Outsourcing 101 – What you need to Know
By Kathryn Moran, Partner and Head of Outsourcing at haysmacintyre
Outsourcing is now a mainstream agenda item for key decision makers to consider in businesses of all sizes. It encompasses a broad range of services, business, production and manufacturing processes. The development, growth and maturity of the outsourcing market, together with the advent and rapid development of technology means that outsourcing is no longer just a cost-saving consideration. It is a critical component of the risk management toolkit.
Businesses, from growing start-ups through to international corporations, often stand to gain more from the breadth of skills and expertise that outsourcing can provide than through direct hires. Of course, outsourcing can save money and time, allowing key decision makers to concentrate on vital processes and strategic plans, but costs should not be the over-riding driver in the decision.
The outsourcing market is one that is constantly evolving with new entrants emerging and developing technology changing the landscape. For time-poor CEOs looking to get the maximum out of their staff and streamline their business, outsourcing various elements and processes is definitely worth considering – but what are the key factors to bear in mind?
Identifying functions to outsource that are not strategically important is crucial. These will differ from one business to the next. Elements of the business that give you a competitive edge should not be outsourced, and often repetitive or more administrative tasks are better suited. We always advise outsourcing elements of your business that you understand, so that you can keep control and measure the performance of the provider.
To help with this decision it can be helpful to look at what you are hoping to achieve through outsourcing and then work backwards – what improvements do you want to make? If you are aiming to strengthen resource, improve your service and performance, manage risk and/or achieve cost savings, your outsourcing programme should reflect this.
Outsourcing functions such as accounting, IT, business digitisation, legal or HR means the responsibility to keep abreast of legislation and industry advancements lies with the provider, not the business. Although the ultimate responsibility for compliance with legislation still rests with the business, day-to-day it’s reassuring for many to know that external specialists are also engaged. Mirroring the right skills with the right tasks greatly increases the chance of the outsourcing being successful and a viable business decision.
Considering the various outsourcing offers in the market and comparing them is useful – overseas firms continue to offer competitive pricing where their employment costs are lower. However, the advances in technology have meant that some services in particular are now accessible by businesses in the UK, as price points have changed with efficiencies gained through technology. Businesses now have ready access to a wide range of outsourcing solutions and talent both at home and overseas. Language and culture continue to be considerations for businesses, and foreign firms have responded to this by investing heavily in the training of their own workforce. The risk of currency fluctuations when choosing to outsource overseas should also be considered.
The benefits of outsourcing
As with any business decision, the risks and rewards of outsourcing need to be carefully evaluated at the outset. It can ultimately help grow the bottom line, offering the following benefits:
- Freeing up time for key management figures to concentrate on vital business processes and strategic plans/decisions
- Providing the opportunity to make better use of resources in your business and potentially increase productivity
- Reducing the time needed for staff recruitment, training and management
- Assisting with managing risks
- Enhancing controls by segregating duties and providing cover for absences
- Minimising the responsibility to keep pace with industry best practice
- Cost saving (although this shouldn’t be the over-riding driver for the decision to outsource)
- Providing access to talent and a breadth of skill base and expertise not generally available in a single hire
- Shifting previously fixed costs to become variable, with the opportunity for flexible purchasing based on the needs and demands of the business. This can also mean shorter lead times to increased or reduced resources
How to choose the right provider
First, evaluate what services you are looking to outsource and scope out the top providers in those fields. Research a number of providers – a minimum of 3 ideally – and speak to others using your chosen service for references.
Next, establish whether outsourcing has TUPE implications. TUPE (The Transfer of Undertakings (Protection of Employment) Regulations) is a key consideration and one that is not the focus of this article. It protects the employees of a business (or part of the business) undergoing any management or M&A changes. This in itself is not necessarily a barrier to outsourcing.
Carefully reviewing the risks of outsourcing and exit strategies should the project fail is unsurprisingly important. Having a contingency plan in place should your provider fall victim to a cyber hack is a good idea, for example.
Always meet with your chosen provider! It may sound obvious but as most CEOs and business owners are incredibly busy, this can fall by the wayside. Arranging to test the services, where appropriate, before going live is also beneficial.
As with most contracts, make sure you agree the scope of the services, fee and timescales in writing. Having a written and signed Service Level Agreement in place from the start is vital.
Finally, we always recommend building a good relationship with your providers and maintaining open lines of communication for shared feedback and improvement.
Outsourcing is a key and important business consideration for CEOs and senior level executives, with many advantages. Advances in technology and global communication means that sourcing the right solutions and working in partnership with providers is now easily accessible and a business process that can be managed and evaluated in line with internal policies and procedures. Given the fast-paced and constantly evolving industry, there is a definite benefit to businesses reviewing their outsourcing options once a year, to establish whether new solutions are now available to enable them to outsource further.