What To Outsource

Offshore Practices

Decide what to outsource

Introduction

When you contract out business functions to a third party over a substantial period of time it's known as outsourcing. You hand over control of that function to another company that takes responsibility for its success.

Outsourcing allows you to concentrate on what you do best, save money, be more flexible and manage growth effectively. It also allows your business to gain access to outside expertise and technologies.

If managed effectively, outsourcing can help your business reduce its costs and gain access to outside expertise and technologies. However, you will need to carefully consider whether the benefits of outsourcing a function outweigh the costs. The process will have to be properly managed and monitored. Remember - anything done on your business' behalf will reflect directly on it.

This guide shows you how to decide if outsourcing is right for your business, find the right partners for your business and get the best from outsourcing.

Should I outsource?

The benefits of outsourcing can be substantial. Aside from cost savings, there are other gains your business can make. You need to consider the following:

* Will outsourcing free up your business to focus on its strengths? This might produce tangible benefits -allowing your staff to concentrate on their main tasks and on the business' future strategy.

* Will it improve your efficiency or customer service? The outsourcing company you choose should be a specialist in the process or service you ask them to carry out for you.

* Will your business gain a competitive advantage by outsourcing? Outsourcing can bring flexibility to a business, turning fixed costs into variable costs and freeing capital. It can also give your business the edge when adapting to changing market conditions.

Consider your options

Don't rush into outsourcing - take the time to think through what you need, set the terms and find the right supplier. Consider the following:

* Which are your core strengths and which are secondary? Which processes are you thinking of outsourcing and why?

* What are the costs of doing it in-house? Include hidden costs such as office space and staff costs.

* Check the return on investment (ROI) - ask potential service providers for help, as many offer an ROI calculator.

* Would it be helpful to use a consultant to help you find an outsourcing supplier?

* What are the costs of not outsourcing? Will your business suffer because it cannot afford to invest in the expertise or the facilities that an outsourcing partner might provide?

When looking at outsourcing, you should also ask yourself:

* Are you prepared to spend the time and energy required to manage the outsourcing relationship?

* Are your expectations realistic?

* Is the function a key task which your business needs to control directly to ensure its future competitiveness?

Finally, weigh up the risks of outsourcing against those of keeping the processes in-house.

Activities you can outsource

Outsourcing is common - if you employ an outside company to clean your premises you're already doing it.

Many businesses now outsource many of their non-strategic activities or more complex tasks to get access to industry best practice and cutting-edge technology.

This enables the business to benefit from the outsourcing company's economies of scale and investment in highly-trained staff while it concentrates on its core business activities.

Processes you could consider outsourcing include:

* IT functions - you can outsource most IT functions, from network management to project work, website development and data warehousing. You may benefit from the latest technology and software upgrades without having to invest in expensive systems or keep up with industry trends.

* Business processes and HR - outsourcing activities such as recruitment, payroll and secretarial services gives you access to specialist skills, but you only pay when you need to use them.

* Finance - you already outsource auditing, so why not do the same with your entire accounting function, including bookkeeping, tax management and invoicing?

* Sales and marketing - many organisations use a consultant or an agency to handle marketing communications - smaller businesses, or those in specialised markets, can also outsource sales to specialist agencies

* Health and safety - There are consultants who specialise in health and safety compliance tasks. They may be able to ensure you meet all the requirements, including those for complex risks, more cost-effectively than you can.

Potential pitfalls of delegating direct control

Many businesses are wary of outsourcing. They're concerned about handing over key business functions to an outside business over which they have no direct control.

Losing an element of control can be one pitfall of outsourcing. Others may include:

* service delivery falling below expectation

* confidentiality and security not being respected

* the outsourcing contract proving too rigid to accommodate change

* management changes at the outsourcing company leading to friction

* the outsourcing company going out of business

* failiure to provide sufficient management resources in-house to safeguard the success of the outsourced business processes

When you plan to outsource tasks, you also need to plan what you will do if any problems arise. Consider having other suppliers to whom you can turn relatively quickly, or how you would take outsourced processes back in-house. You need to set out the circumstances in which you can make such changes in the contract between you and the outsourcing company. If not, the outsourcing company could claim compensation. See the page in this guide on service level agreements.

It's been estimated that as many as 50 per cent of outsourcing deals end