How old is business process outsourcing?

One of the oldest accounts of business process outsourcing was in 1949, when a young accountant started a company in New Jersey that would manually process and type payroll checks for businesses.  In the 1960’s the mainframe computer arrived and outsourcing of payroll processing became popular to organizations that had more employees and payroll checks than could be physically typed or written by a person in a day or even a week.  An entire accounting division of employees might be staffed for this task inside large companies.  Payroll processing was one of the first critical, non-core business processes outsourced by companies and, for the first time, size of the employer organization did not matter. Almost every independent computer service bureau had a payroll software system and offered payroll processing services to all sizes of employer organizations. To this day payroll processing is still the single most outsourced business process.

One of the earliest examples of business process outsourcing I remember was a passenger airline company in the 1970’s. The airline company was outsourcing the data entry of ticket and traveler information to a company in Barbados. Since this information supported “after travel” information to the airline company, it was thought to be “non-critical” to the business of operating an airline. Quickly, this process became elevated to a more critical business component for the company’s accounting (matching sold tickets to used tickets) and marketing (frequent flyer) processes. Eventually the Barbados company was acquired by the airline and managed as a core business process. The Barbados operation was so good at this business process it became a separate operating division of the airline and a “specialized service provider” to the airline travel industry for other companies. In the 1980’s, when the phenomenon of “over-night” package delivery arrived on the business landscape, the Barbados division became the outsource provider to these delivery companies to enter customer air bill receipt information.

Many years ago only the largest of companies outsourced any of their processes; and when they did it was for non-critical tasks (printing, delivery & cleaning services), highly specialized services (tele-communications, computer systems) or mostly processes unrelated to their core business. Today,  a business can even find an outsource provider which specializes in mission-critical processes like inventory management, order processing, accounts receivable and accounts payable.

Am I Too Small for Business Process Outsourcing?

The short answer is probably not…


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