In Part 2 of our series, we answered the first key question, “Is Outsourcing Right for My Business?”
In Part 3 we are going to answer the next key question:
“What Functions Should I Consider Outsourcing?”
According to Duke University’s Fuqua School of Business, “Global Sourcing of Business Services-2015” study, several areas were the top targets of SMB business executives to be moved offshore, led by the technology functions, Application Development and Maintenance (“ADM”) and IT Infrastructure Management, and on the business side, Finance and Accounting and Customer Service. These are typically activities where larger companies have already migrated some functionality offshore, meaning that there are relatively mature functions with proven capabilities and success stories. Typically, these are the more transactional, less management intensive activities are the ones that are typically outsourced, such as Accounts Payable or Account Reconciliations on the F&A side, and Infrastructure Management and Help Desk on the IT side. These functions tend to be lower risk, in that they don’t typically impact customers, are not relatively complex in their execution, and are not strategic to your business.
You will also find, however, that these types of functions often end up involving more management involvement than you would want. Migrating these functions to a third party makes sense because you can reduce your operational costs, expect to gain greater performance efficiencies, and allow management to focus on higher value activities.
A good starting framework for your consideration of outsourcing could look like this:
In reality, however, the decision on which functions you should look to outsource goes back to the first question, “Is Outsourcing Right for your Business?” It comes down to what you are looking to achieve. In answering the first question, you will answer the second one.
Most businesses look for a combination of cost savings and performance improvements. As stated earlier, well run business functions typically are not the ones that a company looks to outsource, regardless of the savings.
If an area within your business has performance issues, it is probably a good target for outsourcing, with one caveat. Do you really understand why a function is not performing well? Have you taken the time to analyze and understand the challenges that a third party will face in taking over the function?
The first step in solving a problem is acknowledging that a problem exists. Are you close enough to the details of a function to understand the challenges inherent in making it work effectively? Don’t assume that it’s just bad people, bad processes or bad systems. Migrating a poorly functioning process with no plans to improve it will result in a poor process being done somewhere else.
If you plan to migrate a function that is customer facing, you will need to ensure that there is no negative impact to customer satisfaction and productivity. Establishing a realistic timeline and effective training, communication and transition plans are critical to the success of the migration. For example, if a department relies on another department for activities, such as sales and customer service, both areas must be aware of and aligned with any operational changes that will occur. All parties must understand the service levels and escalation paths to ensure that business operations are not impacted.
Too often, a business does not really have a good handle on its current transactional performance levels, and this results in unrealistic expectations, either from the current staff or from the service provider who will assume the function.
Please “tune in” to Part 4 of this 5 part series.