As a tool for the CFO, outsourcing has an important role to play in reducing costs and improving efficiency. Outsourcing allows an enterprise to concentrate on what it does best, save money, be more flexible and manage growth effectively. It also allows a business to gain access to outside expertise and technologies.
If managed successfully, outsourcing can help the business reduce its costs and make effective use of the knowledge and technical resources of another organisation. However, there will be a need to consider carefully whether the benefits of outsourcing a function outweigh the costs. The process will have to be properly managed and monitored. Remember – anything done on the business’ behalf will reflect directly on it.
Activities a business can outsource
Many businesses now outsource many of their non-strategic activities or more complex tasks in order to access industry best practice and cutting-edge technology. This enables the business to benefit from the outsourcing company’s economies of scale and investment in highly-trained staff while it concentrates on core business activities.
Processes the CFO could consider outsourcing include;
- IT functions – most IT functions, can be outsourced, from network management to project work, website development and data warehousing. The company may benefit from the latest technology and software upgrades without having to invest in expensive systems or keep up with industry trends
- Business processes and HR – outsourcing activities such as recruitment, payroll services gives the company and in particular the CFO access to specialist skills, but only incurring a cost when the services are used
- Finance – as a CFO, you already outsource auditing, and the management of staff superannuation contributions, so why not do the same with your entire accounting function, including bookkeeping, tax management and invoicing? It’s a question to be asked at the smaller scale business but also has relevance to growing companies
- Sales and marketing – many organisations use a consultant or an agency to handle marketing communications – smaller businesses, or those in specialised markets, can also outsource sales to specialist agencies, such as PR, and, increasingly Search Engine Marketing
- Health and safety – there are consultants who specialise in health and safety compliance tasks. They may be able to ensure you meet all the requirements, including those for complex risks, more cost-effectively than can be done in-house.
It is important, however, to bear in mind that in addition to the direct and indirect benefits of outsourcing, there are also direct and indirect disadvantages. Outsourcing isn’t the answer on its own, and it has to be part of a holistic analysis to be successful. One aspect to consider being: whenever you contemplate outsourcing always consider how you will exit.
This is necessary if not absolutely essential because, If outsourcing does not deliver what you expected, or if there is change of direction in strategy or if the outsource partner, merges and is no longer the same entity and decides on a different business model, you need to be able to regain control of what is often a vital, if not mission-critical, process.
As a CFO you may be used to dealing with scenario analysis on projects; understanding your exit strategy will also tell you a great deal about what you want from the outsourcing process.