Glossary of Terms



Activity-based pricing

Clients agree to pay a flat fee to cover the service provider’s fixed and variable costs — including hardware and software, labour, infrastructure and administration and maintenance. Activity-based costing is often used when establishing an offshore development center (ODC) or putting together a build-operate-transfer model.


An aspect of the offshoring/staff leasing contract’s Terms and Conditions. Specifies how any subsequent changes to the deliverables as requested by either party will be handled.

Application Service Provider (ASP)

The rental of software.


An evaluation of an organisation, system, process or product. Offshoring audits take three forms: security, billing and performance.



Those business processes such as finance & accounting, human resources, administration, procurement, payroll, legal accounting, benefits management, information technology, marketing, legal, logistics, payroll and procurement.


A snapshot of the state of inputs/outputs frozen at a point in time for a particular process.  A baseline should be recorded to establish a starting point to measure the changes achieved with any process improvement.

Baseline period

The period during which a client’s current services are documented. These results become the yardstick that determines what services the service provider is obligated to provide to the client. Typically, the service provider will charge a premium for services above and beyond the baseline — unless otherwise negotiated.

Best Practice

A way or method of accomplishing a business function or process that is considered to be superior to all other known methods. A lesson learned from one area of a business that can be passed on to another area of the business or between businesses.

Best shore

A term used by some service providers to describe their strategy of having work done at the optimal location, whether domestically or offshore.


Best in class. A philosophy of outsourcing to service providers that have proven their expertise in a specific area.

Body shop

A company that provides temporary workers on a contract basis.

Build-Operate-Transfer (BOT)

A firm contracts with an offshore partner to build a shared services or offshore development center and operate it for a fixed interim period. Organisations try this with the expectation that the offshore partner can initiate operations and reach operating stability much faster than it can with an in-house effort.

Business Process Management (BPM)

The orchestration of the interactions between the people, applications, and technologies that comprise a business process and in concert create customer value.

Business Process Outsourcing (BPO)

The transfer of internal business processes, such as customer relationship management, finance & accounting, human resources and procurement, to an external service provider that improves these processes and administers these functions to an agreed service standard and, typically, at a reduced cost.


Call centers

A batch of operators who handle phone calls. Computer telephony integration has enabled automated resolution of calls and more efficiencies in human calls.

Captive center

Offshore companies set up by organizations to provide internal services and in some cases to sell those same services to clients. Often U.S. and European organisations set up captive centers for their offshore work.


The business or company that engages an offshore staffing provider.


An aspect of the offshoring/staff leasing contract’s Terms and Conditions. Requires the parties to keep confidential, information they acquire with respect to each other.

Core competencies

Those aspects of an organisation that drive its success. An engineering firm may consider its product engineering, marketing and brand management a core competency, but not the actual manufacturing of the products it sells. It is a collective term for the internal skills, knowledge sets, and/or capabilities that give companies a competitive edge


Data center operations

Information technology work encompasses: computer operator training, disaster recovery/power backups, equipment leases, floor/space management, hardware and network operations, HVAC/Halon, job scheduling, monitoring mainframe/server performance, operations/end user support, security, server uptime, storage management/tape backup, trouble/help desk.

Data processing

Process of converting data into the information. This could involve editing, coding, entry, validation and tabulation.


An aspect of the offshoring/staff leasing contract’s Terms and Conditions. Specification of the dates, locations, responsibilities and any conditions relating to delivery of products and services to the site. Sets out the responsibility for any site preparation work required prior to delivery.

Direct foreign investment

The practice of opening up a plant, office or other operation in a foreign country and closing or not opening one domestically. A redeployment of capital in foreign lands.

Disaster recovery

Services that encompass getting the organization back to a running state when disaster — small or large — has struck. In the context of staff leasing, this includes security, backup, power management and data recovery. One aspect of disaster recovery that’s important in an staff leasing arrangement is whether the service provider has an alternative facility in the event of a disaster — and in how many hours or days a client will be able to recover.


Economies of scale

A term used to describe the efficiencies a service provider or internal department can achieve through standardisation, commodity negotiation and adherence to process management.

Escalation procedure

The process set up to define the steps taken when service levels don’t meet upon standards. This may involve determining fault for missed measures, reporting, problem resolution within a specified time and — when the problem still isn’t resolved — executive intervention on both the client and service provider sides.


Fixed project pricing

A pricing model where the cost is agreed upon before engagement of the client and service provider.

Follow the sun

24×7 service, in which work is handled onshore, then passed off to an offshore service provider that is in a completely opposite time zone.

Force Majeure

An aspect of the offshoring/staff leasing contract’s Terms and Conditions. Allows the agreement to be suspended or terminated without liability in the event of circumstances arising that are outside of the control of either party.


Geopolitical risk management

Consideration of the risks inherent in sourcing services from a variety of locations around the globe. Processes in place to monitor potential threats to the delivery of the service, including monitoring elections, changes in executive and legislative power, labor union activities, internal politics and regulatory stances, as well international relations of those countries.


Hub and spoke model

An organisation’s practice of having offshore operations of its own, as well as three or four partners with whom it collaborates. This mitigates the risk of having all services provided by a single service provider.

Human Resource Outsourcing (HRO)

The transfer HR function of a company to a service provider.

Human Resources Management systems

Software that digitises tasks in HR, such as payroll or employee record management.

Hybrid captive

A type of offshoring solution or engagement model wherein the benefits and strengths lay in making use of the expertise, facilities, and other resources of a 3rd party provider, The client (parent company) retains the decision-making power and control. The parent company is free to customise the operations according to their preferences. Once you set up a hybrid captive, you can eventually acquire full ownership, from management to all other processes. As the offshore team grows in number and as the company processes stabilise, taking over ownership is possible through a Build-Operate-Transfer agreement.




A reward provided to the service provider when service levels are exceeded or some other achievement is reached. These terms are laid out in the staff leasing/offshoring contract.

Information Technology Outsourcing (ITO)

ITO is a company’s outsourcing of computer or Internet related work, such as programming, to other companies.


Joint Ventures

Also known as an alliance or partnership. A creation by two or more partners to leverage their unique capabilities to get to market and achieve change in a short time. Often the venture requires vertical or industry expertise and reach on the part of one partner and technical capabilities on the part of the other partner.


Key Performance Indicator (KPI)

Financial or non-financial metrics used to reflect the critical success factors of an organization. KPIs should include delivery dates, quality measurements and financial measures. It is important to review the KPIs on a regular basis and have mechanisms in place to resolve performance issues when they’re not met.

Knowledge Process Outsourcing (KPO)

Describes the outsourcing/offshoring of core information-related business activities which are competitively important or form an integral part of a company’s value chain. KPO requires advanced analytical and technical skills as well as a high degree of specialist expertise.

Knowledge transfer

The task of bringing the service provider staff up to speed on internal procedures and processes. Part of the process is establishing what knowledge remains in-house and what should be transferred.


Labour arbitrage

The financial benefit of buying a comparable service elsewhere to exploit the difference in pricing. In outsourcing, the term is often used to describe the savings an organisation will enjoy when it hires work to be done in labour markets offshore, where salaries are less than they are domestically.

Limitation of Liability

An aspect of the staff leasing/offshoring contract’s Terms and Conditions. Sets out the extent to which the service provider’s liability may be limited.

Long-term capacity planning

Evaluating organisational needs for a given function or service, based on historic use, staff growth or reduction and business intentions. Five-year or 10-year planning was once viewed as crucial; now three-year planning is much more common, since organisations adapt so rapidly to changing business conditions.


Multinational corporations (MNC)

Service providers with offices in many countries, which enable them to serve a global market of clients and tap the labor arbitrage available by offshoring certain types of work.


A strategy that treats a given function — such as IT — as a portfolio of activities, some of which should be offshored/outsourced and others of which should be performed by internal staff. This approach moves away from the idea that all of a function should be viewed as a commodity, easily handed over to a service provider. Also known as “selective sourcing.”


Non-voice outsourcing

Transfer of non-voice BPO work (administrative tasks, creative writing, etc.) to a service provider


Offshore Development Center (ODC)

An operation set up for a specific organisation by a service provider, which dedicates assets and resources specifically to that single client, in exchange for guarantees of steady work.

Offshore Staff Leasing

An outsourcing solution that enables clients to engage employees who will work for them exclusively from an offshore location.

Offshore Staffing Provider (OSP)

An organisation which provides Offshore Staff to foreign clients, typically from locations where expenses are lower than the client's home country.

Offshore team

A team of full-time employees working for you exclusively from an offshore location; size can range from 1 to 25 employees


Describes the relocation by a company of a business process from one country to another—typically an operational process.


The contracting out of an internal business process to a third party organization.


An aspect of the staff leasing/offshoring contract’s Terms and Conditions. Specifies when any change of title to products occurs. It also specifies intellectual property rights. “Intellectual property” is intangible and involves some degree of creative effort, such as software design. This clause protects both parties’ rights to retain control over their intellectual property, including the rights to their use, publication and copying.


Payment schedule

The payments as agreed upon between the client and service provider for the major milestones, including contract signature, installation and acceptance as set out in a Payment Schedule.

Performance monitoring

A continual check of service levels to ensure they’re being met. One decision organisations must make in staff leasing is how tightly the monitoring must be. Too tight and transaction costs rise. Too loose and risk increases. Another decision: who should do it — client or service provider.

Pilot project

A risk mitigation tool in which the client tests a potential service provider candidate with a small endeavor or a limited engagement. The idea is to reveal potential problems that may or may not be resolved before a larger scale outsourcing initiative is undertaken.

Process mapping

Comprehensive understanding of how a business process is organized and executed. Essential to laying out an outsourcing or offshoring analysis.

Process owner

The individual responsible for process design and performance. The process owner is accountable for sustaining the gain and identifying future improvement opportunities on the process.

Process re-engineering

Evaluating a given function to figure out how it can be done more efficiently, more cost-effectively or with greater quality.

Program office

Typically present in complex organisations. The job of this team is to: make tactical decisions on program costs; project priorities and milestones; expected ROI; and risk management.


Project management office

The group that handles the day-to-day management of offshore projects to ensure that processes are running smoothly. As part of the governance of an outsourcing engagement, the PMO may do weekly check-ins, review quarterly operations, do biannual site visits, handle SLA monitoring and document internal processes for further improvement.



Quality assurance

A planned and systematic set of activities to ensure that variances in processes are clearly identified, assessed and improved to fulfill the requirements of customers and product or service providers. It includes all actions necessary to provide adequate confidence that the service optimally fulfills customer expectations.


Monitoring or checking of the condition of output, whether program code, customer service call or something else.



To transfer an employee from the client company to the service provider: “We’ll rebadge the transferred management as a part of the agreement”

Reference group

A group of companies that are similar in size, revenue and, possibly, industry to the client organization.

Reverse Salient

The weak link in any system that impedes progress.


Negative outcome that has a known or estimated probability of occurrence based on experience or some theory. The likelihood of loss as a consequence of uncertainty.

Risk factors

In offshoring, these encompass such items as: treating IT or some other function as an undifferentiated commodity, when in fact, there’s some strategic component to it; lack of attention to developing the contract or service level agreements; lack of management oversight in contractual and relationship matters; failure to retain requisite in-house capabilities, knowledge and skills; incomplete due diligence in service provider selection; difficulties in constructing and adapting deals in the face of rapid business change; lack of maturity and experience in contracting, negotiating and managing the offshoring endeavor; offshoring for unrealized cost savings; and setting unrealistic expectations for the offshoring outcomes.

Risk management

Assessing risk and developing strategies to mitigate it as much as possible, given business circumstances.

Risk tolerance

How an organization perceives the risk of offshoring.



An aspect of the outsourcing contract’s Terms and Conditions. General description of what is to be supplied (the deliverables), any additional services to be provided and any options.

Security audit

An audit that examines the service provider’s ongoing security and privacy practices. The terms of this type of audit should spell out timetables, frequency, reporting results and what action should be taken in the event that problems surface.

Service accountability

The extent to which the client will hold a service provider responsible for meeting designated service levels. Experts recommend specifying 100% service accountability in contracts, though this can have multiple tiers.

Service Oriented Architecture (SOA)

An architectural concept for delivering software to users as a Web-based service. Unlike typical stand-alone applications, these services can be quite modular, platform-independent, and highly interoperable with other services.

Service provider

Refers to the company that manages and/or executes the business processes transferred by the client.

Service-level agreement (SLA)

A service-level agreement (SLA) is a part of a service contract where a service is formally defined. In practice, the term SLA is sometimes used to refer to the contracted delivery time (of the service or performance).

Shared services

The consolidation of service functions, such as accounting, benefits, HR, IT, marketing, legal, logistics, payroll and procurement, within an organisation through the merging of separate activities into one function that crosses business units.

Site visit

The process of spending time in the offices of a prospective service provider. One objective is to spend as much time as possible with as many people as possible: team leaders, project managers, customer service agents, technical professionals and upper management. Another objective is to evaluate whether the vendor has reliable voice, data and power systems; the ability to scale up; and experience with the exact process or task being considered for outsourcing.

Six Sigma

A rigorous and disciplined methodology that uses data and statistical analysis to measure and improve a company’s operational performance by identifying and eliminating “defects” in manufacturing and service-related processes.


The process of contracting with a third party for products or services rather than providing those products or services internally.

Staff augmentation

Contract workers brought in by an organization to supplement efforts of the internal staff in order to contain costs and handle overflow work.


Those who have a vested interest in a given decision. Each will posses unique perceptions and expectations of the outcome.

Statement of Intent

An aspect of an SLA. It spells out the characteristics of a service required by the organization

Steering committee

A group consisting typically of executives that aligns processes, projects and goals with business requirements. It also directs the client and vendor relationship. In governance matters, it defines the overall strategy; establishes IT, business, HR, legal, audit and compliance support; provides funding; implements the program management office; and reports to the board.


Transitional offshoring

Offshoring that involves the migration from one platform or mode of operation to another. It consists of three phases: management of the legacy system; transition to the new platform or system; and stabilization and management of the new platform.


User environment

An aspect of an SLA, in which the number of users, geographic location of users and computing platforms are described.

User-generated content (UGC) moderation

An offshoring discipline that involves screening content (messages, images, videos, etc.) from users, approving those that are within set guidelines, and removing offensive, malicious, and/or pornographic material


Voice outsourcing

Transfer of voice-based work or call center functions (customer support, telemarketing, etc.) to a service provider.