Ask Us How: Outsourcing Key Business Functions

Posted by Michael Derin

Published on October 16, 2013 under NSW Business Chamber Partnership

This is becoming more “trendy and cost effective” in business now – why and how can it create efficiencies in business?

The outsourcing of key roles inside companies of all sizes is becoming more common. Historically companies have looked to outside experts for highly specialized assistance in areas such as audit, tax, and legal assistance.

In more recent year’s functions such as marketing, HR, operational finance and accounting, IT and recruiting have become outsourced resources as well.

Outsourcing can help businesses streamline expenditure and create efficiencies in business to allow for growth.

AREAS OF BUSINESS THAT CAN BE OUTSOURCED

In any business there are core functions which need to managed on a daily basis including:

  • Human Resources
  • Information Technology
  • Accounting/Finance
  • Marketing/Sales
  • Administration

These divisions are the backbone of a successful business and when managed well can ensure your operations run smoothly to provide an efficient end result to your customer.

Small corps traditionally try to manage all of these functions themselves rather than engaging experts in specific areas.

Obviously many businesses are aware of key areas that can be outsourcing, but I like to break this down even further and note in more recent years there are particular areas within these divisions that now have the capability of being outsourced.

For example, Human Resources, this now not only includes the hiring / firing of staff, but also policy and procedures, payroll, staff training and development amongst other things...

Or another example could be Marketing including the business development needed to sell your product or service, PR to promote your business, a new website to launch your business, marketing brochures and material.

If you are able to break this down in your business you can start to build a picture of what are the priority areas for you and what can be managed internally vs what an external provider can be doing for you.

OUTSOURCING AND SUCCESSFUL BUSINESS

There are businesses in the market today that have been built to provide experience in specific areas as an outsourced solution to other businesses. 

Essentially all industries can benefit from this expertise; there are just different solutions that suit one business over another.

For a small-corporates, they are tapping an outsourced resource to create efficiencies in their business and allowing their owners and internal staff to focus on their core business product or service. 

Large corporates on the other hand tend to outsource basic tasks to save costs, for example, account process and management, call centre, manufacturing of a product or service – most of these tasks are being managed overseas in offshore locations.

So the key reasons in outsourcing for any business are that it should:

  • Allow a business to have improved focus on the organization’s core areas of competence;
  • Provide the business with access to specialized expertise in areas outside of the organization’s core areas of competence (or access to expertise in areas where the organization has none)
  • relief of internal resource restrictions
  • Create cost efficiencies and increases bottom line revenue and profit
  • Increase delivery speed to their clients

CAN SMALL CORPORATEs BENEFIT FROM OUTSOURCING

Dependent on their needs and what their business focus is, absolutely! 

Take a company in the manufacturing space for instance; offshore outsourcing is critical to the viability and competitiveness of their business. 

I have various clients that wouldn’t survive against their larger competitors unless they had an offshore solution that provided for much cheaper labour and manufacturing costs. 

One in particular since going offshore has reduced their manufacturing and labour costs by 30% from $2M to $1.4M which has allowed them to be competitive and survive in current challenging economic conditions.

Those clients are winning business they couldn’t before because they have been able to provide cheaper pricing and a more cost effective product for their clients.

RISKS IN CHOOSING TO OUTSOURCE

One of the major risks is in choosing the wrong solution.  You need to make sure that you chose the right provider for the service. 

Obviously companies have budget constraints so I would be reviewing all the solutions and prioritising which providers to engage and when.

There are some risks to outsourcing if you chose the wrong option, which include:

  • Loss of control and hidden/uncertain costs are risk factors
  • Occasionally, customers and service providers have differing motivations, which leads to opposing interests.
  • A further risk factor is the cost in bringing the outsourced functions back in-house

When going offshore there are also risks to the quality and manufacture of your goods. 

I experienced a client 9 months ago where there were significant manufacturing defects with the Chinese manufacturer they used; this resulted in material financial write-offs for their business and lack of delivery to their client that almost resulted in business failure.

You want to make sure you have done your due diligence in selecting the right provider who has the right quality controls in place that minimise risk.

USING OUTSOURCING TO CREATE VALUE IN YOUR BUSINESS

Ultimately you are looking at an outsourced provider to see themselves as your partner in achieving your goals, in turn creating cost efficiencies and increased profits to your business. 

If are able to partner with your outsourced provider then the opportunities for your business could be endless.

Some of the strategies you want to see in creating value include:

  • Tapping into the provider’s network - As an early stage company it is particularly important to think about the value of the network other resources you engage with can introduce you to. You are building your team right now both internally and externally.
  • Experienced providers - You want to be able to learn from your provider.  Look to them to educate your business or key staff in particular areas of expertise to build your internal businesses level of expertise
  • Mutually beneficial value – If you want your outsourced provider to create value and partner with you, then there could be an element of them being able to tap into your network to create value for their business as well.  You may be able to set up a referral based relationship, which provides for discounted service fees
  • Looking at long term trusted relationships – you want your outsourced provider to really aim to add that extra value for you.
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