What can you outsource? Actually, the question should be: what can’t you outsource? The truth is that virtually every business function is outsourced by someone.
The latest industry segments to blossom include customer service, design and production, facilities management, finance and treasury, HR, IT, legal support, marketing, payroll, PR and reputation management, procurement, secretarial support, security, recruitment, research and development, and training.
For online women’s clothing retailer SoSensational, the new frontier was outsourcing media sales. The fashion website gets a lot of traffic, so it made sense to sell advertising space, but the firm didn’t want to do it in-house.
Founder Jan Shure says: “We did not want the additional overheads, training and recruitment required to create our own media sales team, but also saw that without media sales we would be merely another fashion website among a multitude of ‘portal’ sites relying on affiliate sales.” By outsourcing to Ricochet Media, the website has attracted a dozen big-name advertisers, something it would have found hard to pull off via the traditional approach.
There are several reasons why outsourcing has widened its scope over the past decade. The first is demand from companies that want to become more cost-effective and serve their customers better to overcome the economic slowdown. Secondly, as outsourcing vendors have become more sophisticated, so buyers feel happier about outsourcing comparatively complicated activities.
Statutory change has also had an impact. For example, the Legal Services Act, which came into force last year, allows non-law firms to provide legal services for the first time. This has increased competition in the legal marketplace and allows companies to farm out routine legal work to third parties.
The advent of robotics has the potential to transform the outsourcing landscape even further
Outsourcing has also become more strategic, according to Chris Sellers, executive director, strategic sales, at outsourcing giant Capita. It’s not just about saving money; it’s also about adding value. “Ten to twelve years ago, there was a more simplistic ‘cost-out’ driver,” he says. “But nowadays it’s about trying to achieve a specific strategic objective, which itself might change in three years’ time.”
For example, in the public sector, organisations may be looking to achieve social outcomes, such as feeding healthy food to schoolchildren, while simultaneously managing their costs.
Furthermore, outsourcers are more capable at handling tough assignments. “As the market has matured, outsourcing has moved beyond transactional services to include functions that were previously considered too complex or judgement-based to be handled by a partner,” says Matthias Mierisch, chairman and chief executive of business process outsourcing (BPO) provider arvato UK & Ireland.
“In finance and accounting BPO, for example, activities such as invoice processing have become low-hanging fruit in outsourcing terms. The emerging opportunities are in functions such as financial planning and risk management,” he says.
As with any organisational change, good planning and clear communication are essential to making a success of outsourcing. Otherwise, there is a risk that processes and service standards will be compromised, and the intended benefits won’t be achieved.
“No matter which function is being outsourced, the challenges always come down to cultural alignment and trust,” says Mr Mierisch. “If an outsourcing partner is going to be given more autonomy, the client has to trust that, given the same critical information, their partner will make the same decision they would. That can only happen if there’s a good cultural fit between the businesses.”
In theory, it is possible to outsource nearly every function of a company and “virtual companies” are already far more widespread than most people realise. In the pharmaceutical industry, for example, there are knowledge-based companies that don’t have any physical assets or infrastructure, and employ just a core group of people that might include the chief executive, chief financial officer and a legal counsel, as well as business development and project-management specialists.
Are there limits? Richard Jones, chairman of procurement outsourcing group Proxima, argues that organisations should keep their brand management and sales functions in-house since those are crucial to strategy.
But he says the increased virtualisation of companies and their greater confidence in buying outsourced services is making procurement outsourcing a “hotter and hotter topic”. He also expects to see more recruitment process outsourcing, with companies contracting out their recruitment departments. The benefits of this include reduced expenditure on head hunters and job boards, scalable recruitment teams – companies that hire seasonal workers can scale up or down at will – and all-round better hiring processes.
The advent of robotics has the potential to transform the outsourcing landscape even further. According to Mr Jones, robots could soon be doing some of the repetitive and rule-driven work that is carried out by finance and payroll functions at present. These robots would be servers that exist in data centres or in the cloud. Just like a human workers, they would have access to corporate systems and be able to receive work instructions by email.
So watch out, the robots are coming and they may consign Indian call centres to the history books sooner than you think.
