Outsourcing: Is it for me?
Entrepreneurs can't do everything – that is where outsourcing comes in. But handing over control of a part of your business to an external provider doesn't come without pitfalls. Dan Martin investigates how to outsource effectively.
The benefits of outsourcing for small businesses can be huge. It can allow you to concentrate on growing a successful business without distractions, ensure staff focus on their key tasks, free up money to spend on other things and boost efficiency and customer service. Entrepreneurs can also gain access to experts whom they could not afford to take on as internal members of staff.
IT: network management, project work, website development, data warehousing
Business processes and HR: recruitment, payroll, secretarial services, health and safety compliance
Finance: bookkeeping, tax management, invoicing
Sales and marketing: telemarketing, sales generation, telephone answering
But despite these benefits, business owners shouldn't jump into outsourcing without considering all options and consequences. Entering a contract for the wrong reasons or with the wrong supplier can prove disastrous so think carefully before signing anything.
The key questions
If you're starting to think you may outsource, the key question to ask is why are you considering it? Take time to sit down and consider your primary and secondary strengths and in which areas an outsourcing provider could do better.
For most entrepreneurs, handing control of a business function to an external supplier will come about because they have run out of capacity or skills to perform it effectively in-house or it is costing too much.
Cost savings and problem areas are the major drivers behind most outsourcing contracts but don't make them the only ones. All businesses should operate in the most effective manner possible but handing control of an element of your business to someone else without understanding how that particular function fits into your overall strategy is dangerous.
Martin Adcock, managing director at software quality management company Experimentus, says too many businesses focus on cost without considering how the service will benefit their organisation. He urges entrepreneurs to think objectively rather than subjectively.
"Document exactly what your requirements are in the short, medium and long term," he says. "In the short and medium terms, businesses owners should ask themselves why are they outsourcing, what aspect of the business are they outsourcing and what benefits can a third party company provide? In the long term, they should consider their strategy. Are they outsourcing that part of the business for an extended period of time or are they planning on bringing it back in-house at some point?"
Jeff Nutbeem, Rienne Business Growth Consulting
For Mark Lee, founder of the Tax Advice Network, while cost was a major factor behind his decision to outsource telemarketing and telephone answering, he was clear about his business' long term strategy.
"I outsourced to ensure that the phones would be answered by a real person even when I wasn't around," he explains. "But I also wanted to have sufficient available resource regardless of how fast or slow the business developed and avoid the need for and cost of employing one or more dedicated switchboard operators."
Picking a supplier
Knowing your requirements and weighting them in terms of importance will help you immensely in selecting which company to outsource to. But it's not the only factor. Be prepared to ask potential suppliers lots of questions.
Consult contacts for recommendations and if any are suggested ask to speak to some of their existing and past clients. "Think of the process like finding a builder," says Martyn Hart, chairman of the National Outsourcing Association. "In that case, you want to see the work they've done before and meet customers to find out if they're happy with the service." The same is true for outsourcing providers.
The importance of face-to-face meetings preferably in the provider's place of work cannot be overestimated. Mark Lee used this tactic and visited the office of his telemarketing provider before signing on the dotted line.
"I could tell from the conversation that he was credible, experienced and professional," he says. "One of the secrets is that he didn't just say 'yes' to everything I asked. He challenged my assumptions and sought clarity before moving forward." Similarly, Lee visited the offices of the telephone answering service and made a point of viewing the software and listening to operators taking calls.
Jeff Nutbeem, founder of Rienne Business Growth Consulting, says during the selection process do not be afraid of turning your back on a provider you think will not come up to scratch. "Discuss the broad parameters of the kind of service the company intends to offer," he advises. "If there is any doubt, then walk away."
Good relations
Key to successful outsourcing is maintaining a good working relationship. That starts with formulating the initial contract.
While small businesses are unlikely to have the same complex contracts as major outsourcers, it is still vitally important that both the supplier and customer knows their own and each other's expectations and responsibilities. This information should be set out in what are known as service level agreements (SLAs). Payment terms, termination conditions and legal compliance are issues which should also be included.
"If you are outsourcing and giving a third party some of your assets you should have some very strict criteria to ensure they are protected in the way you would protect them yourself," Adcock advises. "If outsourcing software development, for example, and the supplier introduces open source code, it theoretically means they have to make the whole application available to everyone else."
Martin Adcock, Experimentus
Nutbeem says it is vital to ensure your intellectual property is vested in your business and the agreement outlines how a final handover will be dealt with in terms of completely outstanding work. "It may be worth having a run-off period during which you are allowed to test and come back to the company before the handover," he suggests.
Communication methods should also be agreed. A weekly phone call or web conference may be appropriate to update you on progress or visits to the supplier's site may be a possibility. Ensuring you remain in constant touch with the supplier is very important, particularly when using offshore providers.
If things do go wrong, Adcock recommends bringing in an independent third party to put the relationship back on track. "The last thing you want to do is back out of an agreement as that will prove costly to both parties," he says.
"Most of the time it's a grey area as to who's doing wrong; it's usually a mix of misunderstandings. Maybe the outsourcing company needs to be put their hands in their pockets and do a bit of work or maybe the customer needs to pay for extra services."
Is it a success?
Knowing whether your outsourcing is working should be obvious but only if you've settled on your requirements and covered all bases in your contract.
Knowing if it's successful can also only be achieved if you measure you own success in the first place. If you don't know how well you performed doing a particular task, how do you know what the outsourcing provider is achieving?
"Many companies don't have measures of their own success," says Adcock. "They tend to think here's a service, it's a pain so lets get rid of it and pass it on to someone else. But if they've got that attitude, they've got a problem because they're passing it onto someone else without recognising that effort has got to put in to make it better."
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AccountingWEB.co.uk - 9-May-2008
Categories: Money matters
Story read: 3683
Number of comments: 6
Realistic requirements
Jonathan Elder, 27 June 2008 @ 12:32 PM
Two of the biggest issues we face as a company that manages outsourced telesales and telemarketing project are managing expectations and 'project creep'.
Some customers expect to pay an unrealistic amount for the work carried out - often as they do not understand the extent of work involved. This can lead them to have high expectations , but be unwilling to pay for it. Others want all the risk of a project put on to the telemarketing company, which is unrealistic, especially where there is no historical information on sales, or where the telemarketing company has to rely on the client for part of the process.
The second is where a price for a project has been agreed, and the work started. Then, small incremental changes are made that add to the costs, without being chargeable. On their own, each item many not be significant, but together they can eat into what may be already tight margins.
Synergy Connections - UK Telemarketing and Telesales services
Finding the right skills
Gill Hunt, 20 May 2008 @ 14:14 PM
Gill Hunt, 20th May 2008
I agree with the points Dan makes in his article – effective outsourcing can benefit companies both small and large, but one of the most difficult things can be knowing where to start in finding the skills that you need to meet your requirements.
Online resources can narrow down what could be a monumental task into a manageable one. Websites, such as Skillfair, aggregate experienced consultants from a host of disciplines and make it quick and easy for employers to find the skills they require for the projects and tasks they want to outsource.
www.skillfair.co.uk
Pilot
Susan McGaughran, 17 May 2008 @ 12:24 PM
Try a pilot to sort the wheat from the chaff. It will iron out some of the teething problems. We did this ourselves recently with two telesales companies.
On paper it seemed there was not much to choose between them, in reality they were a world apart.
A 14 day trial of each not only made the SLA easy to write but also demonstrated the stengths and weaknesses of both contenders.
Outsourcing
Robin Hill, 15 May 2008 @ 16:21 PM
We provide external bookkeeping services for SME's and have found the realtionship works best when the role is clearly defined and adhered to, by both sides.
Robin
Know how what you are outsourcing fits with the rest of your business.
Rob Peddle, 14 May 2008 @ 18:54 PM
A major problem with outsourcing and its ongoing management, is that often no real work has been done to understand how what is being outsourced fits with the rest of the business. Too often a function, department or team is outsourced, which usually leads to a multitude of unexpected problems. Why this happens is clear if you think about what actually delivers your business results.
To outsource successfully, you need to fully understand the key business processes that you actually run, whether currently managed in this way or not. It is these typically 8 to 15 key business processes that actually deliver everything you do. They are always cross-functional in nature because no single department or team can ever do everything needed for a key business process to be successful. The truth is that many of your departments are involved in many of these processes, so outsourcing a department or function will affect many of them.
Too often outsourcing removes the department from the organisation and focuses on SLAs that reflect their major outputs only. But it is many of the less obvious things they do which makes the organisation effective on a day to day basis. Remove these interfaces and other parts of the business will suffer. What has happened smoothly in the past will suddently become a problem.
So before outsourcing it is essential to fully understand the key business processes and the way the potentially outsourced part of the business works within these. When doing this analysis, you will often be very surprised by what is actually happening and how they work with the rest of the business in many areas. Then either make sure that the interfaces with the outsourced function is covered in the contract, although this is difficult to achieve as there are often many, or sometimes better still, consider outsourcing complete processes. But you can only do this if you really understand your key business processes, their purpose and the way they work alongside the other processes within your management system.
OutsourceWebsite
Tina Silvee, 13 May 2008 @ 11:24 AM
Outsourcing has so many benefits:
1) Cost Savings
2) Time Zone Benefits
3) Quick Turn Around Time
4) Standardizing Business Processes
and many more....
http://www.outsourcewebsite.com
