To Outsource or Not To Outsource?
The Covid 19 pandemic challenged the way in which businesses operated, highlighting the need to focus on core activities such as sales and distribution and ESG initiatives.
Businesses adopted an adapt-to-survive mindset fully embracing advancements in technology such as cloud computing that facilitated ease of interactivity with vendors thus easing the decision to outsource non-core activities to relevant specialists.
A significant amount of scrutiny took place over the vendor selection process with discussions centered around offshoring, onshoring, nearshoring or more recent terms such as
- Right-shoring – choosing the most optimal location per a business’s unique needs
- Multisourcing – the use of multiple vendors simultaneously, and
- Knowledge Process Outsourcing(KPO) – outsourcing higher value expertise such as management accounting, budgeting and forecasting, and financial analysis rather than routine business processes due to improved vendor capabilities.
Increased globalisation meant that vendors could be sourced independent of their location creating a wider range of service providers to choose from, however, the effects of the pandemic has seen businesses lean towards nearshoring for ease of integration which is crucial to ensure the success of the outsourcing decision.
The choice to outsource is a transformational process that requires the appropriate level of resources to ensure proper governance, project management and change program management to yield the intended benefits.
In a nutshell, some of the benefits of outsourcing include:
1. Cost reduction – businesses will have access to economies of scale of specialist firms using standardised processes and advanced software.
2. Radical transformation – which will allow for more focus on value adding activities
3. Access to specialists – businesses can benefit from the superior capabilities of specialists without having to spend time on training and development.
4. Increased innovation - releasing of non-core activities allows for a shift in internal resources from operations to innovation.
The common drawbacks of outsourcing include:
1. Loss of control - significant reliance is placed on vendors to deliver the adequate level of resource and skill required to meet business needs. Consideration needs to be given to cost, quality and culture fit.
2. Misuse of intellectual property – vendors have access to highly confidential information that can be misused.
3. Disruptions to operations – transformational change can often lead to resistance from staff.
The drawbacks listed above can be overcome by implementing proper contractual arrangements with the chosen vendor, for example, some businesses have requested for a disaster recovery solution to mitigate any delays or disruptions.
Increased globalisation, improved vendor capabilities and rapid advances in technology has made outsourcing the preferential choice to improve strategic capabilities, so, have you considered outsourcing for your business?