Cathi Harrison offers up the drivers you should consider first before choosing to outsource one of your projects.
"Cost savings alone will not be enough if you are dissatisfied with the service provided."
Outsourcing is a particularly hot topic at the moment. Advances in remote working technology, together with work tracking applications and secure data sharing have all made outsourcing feel like a much more realistic option for many firms. But how best to approach it?
Outsourcing can be defined as ‘any task, operation, job or process that could be performed by employees within an organisation, but is instead contracted to a third party’.
This is a really important definition as the key to successful outsourcing is that ‘it could be performed by someone in the organisation’, but a business decision is made not to. It is important that any function being outsourced has been worked through in house, to define and test the process and be sure you know what a ‘good’ outcome is. Having a vague idea to outsource a function, without knowing exactly how it should work and what it should look like is unlikely to be successful. Remember, you should not try to outsource a problem.
Advantages of a positive outsourcing relationship
However, if you have a process in place, a good outsourced provider will not only be able to adopt that process but recommend some potential improvements to it. And should you get a good outsourcing relationship in place, there are many advantages including:
- tapping into a wider knowledge base
- no recruitment costs
- ability to focus on your own key skills
- staffing flexibility
- can reduce future capital adequacy requirements.
However, one issue which should not be seen as an outsourcing advantage is cost savings. Cost savings are likely with outsourcing due to not having the costs of staff national insurance, training, holidays, sick leave etc. as well as needing less physical office space and overheads. However, this should not be seen as the sole driver for outsourcing a function. Cost savings alone will not be enough if you are dissatisfied with the service provided.
Some potential disadvantages of outsourcing to be aware of are:
- loss of control
- concerns over quality and turnaround time
- hidden costs.
Define your key drivers
A recent survey from Deloitte reveals that out of firms who had undertaken some form of outsourcing, 76 per cent were either satisfied or extremely satisfied. Which is pretty positive!
However, overall, 39 per cent had terminated at least one contract and out of those, 50 per cent had brought the function back in house. The key factor for terminating the contract was cited as ‘overall quality of service’.
Terminating a contract may be due to the quality of the service provider being lower than expected. Or, it may have been due to the expectations of the firm not being realistic, or clearly communicated. Which comes back to the initial point of the importance of a company being able to define the following when outsourcing:
- Why you want to outsource – what are the key drivers?
- What are you looking to outsource – define expected output and focus on long-term return on investment, not just immediate justification
- Who will you outsource to – follow a process to help select the right partner
- How will you outsource – this is about creating a service level agreement, being clear on pricing and having a well-defined exit strategy (just in case)
- Review the relationship – periodic reviews are essential as both businesses will inevitably change, therefore it is important to mange the ongoing fit between them.
Outsourcing then can be a great, cost effective way to access specialist support to help your business grow.