Recent events have given the concept of ’outsourcing’ rather a bad press, albeit that many of the arguments are about politics rather than business. From the media coverage of the Carillion failure you might get the impression that everyone should go back to some (perhaps mythical) golden age where organisations performed every function ’in-house’ and everything in the garden was rosy. Those who’ve been around for a few years might remember that when businesses did largely try and do everything in-house there was often a lot of inefficiency and unnecessary additional cost.
From a purely business/financial perspective there are valid reasons why outsourcing remains a sensible course of action provided that it’s done properly, and applied to the correct elements of the business.
This is particularly relevant where businesses are growing. Imagine you’re operating two or three forecourts and are about to add another couple to your portfolio. It’s quite likely that until now you’ve run most aspects of your business yourself, with help perhaps from family or a few trusted employees who’ve been with you from the start. But now you’re about to see the volume of work maybe double: twice as many employees so who’s going to administer the payroll and look after the inevitable HR issues? There may now be two or more completely different sets of IT equipment at site level, quite possibly incompatible with each other, generating twice the volume of data which has somehow to be fed into your system so that you can keep track of how the growing business is actually performing.
In this kind of scenario you’re faced with a choice: on the one hand you could try to recruit additional staff to help you run the larger business; but recruitment isn’t a quick process, neither is training new staff.
Expertise and resources
The alternative is to carefully outsource some functions to other organisations which already have the expertise and resources in place. Start with payroll and HR. The legislation in this area changes so frequently that the specialist service providers keep permanent training programmes running for their staff. If you employed such a person directly, you’d need to give them access to the same training. The much more sensible option is to find a specialist service provider who simply charges you for the work they do, when you need it. The same applies to IT perhaps even more so. Not only do personnel need to keep up to date with software developments, but there’s the cost of hardware and software additions and replacements to contend with. The IT service providers do that as a matter of course because that’s their business; your business is running forecourts.
Naturally, we’d say the same about accounting and business administration. Every organisation needs someone to make sure that all of the data is collected and fed into a suitable head-office accounting system, along with electronic feeds from POS systems at site. You need reliable and up-to-date information to run any business even if your first concern in that area is to ensure that you’ve collected all the money you’re owed and your second is to ensure that you’ve paid all of your suppliers on time.
In practical terms that means having staff (and IT) in place, effectively able to work 24/7. Trying to provide that sort of service in-house doesn’t come cheap. Spend that money and you’re then likely to find the odd quiet day when the staff aren’t actually busy, but you’re still paying to keep the office open and the staff drinking coffee. If you’d used an external service provider you’d only be paying for the actual work done.
So why does it sometimes go wrong spectacularly in some cases? There can be many reasons for any individual failure, but perhaps one of the most pertinent is that some outsourcing service providers simply lose track of what their speciality was supposed to be in the first place.
We specialise in accounting, tax, business administration and payroll/HR services; we’ve provided these on an outsource basis for many businesses over the years. In theory there’s nothing to stop us from offering to run the school meals service for a local authority: in reality that’s not very likely it’s not our area of expertise!
As we noted earlier, there are good business reasons why outsourcing can be a very sound option. DIY isn’t always the most sensible approach; but do choose your ’expert help’ carefully.