Is Outsourcing Good For My Organization

Back office service providers in the accounting, audit and payroll processing claim the many benefts while pitching their service to prospective customers. A few questions that arise in any CEO's mind when they think of trying out outsourcing their accounting, payroll and other non core processes.

• Will outsourcing work for my company?
• Can outsourcing company really manage my accounting and payroll process?
• Am I taking a risk by compromising on information security and confdentiality of data by deciding to outsource?
• Is outsourcing really cost efective as it is claimed?
• How soon my business can realize the benefts of outsourcing?
• Whom should I choose as outsourcing partner?

At Morison Menon we carried out a study covering 100 companies across Asia and the USA to fnd out their experience of availing back ofce accounting, payroll and vendor management services. The fndings of our study throw interesting insights about customer experience about back ofce services and whether these companies were able to realise value from the service providers.

Our study focussed on few of the key claims made by back ofce service providers providing the following services: accounts outsourcing services, account reconciliation & analysis, payables and receivables management, vendor payments and payroll processing.

To our question on whether outsourcing one or more of the above listed activities resulted in improving process efciency, the response was mainly negative for those companies which had outsourced the activities for past two years. For companies which had outsourced the activities for more than four to fve years, the experience to outsource was positive. Specifcally on the question of process improvement, majority of companies were happy if the outsourced company was able to maintain the same process level as that was being maintained when the process was done in-house.

On cost reduction due to outsourcing, majority of companies agreed that costs did lower due to outsourcing but there was concern on quality. Companies with more than 1000 employees reported more than 50% to 60% reduction in cost due to outsourcing, whereas companies with less than 500 employees reported an average 20% to 30% reduction in cost.

When asked if outsourcing freed management bandwidth on outsourced activities, interesting trend emerged. The management which had outsourced their accounting activities in the past 24 months felt they ended up spending more time than they used to spend when the process was being done in-house, whereas management that had outsourced the activities for more than 2 years felt they spent much less time now compared to when the process was being done in-house. Also management of SMEs realised that they had more time to devote to developing their core business once they outsourced the accounting process.

Another beneft from outsourcing that was felt by SMEs was the ability of the outsourced partner to provide enhanced capabilities which they could not have from their in-house team. This beneft of enhanced capability from outsourcing company was however not felt by large companies as they did not look to their outsourcing partners for specifc skills.

Few areas where majority of companies agreed they benefted from back ofce service was on the timeliness of work completion and beter MIS reporting.

Conclusion

From the study it can be concluded that outsourcing mostly benefts SMEs by providing them with enhanced capability, quick turnaround and freed management bandwidth to focus on core business.

For any company to beneft from outsourcing, it needs to believe in outsourcing, work closely with the service provider for couple of years to make it a success and then decide if it is suitable or not. Outsourcing is worth trying and it is least risky to try it out. The easiest areas to outsource are accounting, internal audit, payroll processing, recruitment besides the usual suspects of IT and administration support. Company planning to outsource should not adopt the big bang approach and instead adopt a well thought out conservative approach.

Cost efectiveness of outsourcing depends on how big is your current team that does the work, their cost and do they meet your objectives. If current cost is not a concern and in-house team can meet your present and future business needs then outsourcing is not suggested for your business. Cost benefts of outsourcing are realized after couple of years and one has to be patient to see the benefts like any other initiative.

It is beter to outsource with companies that are reliable and have reputation in the market even if it means outsourcing to bigger frm than outsource to small players who may be less costly but leave a biter experience. Outsourcing to established players also helps you to assess the capability of service providers and learn from their processes. After few years of learning one may consider outsourcing to lesser known companies the same process, set the expectations from earlier experience and demand beter service and pricing.