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AzərbaycanTake advantage of professional outsourcing services in Baku with Accounting.Az
Jamil Asadov – editor / teacher at Zardab vocational high school
Sources: Boris Anikin “Outsourcing”, J. Brian Heywood “Outsourcing: In Search of Competitive Advantage”
What is outsourcing? The development of economic activity has led to the emergence of new terms. One of them is outsourcing. Although the term is not yet widely used among accounting professionals in Azerbaijan, outsourcing as a form of activity is already applied in accounting services.
Many sectors use outsourcing today, but let us not rush. First, let us look at its origin and history of development.
The term comes from the English language and means using external resources. In 1989, Eastman Kodak transferred its IT services to an external company and achieved better results. From that moment, the term outsourcing became widely recognized.
Although outsourcing started to be used as a business term in the late twentieth century, as a process its roots go much further back in history.
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You may ask: what connects outsourcing, Ford, and accounting? Let us take a calm look at history to understand this connection.
In the first half of the twentieth century, Ford Motor Company was a dominant player in the automobile market and did not consider outsourcing. Henry Ford followed the principle “If you want something done well, do it yourself.” He created the first company in history based on deep vertical integration. The company owned mines, assembly plants, and service facilities in the United States, Canada, Australia, New Zealand, the United Kingdom, and South Africa. Accounting was handled internally at these facilities, and outsourcing was not even considered. Ford’s business empire was a clear example of a fully self-sufficient company, with its own raw material plants, railway network, and even ports.
In 1921, Ford Motor Company controlled 56 percent of the automobile market. Just six years later, the situation changed completely, and the company’s market share dropped to 10 percent.
In 1923, Alfred Sloan Jr. became the CEO of General Motors. Unlike Ford, he did not build company management on total control. Sloan believed that if contractors could solve problems better than internal employees, it made sense to cooperate with them to achieve goals. His principle was simple: focus not on what you can do best yourself, but on what you can obtain more efficiently from others.
Sloan’s management model was based on cooperation with specialized units that:
In other words, he developed an outsourcing system about 70 years before the term officially appeared. Of course, at that time outsourcing was not applied in accounting or even in other areas of business.
By 1927, General Motors already controlled 43 percent of the automobile market.
Ford viewed outsourcing with suspicion. He believed that giving independent decision-making power to each link in the production chain would inevitably reduce quality and destroy his vast empire.
However, at the peak of its development, Ford Motor Company faced challenges that could only be solved by external specialists. This forced the company to reorganize its management system based on the General Motors model. The new structure proved effective, but market leadership had already been lost.
Alfred Sloan Jr. laid the foundation for a new management approach. In practice, he showed that with the support of specialized organizations, it was possible to surpass long-established business giants and become a market leader. This approach was later developed and, from the late twentieth century, became known as outsourcing. Today, outsourcing is widely used in the modern business environment and is successfully applied in the accounting services sector.
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