A SHORT HISTORY OF OUTSOURCING

When you think about where outsourcing started, you might be more likely to think about India in the 1990s than Scotland in the late 1790s.

Yet outsourcing and the division of labor originate from far and predate the last century’s pioneers in Delhi and Bangalore.

It has been around in some form for as long as people have traded at a distance, but the Industrial Revolution of the 1800s set its particular snowball rolling down the hill.

Specialization

 

Adam Smith’s book The Wealth of Nations has his concept of specialization.

His first analysis of the division of labor is in the ‘production of dinner’.

He suggests dinner isn’t usually sold as a set complete with drinks but is still the result of allocating specialist, productive tasks to people according to their skills and equipment.

Production of each part of a final product, the meat (the butcher), vegetables (the greengrocer), and the beer (the brewer), has, in a sense, been outsourced, with each contributory part of a meal being talked to people who are best at making a particular product, which in the abo example was food or drink. 

If you have trouble imagining this for your dinner at home, think of it as though you’re a restaurant owner, for whom it’s a genuine choice whether to make their bread, beer, and so on. 

Smith’s ideas of division of labor and specialization pre-inform the Industrial Revolution, as soon much of European society turned from field workers to factory workers.

The Industrial Revolution was not just a revolution in machinery, steel, and steam – it was a revolution in labor processes. 

Adam Smith’s Example of Division of Labour and Specialisation in a Needle Factory Increasingly, complex products were now being produced on (new) assembly lines.

Their manufacture was broken up into increasingly specialist tasks. Raw materials and components were being shipped further afield to create new products. 

By the mid-1800s, developments in transportation and the relentless expansion of European empires took the idea of global production from a distant dream to a modern interconnected reality.

They were creating a global lingua franca of trade in the process – the English language.

Many of the distant lands the British Empire once conquered/invaded/attacked for resources to fuel the Industrial Revolution have emerged as the best places to find people to work at some of the outsourced jobs done locally in the United States and Europe.

However, in the 1900s, it would take a different revolution, the Information Technology revolution, for that outsourcing relationship between former colonizers and colonized to change into something more productive and positive for the formerly colonized.

A hundred years after the Industrial Revolution began, in the late 1930s, the first programmable computer, the Z1, was created by German engineer Konrad Zuse. Soon after, Alan Turing’s code-breaking machine ‘Christopher’ brought computing closer to what we understand today.

 

Another quarter-century before, J.C.R. Licklider of US University, MIT, published a paper discussing his ‘Galactic Network’ idea. His vision was a global network of computers through which everyone could quickly access data and programs stored in any other part. 

Sir Tim Berners-Lee (EDS) signed an agreement with a North American medical insurance organization, Blue Cross, to handle its data-processing services.  

It was the first time such a large business had turned over its data processing department to a third party. 

In the 1970s and 1980s, it became common for computerized companies to have their payrolls handled by outside service providers. In 1989, Kodak outsourced its IT functions.

As companies began to ‘offshore’, (a corporate byword for the large-scale placement of a company’s business functions in another location), they realized that placing production in multiple locations also had the additional potential advantage of lower 

wages and taxes. Sometimes this took the form of the home company opening a new factory or operation abroad with lower costs. For some, offshoring was combined with outsourcing.

In 1973, Jack Nilles, a NASA engineer, coined the phrases ‘telework’ (using tech to work remotely) and ‘telecommuting’ (using tech to avoid a commute).

His concept was that outsourcing, offshoring, and emerging information technology tools might come together to create the personal outsourcing world of today, which was then emerging as a real possibility through evolving computer networking technology.

With the soaring oil price, many US companies began to have a keen interest in the idea and practice. 

Jump ahead fifteen years, and the invention of the World Wide Web in 1991 by Tim Berners-Lee made the idea of teleworking a much more practical reality.

Using information technology or not, as the 1990s progressed, outsourcing went from corporate innovation to mainstream company practice.

Then, in the late 1990s, a tech explosion occurred in India, triggering another transformation in human resource planning and decision making. 

One which has quietly changed the world. India and a host of neighboring countries have provided a massive labor pool of English-speaking workers, tech and otherwise, for an increasingly English-centric and computerized world. But how did this tech explosion happen?

Developments in the division of labor and manufacturing processes started in the banking, manufacturing, and creative industries in cities such as London and New York were being uprooted to meet the world’s largest burgeoning population of English speakers.

This population continues to provide a massive online labor pool of tech-savvy individuals.