When and How to Outsource Services

By December 16, 2019 Consulting
Man sharing some new ideas in team meeting | When and How to Outsource Services

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:

  1. Is the process a central part of your business or key to primary revenue generation? If not, it may be a candidate for outsourcing.
  2. Will outsourcing increase capacity of key employees to work on core strategic issues?
  3. 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?
  4. 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.

When and How to Outsource Your Services Inforgraphic

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 varied 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.

As you look to incorporate outsourced services into your company, we highly encourage you to complete your due diligence when selecting a provider. The challenge can be daunting, but the good news is that you don’t have to go about it alone. Our audit team at Squar Milner is well-versed in testing the security and integrity of outsourced service providers and we can share that knowledge and experience with you. On top of that, we offer our own outsourced accounting services ranging from CFO advisory services to interim controllers to accountants ready to help you get your books in order. This is your business. Make sure you are making the best decisions and bringing in the right people to help you succeed

Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.