announcement

Give tips to succeed in business or brilliant business ideas.

How is Crowdsourcing Different from Outsourcing?

How is Crowdsourcing Different from Outsourcing?

Crowdsourcing and outsourcing are usually spoken of in the same breath, but there are considerable differences between the two. In this Buzzle article, we will take a try to understand how crowdsourcing is different from outsourcing.
Rahul Pandita
Did You Know?
Although crowdsourcing is thought of being a recent phenomenon, many governments in the past have held crowdsourced competitions to get the best ideas from people.
A majority of people are familiar with the term 'outsourcing'. It has been around for a couple of decades or so, and in the recent past, it has become a point of contention in the political sphere of America. On the other hand, another buzzword that has been doing the rounds, especially among online businesses is 'crowdsourcing'. Many small-scale companies have lapped up on the opportunity that crowdsourcing has provided them. Simply put, crowdsourcing is the process of getting your work done directly by people, instead of doing it in-house or giving it to a third-party vendor. Although many experts believe that crowdsourcing is somewhat similar to outsourcing, there are numerous functional and pedagogical differences between them. Mentioned below is some information about the history of crowdsourcing and outsourcing.
Outsourcing: A Brief History
Although outsourcing as an industry is generally thought to have started in the early 1990s, historians claim that it traces its roots to the Industrial Revolution, which started in England in the late 1750s. Industrial Revolution brought a sea change in the mode of conducting a business. Huge factories were set up where machines were used to produce goods for mass consumption. When competition increased, some companies, in a bid to take an advantage over their rivals, began to get their work done in countries where skilled workforce was ready to work at a low pay. Although a small percentage of companies were already engaged in sending their work offshore, the term 'outsourcing' became a business strategy in the 1970s, when American companies began selling apparel-making contracts to Asian manufacturers. Soon, many other companies followed suit, and there was a surge in the amount of work getting outsourced to cheap workforce in developing countries. Due to the innovations in information technology in the 1980s, a lot of service industries began sending their work to countries in Asia, and to some countries in South America. Another factor that contributed to the trend of outsourcing was vast improvement in the transportation sector. Air tickets had become affordable, making it easy for American businessmen to get in touch with their vendors in developing countries. Some of the first services to be outsourced were concerned with accounting, payroll, and billing. Outsourcing was starting to get the recognition of a revolutionary idea, but the watershed event that set the ball rolling was when Eastman Kodak, the iconic American multinational company, outsourced its IT services to IBM. In the technologically innovative decade of 90s, the Internet emerged as one of the most important tools for multinational countries and totally changed the way business was being conducted. Business Process Outsourcing (BPO), IT Services, Medical Transcription, Knowledge Process Outsourcing (KPO), etc., became buzzwords, and outsourcing became a multibillion dollar enterprise. However, the success story of outsourcing did alienate a lot of people who accused multinational companies of snatching their livelihood. Even today, outsourcing is a contentious issue in American politics and gets varied opinions on its pros and cons.
Crowdsourcing: A Brief History
As crowdsourcing is mostly done over the Internet, a lot of people think of it as a recent phenomenon. However, historians and experts in this field are of the belief that crowdsourcing has been put to use before computers became common. The French government used to host crowdsourcing competitions in the past, and it is believed that a hydraulic turbine and innovation in food preservation was accomplished due to this. The term 'crowdsourcing' was coined by Jeff Howe of Wired magazine in an article in which he mentioned the growing trend of outsourcing work to a large number of individuals over the Internet. He, along with another Wired editor Mark Robinson, thought of this new trend as "outsourcing to the crowd". The words outsourcing and crowd were combined to make the portmanteau 'crowdsourcing'. It can be said that naming the trend as 'crowdsourcing' played an important role in making it a buzzword among business houses and Internet users. It opened up new avenues of work which never existed before. You could now sit in the comfort of your room in India and bid for a project by a British graphic designing company. Crowdsourcing brought work to the living rooms of people from all over the world. Although it is still at its initial stage, it has garnered a good name for itself, and it is expected to grow in future as well. However, like outsourcing, there are several limitations of crowdsourcing as well. It has been seen that the quality of some crowdsourced projects is not up to the standard. Also, crowdsourcing tends to devalue labor, as the lowest bidder often bags a project at the cost of more deserving and skilled workers.
Crowdsourcing Vs. Outsourcing
Method of Working
Crowdsourcing is an open-source process. It is not limited to a single third-party vendor or service provider. Companies who decide to crowdsource their work usually get thousands of submissions, out of which, they select the ones which they think are most comprehensive and well-suited for the needs of the organization. The people working on a crowdsourced project are usually freelancers, who receive their payment when their work is selected by a company.

Outsourcing is limited to a particular third-party vendor or service provider. There are numerous companies in developing countries, such as India and Philippines, which employ skilled people to work on an outsourced project. The people working in these companies are usually full-time workers with a fixed salary. They report to their immediate managers, who in turn, report to the vendor working for the parent company.
Operating Costs
Crowdsourcing is an economical way of getting the work done as it does not require spending on infrastructural requirements. Also, due to the competition in the crowdsourcing sector, most companies do not need to spend money on hiring workers. There are a lot of people looking out for a crowdsourcing project at any given time; therefore, considerable amount of time and money is saved on the HR front.

When a company decides to outsource its work, the money that it pays to a vendor includes infrastructural, hiring, transportation, insurance, and other applicable costs. Due to all these factors, outsourcing is a lot more expensive than crowdsourcing.
Responsibility
In crowdsourcing, users and clients reach an agreement, and after that, it is the responsibility of a user to manage his work hours to ensure that the work is completed on time. The prospect of work getting completed is higher because the payout depends upon whether the user is able to meet the deadline or not. As workers can work from anywhere and at anytime, crowdsourcing provides a sense of freedom to workers.

In outsourcing, vendors have a fixed schedule in place for their employees. People working on an outsourced project have limited or no say in the working of the system. If some employees do not report to work due to certain reasons, there is a high possibility that the project can get delayed. Employees have fixed working hours, and the degree of freedom is comparatively lesser than a crowdsourced project.
Talent Pool
One of the biggest pros of crowdsourcing is that workers are spread all over the world, which provides numerous options to a business to choose from. Because of the diversity of the workers, the talent pool of a crowdsourced project is higher, which can contribute to a multitude of ideas.

Outsourcing is usually localized to a particular country or city, and therefore, the talent pool is smaller. It is very important for a vendor to hire the right candidates for an outsourced business project, as otherwise, attrition and low performance can cause delays in the work.
Quality of Work
A crowdsourcing project can be bagged by an amateur just because he has quoted the lowest price for completing an assignment. This can lead to poor quality of the end product. Also, crowdsourcing lacks person-to-person contact that is seen in most organizations, because of which, there is no continuous monitoring of the work. This can lead to a situation where the end product has to be redone completely to bring it to a desirable standard.

Although outsourcing is carried out by third-party vendors, there is a set procedure in place to ensure that the work and services are of optimum quality. Most vendors have a training team in place, which spends a couple of months with the new employees and instructs them on how to go about the work. Vendors also lay strong emphasis on quality control of a project, and keep monitoring it at different levels to ensure that it is going in the right direction.
Scale of Working
Crowdsourcing is ideal for companies, which have a limited budget. Companies, who have just started up can use crowdsourcing as a means to raise capital for their future endeavors. As crowdsourcing is still in its initial stages, big names aren't too keen on experimenting with this business model.

With regards to outsourcing, some of the biggest companies of the world have outsourced their work to countries where the cost of operations are lower. Outsourcing is a "big bucks" industry, and according to modest estimates, the outsourcing market is pegged at around $ 500 billion.