Outsourcing is certainly not a new concept. It has been around for hundreds of years.
According to Marty Pine (a recognised thought leader) outsourcing can be defined as “the strategic use of outside resources to perform activities traditionally handled by internal staff and resources. Outsourcing is a strategy by which an organisation contracts out major functions to specialised and efficient service providers, who become valued business partners. Sometimes outsourcing involves the transfer of employees from the company to the outsourcing company.”
In fact, many industries (like recruitment) rely on other organisations to acquire skills outside of their core business to assist them in achieving their strategies and goals. In 2011 Australia was cited as the largest market for business process outsourcing, with $4.6 million being spent on business outsourced operations.
It’s not surprising that marketing and IT are common business functions that business owners are willing to outsource without many questions asked – as they do not have the required skills and expertise in house.
What many business owners/MD’s/CEO’s don’t consider is whether they are the best person to handle key business functions such as HR, employee/contractor administration, payroll and accounts. With continued updates and changes to payroll/tax regulation and HR/employment legislation, many business owners rely on their own knowledge (dangerous) or their accountants and lawyers to provide them with assistance and advice – which can lead to expensive bills for the professional’s time and this may not be their core skill either.
In addition, these duties can take up business owner’s/management time (money) which can be better spent on core business functions, such as current client relationships, establishing new leads and customers or business building – the things your team are good at and why you went into business.
Smart Company reported last year (8 August 2013) that Aussie businesses are increasingly outsourcing not only the technical, but the non-technical tasks of their operations as well. Statistics provided showed the key areas being widely outsourced are human resources/payroll and recruiting, which both grew by 227%, and legal, which grew by 267% - a clear indication that outsourcing key business functions has now become the new norm for many businesses.
Why outsourcing is important to consider
We all know that the current business climate is tough. In Australia, more than 1 in 10 (13.1%) businesses close down each year. Of new start up business in Australia, only 51% were still in operation after 3 years in business. (Australian Bureau of Statistics, 2012).
Sole proprietors are the highest number of legal organisations set up in Australia each year (16.2%), a group which also has the highest exit rate as well, with 18.6% of sole proprietors ceasing trade during the course of the 2011-2012 Financial Year. As such, there are a greater number of sole proprietor organisations closing down than starting up.
Going forward, Australian organisations need to be well equipped and agile in order to challenge their competition and become successful businesses. Outsourcing is a great way to align yourself with a team of experienced professionals who support your organisation and its goals without the on cost and inter departmental issues.
Cost of headcount used to be the major driver, but now it’s more focused on strategy and freeing up valuable time to utilise core expertise to carry out core value-add activities in-house.
What is stopping organisations from outsourcing?
Loss of control
- Hidden costs
- Confidentiality of information
- Tied to the financial well-being of another company
- Risk of miscommunication and delays
- Dependence on supplier
- Different standards
- Difficulty finding the right service provider
- Understanding how it can benefit them
What organisations can expect when outsourcing business functions
- Greater scalability of operations
- Process standardisation
- Access to better talent
- Gaining access to world class capabilities
- Improving analytical capabilities
- Industry understanding
- Reduction of overheads
- Savings associated with training
- Reduction in risk
- Workforce flexibility
- More time to focus on core business
An outsourced service provider should work with you and in line with your business goals/strategy. You must ensure they understand your culture and the tone of your company to get the most from them.
For example, a company outsources its IT services (help desk, computer support and maintenance), and the costs to do so are significantly less than what they would pay for a full-time IT person to give the same level of support. They still have the skills on hand ready to use at any time but do not have to pay for down time. They also outsource their accounts and administration with similar savings. As the company grows, they continue to re-evaluate these decisions. This also gives them the ability to upscale quickly to service larger clients, while keeping their overheads to a minimum as they build their business.
Two key outsourcing opportunities for industries to consider
Contractor Management and Payroll
Contract based work can be a great opportunity for many industries, to scale up and down quickly.
Outsourcing the contractor management of contract-based employees can be an effective solution to meet a client’s need, increase profit, expand with less risk and with no additional hassle involved to do so.
An outsourced contractor management service involves:
- Timesheet collection
- Invoice and collection
- Payroll fulfilment and reconciliation (PAYG, Super, Payroll tax)
- Workplace insurances (Workers compensation, Public liability, Professional indemnity)
- Cash flow options
- Dedicated account manager
An organisation may want to consider the outsourcing of their payroll - both contractors and permanent staff - freeing up internal staff time to utilise elsewhere.
Outsourcing is not for everyone, the key is to understand your business and its goals and decide how outsourcing might help you attain them.