December 2011

Before deciding to outsource a business function, the government’s Business Link agency suggests drawing up a list of pros and cons. Start with an analysis of cost savings that will be made against costs to the company if an outsource partner is contracted. Then move on to examine whether outsourcing will free up key personnel to focus on other tasks. For example, will outsourcing improve efficiency and customer service? Would outsourcing give your company a more competitive edge? Business Link makes the point that often such a move will bring flexibility to a business by turning fixed costs into variable costs thereby freeing up capital.

Cost savings are an important factor when it comes to deciding to outsource, but access to expertise is another attraction. “Outsourcing activities such as payroll, IT, human resources and finance means a company is able to gain higher levels of expertise from an outsource provider that is often not available in-house,” explains Lynne Scarisbrick, Mazars’ Payroll Manager, National Payroll Services.

Indeed outsourcing services have evolved in recent years to the point where they are also used in an expert consultancy capacity for ad hoc projects. “Often companies will request help from an external expert even when they control the function internally. For example, when needing advice on IT systems or termination of employment,” says Scarisbrick.

Very often it’s the sheer complexity of an undertaking that drives a company to outsource.  Taking the payroll function as an example, companies with an international workforce have particularly complex salary arrangements and often find managing the payroll an intensive, time-consuming affair. “Sending salary and third party payments to numerous banks in numerous countries and reconciling payments across the globe is a challenge in itself,” says Scarisbrick, who points out that selecting an outsourcing company that is able to deal with international payrolls and provide advice on expat employees can be both a cost and time-saver for organisations.

“What’s more, on-hand advice is available about tax laws and employment relations in any particular country,” she adds.

Of course, giving up direct control of a key function needs careful consideration, as it can impact quality of service and reputation. When setting up a contract, it is important to ensure both parties are aware of their responsibilities at the outset. For example, will areas considered confidential by your company be respected? Or how will service delivery match expectations?

Companies are also urged to weigh up how flexible the outsourcing contract will be in terms of accommodating change. Building flexibility into any Service Level Agreement (SLA), for example, allows an agreement to be structured in a way that helps guarantee service needs are met now, as well as in the future when requirements might change or new technologies evolve.  Also consider how any arrangement would survive an upheaval in management of the outsourced company. What would you do were the outsourced company to go out of business?

It is recommended to use the services of a specialist management consultant or commercial lawyer to ensure your interpretation of the outsourcing contract is the same as the outsourcing company and that key considerations outlined above are covered.

When it comes to selecting an outsource partner, look for a track record of service commitment and ask whether customer satisfaction can be demonstrated with testimonies from existing clients. Above all, it’s important that you identify an outsourcing partner that not only offers the right expertise for your requirements, but one that also matches your company ethos and values. "Outsourcing tends to be more successful when it's approached and managed as a partnership," concludes Scarisbrick.