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How outsourcing can improve your business

How outsourcing can improve your business

If your business needs access to more skills and resources but does not have the capital to invest, outsourcing could be the answer. Brett Davidson of FP Advance gives some tips to help you decide what you could contract out.

Challenges to the growth plans of smaller business enterprises often fall into two connected groups: lack of capital and the need for more skills and resources. The issues are connected because the first often has implications for the second. How can you employ new people with greater skill levels or train existing staff to increase their skills without significant investment?

One way of addressing these challenges is to consider outsourcing. Large companies do this all the time.

Take Microsoft, for example: it has outsourced the entire process of manufacturing its products. This allows it to stay focused on what it is good at, like listening to customers’ needs and designing new software to address those needs.

Financial planning businesses could outsource a range of services, such as:

  • regulatory compliance
  • investment management
  • human resources management
  • business management
  • accounting
  • legal services
  • paraplanning services
  • administration
  • IT
  • marketing
  • public relations
  • client research
  • reception services. 

Why consider outsourcing?

1. It turns fixed costs into variable costs.

Outsourcing can turn fixed costs into variable costs that can be incurred only as new fee-paying work is generated. A good example is the growth in paraplanning services.

2. The skills required to complete a process may not exist.

As the business improves, new challenges arise that no-one in the business has the skills to address. For example, as staff numbers grow, the demand for professional business management becomes more pressing.

3. To replace a poor internal service (may not be connected to lack of skills).

Internal staff, although competent to run a process, may lack the systems and technology required to deliver to the level you require. Investment in the latest technology may not be possible in a capital-constrained business.

Outsourcing to someone who specialises in delivery of that part of your process, and therefore has up-to-date systems, technology and staff, can improve the quality of that service by reducing costs, improving final output quality or freeing up your internal staff for other roles they could be performing.

4. The process may be performed better/cheaper by other services.

When outsourcing works well, quality is often higher than could be delivered by the existing business and/or the costs of delivery are reduced.

5. The process may not contribute to competitive advantage.

Much of what is done in a financial planning business is simply process and adds nothing to the firm’s competitive advantage. By outsourcing the process aspects, the remaining team members can be focused on the parts of your business that do establish a long-term competitive advantage, like customer service, client meetings and technical competence.

Advantages of outsourcing

Outsourcing, done well:

  • allows a business to focus on core activities;
  • streamlines a business’ operations;
  • gives you access to professional skills;
  • improves quality and reliability;
  • removes some worry about continually introducing new technologies;
  • frees up existing human resources;
  • frees up cash flow;
  • increases the control of your business;
  • makes the business more flexible to change.

How do you incorporate outsourcing into your business?

For an outsourced relationship to work, you will have to put time and effort into finding the right supplier and building a working relationship. You cannot abdicate all responsibility for success to the supplier you choose. Consider this a partnership, rather than an outsourcing contract, in which the parties must contribute equally to its success.

When is outsourcing not appropriate?

The outsourcing route is not without risk and has some disadvantages, including:

  • The service provider may cease to trade.
  • You may lose control of the process.
  • It creates potential for redundancies.
  • Other companies may be using the service provider, so its best interests may be diluted by other users.
  • You may lose focus on the customer and concentrate on the product, ie the outsourced process.
  • You could lose existing internal talent.
  • Employees may react badly to outsourcing and consequently their quality of work may suffer.

What can you do to avoid these issues?

You can avoid many of these problems by taking the partnership approach with your supplier, rather than viewing outsourcing as a way to save costs. Your reasons for outsourcing need to be sound and based on finding the solution to a long-term issue rather than finding a quick fix.

Staying close to the supplier will help you to stay in touch with the process should you ever need to change suppliers or take the process back in-house.

The disadvantages are valid reasons not to outsource so it is a case of weighing up the pros and the cons for your particular situation.

Actions for implementation

1. What are your core tasks?

  • Make a list of the core tasks that only you and your team can deliver to clients. This will be a short list.
  • Consider whether these could be performed to a higher standard if you had more time to do them properly. If so, perhaps some other tasks could be outsourced.

2. Review your current processes

  • Make a list of all the major processes you carry out in delivering your service to clients. Which of these could be outsourced to a specialist supplier?
  • Look for areas that are particularly time consuming and distract you from your core tasks of dealing directly with your clients and new prospects.
  • If you keep these tasks in-house, what are the implications for your cost base?
  • If you keep these tasks in-house, do they contribute directly to giving you a long-term competitive advantage?

3. Prioritise

  • Arrange your list of processes that could be outsourced in order from the easiest to outsource to the most difficult. 
  • Pick an easy task first.

4. Create a simple due diligence process

What will you have to be sure of before engaging with a supplier? For example, the following are important:

  • A list of possible suppliers so you can talk to more than one to gain some perspective.
  • Testimonials from other clients and their contact details so you can speak to them directly about their experience with the supplier.
  • A way of ascertaining financial stability, such as looking up accounts in Companies House or getting a bank to do a credit check.
  • Defining what success looks like in this relationship and communicating this to the suppliers you interview.

5. Get going

Pick a simple process and outsource it, using your due diligence process to find what works well and what doesn’t.

Brett Davidson is chief executive of FP Advance.

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