When and How to Outsource Services
Guest post by:
Kevin O’Connell | Audit Principal | Squar Milner
January 22, 2020
With changes in technology disrupting the market, companies of all sizes have embraced the strategy of outsourcing key back-office business processes such as accounting and finance, human resources, and IT. However, many businesses struggle with the timing and oversight of these outsourced services, which then leads to ineffective relationships and poor results.
To those businesses considering outsourcing any back-office processes, we offer some useful ways to enhance oversight of the provider selection process and improve your long-term outsourcing strategy.
1. Evaluate the types of processes to outsource
There are a few key questions that are useful for assessing whether a process should be outsourced:
- Is the process a central part of your business or key to primary revenue generation? If not, it may be a candidate for outsourcing.
- Will outsourcing increase the capacity of key employees to work on core strategic issues?
- Are there specialized skills required to perform the process therefore making it more practical to have external experts focused on it rather than training someone internally?
- Are the costs lower than hiring full-time employees to produce the work in-house? Consider the hidden costs of hiring, training, and recruiting, especially for roles with historically high turnover.
2. Provider selection process
The most common method of selecting outsourced providers: referrals. However, just because a peer refers the provider does not mean a company should skip over its due diligence process. Rather, your company should engage in thorough discussions regarding the actual scope of services to be outsourced.
Without clearly defining expectations, a company may end up paying for unnecessary services or failing to take advantage of the full scope of services required. Additionally, ensuring your provider is aligned with your goals and company culture is key to a successful long-term relationship.
3. Manage the relationship
Complacency is the enemy of success. Unfortunately, as third-party providers become ingrained within a company, there is the possibility of a developed sense of complacency and a resulting diminished level of service. Even if the provider works on specialized business processes such as IT, it is important to have an internal person manage the relationship.
This ensures that the company and the provider remain strategically aligned for long-term success. While getting down to the granular level of IT issues, for example, may not be necessary, agreeing on the direction of function of those issues is vital to a successful relationship.
4. Evaluate the provider
The business environment is constantly evolving, and with it, a company’s outsourcing needs may change. Certain providers fit better with entities of a specific size or industry. Or sometimes, key team members from an outsourcing company may turnover, leading to varying levels of service. Objectively evaluating an outsourcing provider is as important as evaluating employees.
Through the assessment process, a business may discover that an outsourcing provider is no longer right for them, or the business may decide to expand the scope of services provided. Selecting and maintaining the correct outsourcing provider takes time and effort, but can lead to significant gains in value if done the right way.
About the Author:
Kevin O’Connell is a Certified Public Accountant and Principal in Squar Milner’s Audit Department with over 11 years of experience specializing in assurance and compliance services. In addition to his experience as an auditor, Kevin has previously worked as a forensic accountant and outsourced controller.
Contact Kevin at [email protected] with any questions or visit https://squarmilner.com/