Outsourcing business processes

Well-managed outsourcing can save your business time and money, and allow you to concentrate on the bigger picture.

As businesses grow, an increasing amount of time and money is spent completing 'business as usual' processes. However, many of these tasks could be executed more efficiently by outsourcing the work to an experienced third party. So, what exactly can you outsource, and how do you make sure you choose the right partner?

What to outsource

In the past, outsourcing was limited to a number of specialist areas like accounting, manufacturing or logistics. However, these days you can practically outsource every part of your business process from HR, payroll, PR, cleaning, IT, debt recovery, and telecoms, to marketing, website management and e-commerce. In fact, your business probably already does a certain amount of outsourcing but you might not even realise it. What you choose to outsource is up to you, but it’s best to replace your non-core departments first, before committing to removing a core process.

Initially, any business considering outsourcing should quantify what they spend on ‘business as usual’. This involves talking to the people who are currently doing the work: you need to identify what their roles entail, and exactly how much time is spent on the work. If possible, you should also try and estimate how much time and money will be needed in six months’ or 12 months’ time. All direct costs for the department should be calculated, as well as any costs for the running of the department, such as utilities, rent and other overheads. With this groundwork in place, you can start to calculate exactly how much is being spent on each task and which parts of the business are open to outsourcing.

It is likely that when you ask staff about their roles and the amount of work they do, they will begin to speculate about outsourcing. It can be an emotive issue – your business will ultimately save time and money but there’s a human cost and it’s likely that some people will lose their jobs. While you are looking at the possibilities, you should also think about how you will inform your staff of any decisions you make. It generally pays to be upfront and honest: explain why you are thinking about outsourcing and the various options the business has.

Approaching a third party

The next step is to find a third party. Business networks, bank managers, accountants, and the National Outsourcing Association are all good places to start looking.
Successful outsourcing is all down to the partnership you create with your third party, and ideally this will be a long-term partnership. To ensure you choose the right partner you need to do some basic due diligence in the first instance.

Start by looking at their standing. Are they well known in the industry? Do they have a good reputation? Other questions to ask include:

  • Can you speak to current customers?
  • Are you liable to be their largest or smallest customer?
  • Are they planning to expand and do they have the funds to grow?
  • What are the service level agreements they offer?
  • Which account manager would be dealing with your business? Would you have their mobile number? How would your account be managed and how good – and available – is your account manager?

Remember this is a long-term relationship, so make sure your potential partner is financially stable. If it is a limited company, ask for copies of recent accounts and banker's references, and you might also consider requesting a report from a credit-checking agency.

Negotiating the deal

A key element to negotiating a deal with your supplier is to agree on a realistic and credible Service Level Agreement (SLA). The SLA should cover all aspects of the outsourced work and is effectively the rules and regulations of your relationship. 

Typical SLAs include:

  • Details of the service provided
  • Standards for the service
  • A delivery timetable
  • Metrics for monitoring and reporting success and failure
  • Payment details
  • Dispute guidelines
  • Exit strategy
  • Compensation payments for service failure.

As with a business plan, your SLA should be a document that is revised on a regular basis. You should take advice from a lawyer before signing anything, and both you and the third party should agree the SLA before any work commences.

If you choose to outsource to a company outside the UK, remember that distance and time-zone differences will make control more difficult. Language barriers and different business cultures can also present problems and you will also need to allow for exchange rate fluctuations in your costings.

As well as the SLA, you should investigate contingency plans if the relationship turns sour. You should consider other service providers that you can turn to relatively quickly, and look at the processes involved in bringing your department back in-house.

Working with your third party

Outsourcing can be a stressful experience: once you outsource part of your business, you will no longer have direct control over it, so it’s important to make the relationship work well.

Make sure there’s at least one person in your business responsible for the relationship on a day-to-day basis – someone who understands the ins and outs of the SLA. They should hold daily or weekly meetings with the third party, where progress is discussed and any problems and snags are highlighted and dealt with. If something is starting to go wrong, it’s important to raise the problem and discuss it as soon as possible. Additionally, there should be more substantial quarterly meetings for directors, in which strategies and roadmaps for the next quarter(s) are reviewed.

Lastly, don’t be afraid to renegotiate the contract before the end of the term. A flexible contract and a good working relationship will benefit both sides, and will allow the supplier to innovate, and you to react to any changing circumstances.

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John Carroll - Helping businesses achieve International success. Head of Product Management & International Business, Santander UK