Distinction among the three types of modular organisation structure

i. Outsourcing: Outsourcing involves an organisation contracting out certain internal business functions to a third party. In outsourcing, the external third party is located within the same country as the outsourcing entity. The outsourced function is usually considered be a non-critical activity within the value chain of the firm. A bank hiring out its security or cleaning services to external security or cleaning companies is a typical example of outsourcing.

ii. Offshoring: Offshoring is a form of outsourcing. It, however, differs from traditional outsourcing to the extent that it involves an external entity – i.e. the third party – which is based in a different country that provides an organisation with a particular product or process which had previously been provided in-house. An example of Offshoring will be a financial institution operating in the United Kingdom but has a customer call centre operated in India.

iii. Shared servicing: Shared servicing is an alternative to outsourcing. In this structure, an organisation establishes shared service centres to consolidate the transaction-processing activities of many operations with the organisation. Shared service centres aim to achieve significant cost reductions whilst improving service levels through the use of standardized technology and processes. A typical example of shared servicing would be a very large University that centralizes its IT support function or its HR support function instead of decentralizing among the various colleges of the University.