Author: Paula Jones FCMA

As the UK prepares itself with the threat of dipping back into recession, more and more innovative ideas are required by businesses to keep their finances healthy and prevent becoming yet another bankruptcy statistic. However, through this urgent need to relook at the way a business is run, recessions can bring out long term sustainable opportunities that could otherwise be overlooked.

Cost pressures and the need for management to spend less time on administrative tasks and more on getting in new customers, or simply keeping the existing ones, are a couple of reasons why outsourcing is becoming more popular as a viable business option for small to medium size enterprises (SMEs). For a number of years now outsourcing has been the privilege of large corporates who have the resource to manage large scale outsourcing projects and the economies of scale to make them worthwhile. However, with the increase of access to technology and flexible global markets these opportunities are now being made available to SMEs…… read more by clicking on the continue reading link below.

Look out for our next fortnightly blog: Trading the world out of poverty

For more information on outsourcing for SMEs, contact: Outspan. www.outspan.co.uk, 0845 838 1965

The increased need for flexibility to accommodate short term decreases in productivity without the cost and emotional upheaval of making redundancies, while also having the ability to upsize quickly when customer demand returns, is an attractive proposition for most companies.

However, outsourcing should not be seen as a quick fix to abandon once the market returns to a buoyant state as Jim Downey, Managing Director of Outspan a UK leading outsource provider specialising in SMEs, explains. “Outsourcing should be approached as a long term strategy to take costs out of the company permanently and gain access to additional resources and technology. This long term focus allows for companies to build sustainable relationships with their outsource partners and maximise the benefit of outsourcing.”

Small to medium size companies in particular are often weighed down with concern at having to lay off members of staff in difficult times, some of whom may have been working with the company for many years. However, Outspan’s experience shows that “the majority of our customers use outsourcing as a way to either redeploy their staff into higher skilled roles, outsourcing the low end work, increasing productivity and therefore company profitability, or to gain access to resource they do not currently have. Very few redundancies are made by our customers as a result of outsourcing”.

So with such an attractive proposition why are some SMEs still hesitating to outsource?

Outsourcing has gained a negative reputation over the years, which has created a barrier in the minds of some business owners and managers that is often hard to overcome. But is this negative reputation really justified?

Some of the main concerns about outsourcing are:

• The work goes outside of the UK (offshoring) where the workers may not be easily contactable. There may be concerns that the outsource provider works within a culture very different to that of the UK and this may impact delivery.
• Whenever work is outsourced outside of the company, whether to a provider on the same street or to another country, there may be concerns around loss of control over the work, a reduction in quality and an issue of trust that the work is being done correctly.
• Sometimes the cost of transitioning from an in house team to an outsource provider can be enough to deter the move.
• There may be a strong sense of patriotism and the feeling that to outsource the work outside of the UK is damaging to other UK companies and ultimately to the UK economy.
• There may also be a feeling that once a contract is agreed with an outsource provider the company is tied into an inflexible arrangement which is hard to change to accommodate the businesses changing requirements.

However, if we look at each of these concerns in detail we discover that with good planning, guidance and the right provider there is little reason for outsourcing to have a bad name.

Offshoring

Offshoring is a continuation of something manufacturing businesses started 20-30 years ago when factories were moved out to the Far East. This is now happening with services, and particularly with online accounting, supported by easy and fast access to the internet, the availability of technology and communications and increased standards of education across the world. It is now part of doing business in a global economy and it can bring true benefits to the bottom line.

The challenge for businesses is to choose a reliable, experienced outsourcing partner who can provide the reassurance business owners and managers need. Ideally your outsourcing partner will be working in a country with good English language skills and some understanding of UK working culture (particularly around meeting deadlines, providing clear explanations and summaries to support their work, and having at least part of the working day coinciding with the UK working day). The partner should provide the facility for you to be in direct contact with the people doing the work (even better if this is via a UK phone number) as this will inevitably make communication faster and clearer.

Maintain control and quality levels

“Increase in controls and quality levels versus the client’s previous solution is often something that attracts a client to outsourcing in the first place” says Jim Downey from Outspan. “Because outsource providers specialise in their field and are providing services for a number of other companies, their control frameworks and management supervision structures are often stronger than those of their clients. It is important, however, that this is achievable while maintaining the flexibility SMEs need to operate.”

A good outsource provider will be able to demonstrate a sound control environment and management structure to all clients; this is something worth asking about before committing to a outsourced partner.

Transitional costs of outsourcing

Not all outsourcing will incur a transition cost; it depends on what is being outsourced and whether those processes can be easily transferred to the provider. Accounting services, for example, often have no transition costs, providing that the accounts are up to date before transition and the work can easily be handed-over to the new provider.

Loss of UK jobs

SMEs tend to differ from larger corporations in that they look to outsourcing as a way of gaining access to additional resource more cheaply than they could get locally, as a result there are often very few redundancies, if any.

The cost savings gained from outsourcing have an immediate impact on the company’s profit which in return allows for better future opportunities for growth in business and staffing levels. As outsourcing primarily focuses on the low end transactional work, this allows for UK staff to be employed in value adding, higher skilled, work.

Inflexibility

Far from being inflexible, flexibility can be another strong reason for outsourcing. The key is to ensure that the SLA (service level agreement) you have with the outsource provider gives you the flexibility you need both now and in the foreseeable future. Many providers are happy to increase your services levels, but few are happy to reduce the levels once the work has peaked. This is because the providers may have taken on additional staff to support your needs which they then may find hard to employ elsewhere. Look for providers who have the capacity for clients to tap into a shared pool of resources for short term peaks rather than only a dedicated resource.

So what are the main questions to ask when choosing an outsource partner?

• What processes do you want to outsource? How experienced is the provider in delivering these processes? Do they have specific qualifications in this field?
• Cost. Provision of a quote for the work you need now and a confirmation as to how long they will guarantee those costs for.
• How much flexibility they have for increases and decreases in work load, what their lead time are and what impact that will have on cost.
• Can the provider give you referees to talk to, or a low cost trial?
• How long will the provider take to deliver your work to your required frequency?
• Is there anyone in the UK who could provide extra support if required?

The type of work to outsource is also a key success factor. In assessing what to outsource Jim Downey, Outspan suggests “outsourcing lends itself well to routine, transactional level processes. Look at which of your processes are core and which are not, the non-core transactional level processes are often the best to outsource leaving you to spend your time on the high end and core activities”.

So, rather than being a dirty word, Outsourcing can be an important tool for businesses both during difficult times as well as on a long term basis to bring costs down and increase the profitability of their business model, maximising profit and future growth.