, measure, and monitor. They are information-intensive and repetitive. While they are certainly critical to the operation of any business, they seldom offer much opportunity for creating competitive advantage.
Transformational Outsourcing: Outsourcing to take advantage of innovation and new business models. Transformational outsourcing is approached as a way to fundamentally reposition the organization in its markets. The term Business Transformational Outsourcing is also used to combine this idea with that of Business process outsourcing.
Value Proposition: What value is the organization looking to gain through outsourcing? Overall, about half of organizations state that reducing costs is their primary reason for outsourcing. This also means that something other than cost savings is the primary value sought in the other half of the cases. The other reasons most frequently cited are: focus on core competencies, a more variable cost structure, access to needed skills, grow revenue, improve quality, conserve capital dollars, increase innovation.
X-sourcing: There is an extensive list of prefixes put on the word sourcing to suggest a specific approach to outsourcing. Co-sourcing, smart-sourcing, e-sourcing, in-sourcing, business process outsourcing, strategic sourcing, strategic outsourcing, and multi-sourcing are just a few. Each has a slightly different meaning intended by the person using it to connote a slightly different approach to outsourcing.
Zero-Based Sourcing: Zero-based sourcing means that the sourcing decision for each and every aspect of a business’s operation is re-justified every planning cycle from an assumed base of zero. This approach ensures that the organization is consistently and objectively re-testing its internal operations against the best available external solutions.