Definitions / Glossary

Click on the link below to view the terms beginning with the applicable letter.

[A][B][C][D][E][F][G][H][I][J][K][L][M][N][O][P][Q]
[R][S][T][U][V][W][X][Y][Z]

A  

Application Service Provider (ASP)

is a company that offers individuals or enterprises access over the Internet to applications and related services that would otherwise have to be located in their own personal or enterprise computers.

B

Backsourcing

is the expiration or termination of an outsourcing arrangement and the recapture in-house of the outsourced function. (Same as insourcing below).

 

Bankruptcy

See Bankruptcy section

Baseline

is the starting point for defining your needs. As with any metrics, the art of outsourcing comes from defining the relevant parameters.

Benchmarking

is a method of comparing contract services to market services or other independent standards.

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Best Practices

are those practices and procedures, followed regularly, that reflect the wisdom and experience at leading-edge companies. The collection, interpretation and assembly, and re-definition and updating of best practices has been historically performed by management consultants from working in many industries and analyzing common threads. One commentator in an article in The Wall Street Journal on October 20, 1998, argued sardonically that best practices are what consultants see while working at one company, repackage it and sell it to other corporate clients, touting it as their own.

Best of Breed

denotes the service provider that is best in its class of services. In contrast, a service provider might not be best of breed but, by reason of superior integration of inter-operating services and infrastructures, provide more valuable services in a suite. In selection of a vendor, therefore, the question of whether a best of breed vendor is better than an integrated vendor depends on the customer’s actual needs and history as well as on the degree to which the best of breed vendor partners with others in related or complementary fields.

Business-to-Business (B2B)

is the exchange of products, services, or information between businesses rather than between businesses and consumers.  

 

Business-to-Consumer (B2C)

is the retailing aspect of e-commerce on the Internet. It is often contrasted to B2B or business-to-business e-commerce.

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Business-to-Employee (B2E)

Internal communications among employees and between different departments provides valuable savings to employees by cutting the cost of printing policy manuals, production manuals, retirement plans, statements of account and other internal processes. B2E processes may be customized to the enterprise's unique business environment (such as a combination of compliance manuals in a highly regulated industry). But B2E can be very generic, involving normal compliance with the "plain vanilla" requirements of pension and profit sharing plans, 401(k) plans, vacation planning, "hotelling" of office space for transient home-based workers, and other emerging business trends.

Business Process

Means a sequence of defined steps necessary to achieve a business objective.   Business objectives can include any business operation, including product design, marketing, sales, finance, accounting, manufacturing, logistics, supply chain management, customer relationship management and other special business relationships.   

Business Process Outsourcing (or BPO)

is the procurement of particular services that involve ongoing outsourcing of specific business processes. In certain industries, design, manufacturing, inspection, and logistics may be outsourced.  More recently, BPO has come to include internal, "back-office" functions such as internal audit, finance, billing, accounting and other operations support.  BPO "front office" functions may include customer relationship management, with sales, call centers and fulfillment services.

"Business process" means a sequence of defined steps necessary to achieve a business objective.   Business objectives can include any business operation, including product design, marketing, sales, finance, accounting, manufacturing, logistics, supply chain management, customer relationship management and other special business relationships.   

Business Process Re-engineering

represents planned changed in the manner of conducting a business funciton, such as information collection and reporting, manufacturing, finance, compliance or administration.

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C

 

Clawback, n.

A provision in a contract that requires a party who has taken a benefit to return the benefit due to subsequent conditions.  In essence, the benefit was never "earned" because, in retrospect, the party who got the benefit did not deliver what it had promised and it would be fair, taking into account all the risks and circumstances of the events after the contract was signed, to require return of the benefits.  In equity, when a court orders restitution, it normally does so as part of the general rescission of the agreement due to inequitable circumstances that prevented the parties from obtaining the benefit of their bargain.  In contracting, a clawback (particularly in outsourcing) adopts the restitution concept without imposing a rescission of the entire contract.

Change Control or Change Management

is the set of structures, procedures and rules governing the adoption and implementation of changes in the commercial or financial relationship between the customer and the service provider.

Common Objects

Models of representations of data that are exchanged among different software applications.    Such data are any categories that are capable of being defined by category and by related metadata.    For example, a common object may include a customer name, order number, or product ("stock keeping unit," or "SKU").  While Microsoft applications use "common object brokering" tools to allow the interchange of such common objects using "cut and paste" tools, the emergence of "XML" (extensible hypertext markup language) expands the portability of common objects across incompatible software applications.   The use of XML-based data bases extends the utility of Web-based communication between business partners.

Competitive Insourcing

involves a process where internal employees may engage in bidding to compete with competitive, third-party bidders for a defined scope of work.

 

Computing "On Tap"

See On Demand Computing

Control Without Ownership

(otherwise known as magic) can result from well-planned arrangements in which the customer obtains effective use of the resources of the external services provider.

Consequential Damages

are those elements of damages arising from a breach of contract that are measured by loss of income or lost business opportunities.

Co-Sourcing

is a term used by one external services provider to trademark its brand of outsourcing services. See also, smartsourcing and outsourcing.

CRM (Customer Relationship Management)

A marketing and fulfillment system that usually includes a call center, data bases, software and marketing strategy.  Like ERP, CRM initiatives are complex, involve redesign of internal business process and retraining.  Successful contracting for CRM outsourcing requires attention to business as well as technology and legal issues.

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D

E

End-to-end Process 
        means the completion of a business process from
        beginning to end, including all intermediate steps of  
        data capture, processing, analysis, generation of outputs
        and, in some cases, implementation of tasks specified
        by the logic (algorithm) that defines the business process.

Enforceability

means the conditions under which the terms, conditions and obligations of the parties under an agreement will be adopted and confirmed by a court of competent jurisdiction. (The Law, according to Ambrose Bierce’s Devil’s Dictionary, is what a judge of competent jurisdiction says it is.)

ERP (Enterprise Resource Planning)

software integrates the various functions of an enterprise based on sharing of data in common database that, when processed, generates relevant management information for purchasing departments, manufacturing, sales, delivery and related internal processes (such as human resources and accounting).  In principle, ERP software is capable of running the enterprise (and multiple enterprises) as an integrated operation.

Exchanges

Exchanges utilize the Internet to allow qualified and registered users to look for buyers or sellers of goods and services. Depending on the approach, buyers or sellers may specify prices or invite bids. Transactions can be initiated and completed, and ongoing purchases may qualify customers for volume discounts or special offers.

 

Extranet

extends the Intranet (see below) to information users from outside the enterprise.   Extranets are used to provide access to information that can be used by suppliers, customers, banks and other financial institutions and others needing access to an enterprise's data.

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F

Facilities Management (en francais, infogerance)

means the solution by which the customer entrusts to an external services provider the responsibility for operations and software applications and for the management of the associated instrumentatities (hardware, software, applications programming personnel, etc.), while retaining the general oversight and supervision of its information technology. In broader terms, facilities management may apply to other fields, such as applications maintenance, updating or revision.

Fraud

means an intentional deception, for unjust advantage, that causes loss or inconvenience to the party relying on the false or misleading statement.   In contract matters, a fraud is the cause of an error bearing on a material part of the contract.   

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G

Gain-Sharing

is a technique for sharing risk and reward on a long-term basis. Euphemistically, gain-sharing is not labeled as risk sharing, so care must be taken to identify what is being shared and why.

Grid Computing

See "On-Demand" Computing.   The concept of "grid" comes from the electricity industry.   The electrical grid is a network of infrastructure components that generate, transmit and distribute electricity.  By analogy, by "flicking a switch," the outsourced business services flow "directly and instantly" to your office. 

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H

Homesourcing

is the sourcing of services to telecommuters, whether acting as employees (insourcing) or as independent contractors (outsourcing).

I

Insourcing

is the transfer of an outsourced function to an internal department of the customer, to be managed entirely by employees. (See backsourcing and competitive insourcing).

Indemnification

is a method of shifting legal liability from one party to another by contract.

Intranet

is a network of computers and related digital files available to all members of the intranet's owner.  USers access the files using an Internet Protocol rather than simple hard wiring.  When added to a VPN (see below), an Intranet can become an Extranet (see above).

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J

K

L

Local Area Network (LAN)

is a group of computers and associated devices that share a common communications line and typically share the resources of a single processor or server within a small geographic area (for example, within an office building). Usually, the server has applications and data storage that are shared in common by multiple computer users.

 

Liability

is the legal obligation arising out of a failure to honor one’s legal liability to another party, such as by contract or in tort.

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M

Managed Security Services (MSS)

Managed security services provide in-depth analysis to find intrusion threats and respond to security breaches. MSS contains elements such as web-enabled, real-time security information, best practice policies, in-depth monitoring, safeguard management capabilities, and strong incident response and computer forensic servicess.

Massive Outsourcing

refers to the process where a majority of the business support processes are outsourced in one transaction or a small number of related transactions.   The purpose of massive outsourcing is to drive shareholder value through shifting to others the operational responsibility for critical operations that do not deliver comparative advantage, or in which the company chooses not to invest due to comparatively low returns on investment.
see more

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N

Near Shore

Offshore outsourcing within nearby territory, and accessible by short travel or telephone in the same or neighboring time zone.

O

On-Demand Computing

A form of outsourcing agreement, sometimes called "utility" computing or "grid" computing or "computing on tap", that is based on variable payments for variable volumes of variable types of services over a long term that includes at least one "refresh" cycle for some, if not all, of the underlying technology.  Targeted towards enterprise customers, the key element is the scalability of the computing resources -- licenses, computers, networks, systems, storage, telecommunications, and asset mangement -- that the customer may "purchase" under the program.  The customer's commitment is equivalent to a subscription or requirements purchasing contract, but payment alternatives may run the gamut from a customer's purchase, leasing or payment "by the use".  This does not make the service provider a virtual Chief Technology Officer.  Generally, the concept is designed to allow the customer to acquire technology in any manner that suits its individual needs.  See Computing and Case Study in "On-Demand Computing - American Express Company.

 

Outsourcing (or sourcing)

is the transfer (or delegation) to an external service provider the operation and day-to-day management of a business process. The customer receives a service that performs a distinct business function that fits into the customer's overall business operations. Sometimes the process is one that historically has been performed by a vertically integrated enterprise, such as data processing. More recently, outsourcing defines the services sector for those services that were not part of the vertically integrated enterprise, such as telecommunications, Website hosting, transportation services, logistics and professional services of regulated professionals.

Offsourcing 

Offsourcing (a term we invented) refers to the restructuring of a supply chain where one company relies on its supplier for functions that were previously performed in-house.   The offsourced functional unit is able to generate greater value as a part of the supplier's business than in the customer's business.  What makes “offsourcing” so powerful is that the supply chain is tightened by the improved functioning of the offsourced employees in the new environment.   See Offsourcing Your Employees

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Q

Quality of Service

is a concept that is used to differentiate one provider from another. Typically, the outsourcing customer seeks to enhance its own quality of service by obtaining quality of service from its outsourcing suppliers.

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R

 

Request for Information (or RFI)

is a document that requests prospective service providers to provide general information on capabilities and their overall business.

Request for Proposal (or RFP)

is a document that requests prospective service providers to propose the term, conditions and other elements of an agreement to deliver specified services.

Renegotiation

means the process of evolution of an existing outsourcing agreement. This process is facilitated through effective design and implementation of contract management processes from inception of the outsourcing relationship.

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S

 

Scope

identifies what is available for sourcing from external service providers.

Service Level Agreements (or SLAs)

are specifications for services to be delivered. SLAs define the type, value and conditions of the outsourcing services to be provided. SLAs define the overall relationship by establishing parameters for quality of service.

Smartsourcing

is another euphemism for the basic challenge of outsourcing as a management technique.

Stalking Horse

means a competitor who never had a meaningful opportunity to win a contract.   A "stalking horse" differs from the losing competitor because the customer intended only to use the "stalking horse" to generate competitive price quotations, to challenge the preferred provider (who ultimately wins the bidding) and is not compensated for this function.    Service providers caught in this role will not succeed in business if they continue to be just losing bidders in the role of a stalking horse.

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Statement of Work

sets forth the work to be done.

 

Storage Area Network (SAN)

is a high-speed special-purpose network that interconnects different kinds of data storage devices with associated data servers on behalf of a larger network of users. Typically, a storage area network is part of the overall network of computing resources for an enterprise.

Subcontractor

is a service provider that is responsible directly to the general contractor and may not have privity of contractual relationship with the outsourcing customer.

Supply Chain Management

is an integrated process for managing all levels of the flow of information from an enterprise to its suppliers and customers, incuding its own internal manufacturing resources.

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T

TUPE

is a law implementing legal rights of employees to continue in the same job if the business unit is transferred.

U

Utility Computing

See "On-Demand" computing.  IBM has attempted to dominate this market by naming its market offering "The Next Utility".  Buying information technology is supposed to be as easy as flipping a switch.

V

 

Virtual Private Network

is a network established using telephone lines and/or Internet to transmit digital information between defined receiving and transmitting stations, such as telephone, computers and data routing equipment.

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W

Wide Area Network (WAN)

is a geographically dispersed telecommunications network. The term distinguishes a broader telecommunication structure from a local area network (LAN). A wide area network may be privately owned or rented, but the term usually connotes the inclusion of public (shared user) networks.

X

"X"

is that serendipitous, quintessential, unknown "something" that we have not explained in this glossary.  Please contact your local sourcing lawyer for further details or if you have any further questions.

XML

Also known as "extensible markup language," is a meta-language that tags, or classifies, each data "object" within a data base or a message.   The software programmers defines the attributes of the data object.  See http://www.w3c.org/ (World Wide Web Consortium) for more details.  Variations and industry-specific protocols are also being developed.

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Y

Z

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