Focus on the core needs

It often seems cheaper to do everything yourself, but there is a real cost that needs to be measured. OnlineCapital Consulting have also seen some businesses with the opposite problem – they outsource everything and therefore have issues as to who is managing the consultants and who is in control.Russell Emmerson explains:

OUTSOURCING and crowdsourcing are dirty words in some quarters, representing jobs and contracts lost overseas at a tenth of the cost.

But experts say this approach misses the point.

Outsourcing the right contracts can bring flexibility to your operation and allow you to focus more on your core business – and often cost savings are marginal.

Senior procurement adviser for the Chartered Institute of Purchasing and Supply, Gordon Donovan, says businesses first need to understand what is critical.

“Does it (the function in question) provide you with a critical competitive advantage? If it does, why do you want someone else to do it?” he says.

But if there is high capability and capacity in the market and a business isn’t relying on the function to make a critical difference, the case for outsourcing becomes stronger, he says.

A recent study by Monash University’s Australian Centre for Retail Studies found 70 per cent of businesses surveyed were happy to outsource – a finding reflected in the wide acceptance of cloud computing (where data is stored remotely by a third party) and even the willingness of accounting firms to turn to Indian accountants to cut compliance costs.

The same survey showed businesses were reluctant to outsource sales, with only 12 per cent willing to consider it as an option.

Donovan says businesses need to look beyond their willingness and assess the wider market for that service: Is it changing so quickly that any advantage held by the business is likely to dissipate without dedicated attention? And is the market responding to demand?

“They need to look at whether they have the resources to manage a contract – whether there are available resources in-house and whether the technical understanding is there to manage the contract,” he says.

“They also need to look at the risk of failure, both if it can’t be managed in-house and also if their preferred supplier falls over or fails to meet performance measures.”

The warning, he says, is to break the idea that outsourcing is about cost.

“You can reduce cost by changing your specifications,” Donovan says.

“But you are paying for a service and a standard. A specialist might do it more quickly but they also have to make a profit.” Extra costs will also be required to manage the program in-house, he says.

Institute of Chartered Accountants Australia small business spokesperson Sue Prestney says businesses should first look at their business plan to assess whether outsourcing can deliver benefits. “Look at your threats and weaknesses and whether outsourcing can help with those things,” she says.

“If you want that function in-house, you bring in those people and you pay for the expertise. If you don’t you look in the wider market and pay for it there.”

Transport company Ontime Group says there is a place for outsourcing that delivers flexibility to businesses as they continue to grow.

Managing director Walter Scremin says outsourcing asset-rich functions can save growing businesses being locked into lumpy growth investments.”Any business which has money tied up in capital equipment and employs people will benefit from outsourcing,” he says.