Vipul Sheth: Why we are leading the way in outsourcing
Jul 22 2008 By Vipul Sheth
Many readers will be aware that outsourcing has been happening for a while and that it has become increasingly diverse and widespread.
Outsourcing can involve transferring the execution of all or partial business functions to an external service provider (referred to as “supplier”). An agreement between the two parties defines the transferred services. Where suppliers take over an existing team, the supplier acquires the means of production in the form of a transfer of people, assets and other resources from the customer. In some instances, the customer agrees to buy new services from the supplier using their resources.
The customer agrees to procure the services from the supplier for the term of the agreement. Business functions typically outsourced include information technology, human resources, facilities, real estate management, and accounting. Companies outsource customer support and call centre functions like telemarketing, market research, manufacturing, designing, web development, content writing and engineering.
Outsourcing and offshoring whilst used interchangeably have important technical differences. Outsourcing involves contracting with a supplier, regardless of the level of offshoring. Offshoring involves transferring an organisational function to another country, regardless of whether work is outsourced or stays within the same corporation/company.
Pioneered by the garment industry, outsourcing started simply to reduce labour cost, focusing on tasks often perceived as low skilled. Then outsourcing activities extended to other industries with high cost manufacturing also moving “off-shore”. Businesses are now moving entire operations off-shore, including customer-centred functions such as call centres and back-office services
Outsourcing is now a viable solution for increased cost reduction not just for manufacturing but also for the service industry, extending to the provision of professional accountancy services and cutting-edge IT solutions.
Whilst cost is a key driver for outsourcing, when moving entire operations, in particular customer centred and back-office functions, it is important to realise wider strategic aims.
Common considerations decision-makers need to make before sanctioning outsourcing include the reliability and consistent quality of the service; timely delivery of services; dealing with local compliance issues and the tracking the status of work on medium-term service projects and of course ensuring data security.
Some companies have experienced more than teething problems in the process and can report many ‘war-stories’. Nevertheless, competitive pressure and the potential impact of the credit crunch make outsourcing increasingly attractive.
One thing is certain, outsourcing is here to stay and British entrepreneurs are leading the delivery of quality outsourcing solutions.
The risk management process becomes far more effective and easier with a knowledgeable UK agent who understands the customer environment, is aware of local regulations and carefully selects the outsourcing team.
Not only will outsourcing reduce cost, but its increased reliability makes it a more viable long-term solution to cost and quality control.
One of the major criticisms of outsourcing is the impact it will have on local employment. Will it lead to a reduction in the level of skills and in the ability to increase UK earnings?
This all depends on the organisation’s strategy and willingness to make the best of both worlds. Strong management will consider training staff up the “value-chain” to undertake more specialist, higher revenue value-added work rather than the more repetitive work that can easily be outsourced.
* Vipul Sheth is the Vice President of the Birmingham and West Midlands Society of Chartered Accountants and is Managing Director of AdvanceTrack Outsourcing.
Andeep Mangal is on holiday.
