Outsourcing has become a fact of life for all businesses these days, but it has its downsides as well as its advantages. Scott Harrington of AMTIL corporate partner William Buck offers some tips on how to reap the benefits while avoiding the pitfalls.
The global outsourcing industry has grown exponentially over the years but continues to have a variable reputation. In 2020, these concerns were heightened by COVID-19 with businesses shocked at how quickly their operations can be disrupted and vulnerable.
Media coverage has typically spotlighted the negative impacts of outsourcing and focused on job losses to offshore competitors and damage to the Australian economy. Now we’re seeing more businesses, even start-ups, taking advantage of outsourcing to qualified professionals and using it as a tool for growth and expansion.
What was once thought of as a simple way to access cheap overseas labour is now changing as more businesses look to outsource domestically – a practice known as ‘onshore outsourcing’.
While onshore outsourcing is nothing new, the variety of functions that are outsourced has grown in recent years. Information technology, public relations, human resources, virtual assistance, engineering, distribution and logistics, and finance and accounting are just a handful of the services on offer.
Onshore outsource vs offshore outsource
Australian companies who previously relied on offshore service providers to manage critical activities are having to review whether this still makes sense commercially and economically. COVID-19 lockdowns and the closure of borders has forced many businesses to operate with limited offshore support, if any. The pandemic has shown how quickly the benefits of offshoring can fall away. With businesses facing greater pressure, many are reassessing their business continuity risks and establishing onshore models that use local services.
For many business owners and management teams, onshore outsourcing provides assurance above offshore outsourcing:
- There is no language barrier or time zone challenges.
- Local service providers understand the market, regulations and legislation.
- Customers feel more confident dealing with domestic service providers.
- More control and access to local talent pools, skills and expertise.
- Minimised risk and reputational exposure not relying on global providers and governments.
Accessing world-class skills and expertise
An increasing number of businesses are approaching outsourcing as a way to access the expertise, skills and technology they lack in-house.
Outsourcing certain functions, such as marketing or accounting, gives a small-to-medium business access to a whole team of experts they could not employ on their own. The best service providers will invest in education, research and the latest technologies, and have experience working with other clients that have faced similar challenges.
Creating scalability and flexibility
Outsourcing non-core functions of the business can provide greater flexibility, particularly for businesses going through a difficult transitionary period.
For example, a business experiencing rapid growth is likely to require additional layers of management and new business processes but may not yet be profitable enough to establish these functions. Outsourcing can lower overheads until such a time when the business can appoint additional managers or establish new processes. This can be particularly beneficial for businesses uncertain about how long their growth will last.
Similarly, businesses that are sensitive to seasonal or economic changes may benefit from the additional control over the costs that outsourcing affords.
Saving time and money
For many small to medium businesses, the owners or management team must wear many hats. Juggling the accounts, supervising the latest direct mail campaign, handling customer queries and IT back-up can leave little time for ‘real work.’
Outsourcing can allow the business owner or management team time to focus more productively on the business’s core capabilities while having an external expert look after the operational functions. Similarly, by eliminating tasks and outsourcing them to experts, you can create more development opportunities and ‘high-skills’ jobs for your employees.
Tips for outsourcing
Whether outsourcing domestically or overseas, the following tips will help you to do so effectively.
- Analyse your own business first. Look carefully at your core capabilities, only outsource those functions that are not core to the business.
- Ask the right questions. Don’t be afraid to put your service providers to the test. Ask for evidence of past experience, testimonials or a portfolio and make sure of the quality of their work.
- Set clear objectives and deadlines. Be specific about the deliverables you expect and be realistic about schedules.
- Read the small print. Ensure the scope of the project is laid out in a contract and agreed to in writing. Where a specific piece of work is involved, be aware of who will ultimately own the intellectual property.
- Monitor performance. Set milestones from the outset and stick to them. Ensure that the service provider is aware of the criteria by which they will be evaluated.
- Manage the relationship. An outsourcing relationship works best when the business and provider work together collaboratively and in partnership.
Scott Harrington is a Director in William Buck’s Business Advisory division.