Then and now: How the software outsourcing industry evolved from 80’s to today

History of Outsourcing from the 1980’s to Today

In the 1980’s businesses were loaded with labour intensive and non-critical (i.e. not important) business operations. Work like tier 1 customer service, back office operations, and data-entry was necessary but did not contribute significantly to the company’s bottom line.

Therefore, businesses did not want to invest heavily in operations that did not generate substantial value. However, most operations (like tier 1 customer service) saw operation costs expand due to the labour-intensive nature of the work. Hence, companies found themselves in a dilemma: They had business operations where costs did not justify value. Stopping these operating costs was not an option because some operations (customer service) were needed. The solution was to outsource these operations to a different location with lower operating costs. Thus, the IT outsourcing industry was born.

The 90’s saw outsourcing firms take on additional duties. In addition to customer service, outsourcing companies were expected to take on moderately critical work. Outsourcing companies handled research and development (RnD), lifecycle support and management of production applications on behalf of their clients.

However, 2000-2005 would see a significant change in the modus operandi of business-outsourcing company relations. Outsourcing companies were expected to handle ongoing operational support of live production systems. In addition to additional responsibilities, several technological developments like server consolidation, data consolidation, virtualization and cloud technology changed how businesses worked with outsourcing companies. Technological changes saw the average system become more critical while shrinking the labour force needed to work the system. Thus, tech companies had slightly different expectations from their outsourcing company. Where they were once seen as firms to take up less critical operations, outsourcing companies are now expected to take up more critical work. Hence, the 2000’s saw IT outsourcing evolve and upscale because outsourcing companies no longer took on non-critical tasks alone but were expected to take on operations that had a more prominent effect on the company’s bottom line.

The Evolution of Outsourcing Companies

The 2000’s placed outsourcing companies in a dilemma. During the 80’s and 90’s, outsourcing companies created their recruitment policies, work culture and knowledge base depending on what clients wanted: Non-critical and labour-intensive work. Outsourcing companies would recruit a large but moderately skilled workforce to complete the work needed. However, businesses expected clients to perform advanced, critical work. This was something that large, but under-qualified workforce struggled to do. Hence, quality eroded as standards grew. To adapt, outsourcing companies had to seek out more qualified candidates, upgrade their technology and improve their knowledge base.

While some outsourcing companies floundered under the technological changes, a new brand of outsourcing firm rose. These new outsourcing firms were different from their more established competition because they focused on creating technological breakthroughs and generating value for their clients. They also sought to improve services, by shortening response times and improving infrastructure. These firms not only focused on recruiting elite talent to deliver high-quality services, but also aimed to support their elite teams with the latest technology. These firms are also responsible for operations critical to their clients and contribute significantly in value.

IT outsourcing has seen significant changes starting from the 80’s and moving into the 2000’s.  Outsourcing companies have evolved because the nature of their work has changed, with the driving factor no longer seen purely as a cost-cutting measure but as a means to deliver more value to the business. To meet the demand for quality services, outsourcing companies have sharpened their recruitment policies, updated their knowledge base and invested in more secure infrastructure.


The article has been written by the EFutures team(
This information is our opinion, through our experience in the industry and other content sources.
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