Outsourcing Business in Times of Financial Crisis

Dina Legatos, Partner, ABACUS Audit & Business Solutions, discusses the value of assigning work to an external specialist.

What outsourcing trends do you see today?

Given the current economic recession companies must be cost-competitive in everything they do. Outsourcing allows companies to assign processes, functions, and tasks that are high in cost, nonstrategic, or outside of their current skill set. By delegating support processes to specialists, leaders are able to concentrate on key business activities that provide value to enterprises.

What are the biggest challenges companies face when trying to succeed at outsourcing? How can they overcome them?

The biggest challenge is finding the right balance between cost and service. It’s common to focus on cost, especially during a downturn, but if your outsourcing vendor isn’t providing the right level of service, that can damage revenue and profits.

For the decision maker it is important to find the right partner. A good starting place is his own network; asking other business owners or a company’s accountant, lawyer, or banker if they can recommend a provider offering the services company needs. Online networks like LinkedIn make it easy to expand personal networks and to ask for recommendations.

Before contacting any vendors s/he should look for ways to reduce the existing cost structure of the activity to be outsourced. An outsourcing vendor generally starts the negotiations with a company’s current cost structure. If a company’s operations are extremely inefficient, it may pay more than it should for the service.

A critical point is properly managing staff morality. Is important for leaders to explain to staff why a particular project is being outsourced—and how this fits with the company’s other strategic goals. They might not like the answers, but at least they’re not in the dark.

What back office and administrative operations or high executive source can be or should be outsourced?

Practically, company leaders are able to assign several responsibilities and they can easily find an outsourcing provider for any service they might want to outsource.

The types of tasks that are commonly outsourced fall into three general categories:

- Highly skilled, or executive, expertise. For example, you may not need to pay a CFO’s salary, but you need a CFO-level person to come in certain days per month to provide financial analysis or review statutory books and taxes.
- Repetitive tasks. For instance, accounts payable, data entry and shipping inventory.
- Specialized knowledge. An example is IT support—a company may not afford or need a full-time IT person and hires a third provider with the right skills.

When do you believe is a good time for deciding to outsource business?

For every company, the right time to outsource is different. Probably in-house staff handles daily activities, but business may need outside help to undertake new projects that don’t warrant another full-time employee. When you and your current employees are unable to manage the day-to-day business of your company and run business satisfactorily, it may be time to consider outsourcing.

The following are key indicators to define whether a business process should be outsourced:

- High internal operating costs
- High costs to train and update personnel regarding tax and operating issues
- Accounting and management functions that lack the experience, resources, or technology necessary to fulfill their task
- Spin-off or restructuring without sufficient business infrastructure
- Having processes with the market’s best practices and continuous updates