In most organizations today, staff levels have been reduced and the fewer remaining managers and employees are taking on more responsibilities and becoming stretched thin in the process. While most organizations have outsourced key staff functions for many years (audit, tax, legal), the appeal and growth of outsourcing of non-traditional functions is growing. This is given the lean staffing levels and challenging economic times.
Outsourcing has the potential to improve operational results, mitigate risks, add critical expertise, enhance compliance, grow top-line revenue and reduce costs in key operational areas for organizations ready and equipped to make this strategic move. Not all organizations are ready for outsourcing however, and many more attempt to outsource selected functions, only to back away from the strategy after a short trial period.
The decision to utilize outsourced service providers can often be made easier with a simple “Make-Buy” analysis that is frequently used in the manufacturing process. It is used to determine costs and potential benefits of making a product in house or outsourcing the production.
If your organization is searching for opportunities to reduce costs and improve operational performance, explore the option of outsourcing, but be sure your organization is ready for such a strategic move.
Most organizations outsource a number of key functions today. Outsourcing has grown into a number of functional disciplines.
|Information technology||Management||Sales & marketing|
Benefits of outsourcing
The outsourcing of selected services can offer a wide range of benefits to an organization, many of which can be quantified and audited.
- Reduced overhead
- New functional expertise
- Top line growth
- Expense reduction, profit enhancement
- Risk mitigation
- Improved employee focus
- Expanded service levels
- Improved efficiency
- Improved compliance
- Increased effectiveness
- Expanded coverage
- Flexible service hours
Getting started – Business requirements and cost benefit analysis
A required first step in any outsourced services undertaking is to develop a clear set of business requirements and a clear understanding of your current capabilities, timing and internal costs.
- Business objectives and requirements – What measurable objectives is your organization trying to achieve? What specific business requirements are necessary to support this role? Example: hours of operation, reporting requirements and capital equipment required to support the function.
- Internal capabilities – A key question to answer is whether your organization has the internal capability, technical expertise and competence to support your business objectives and requirements effectively. Frequently, decision-makers conclude that they do not have the internal expertise nor the desire to become experts in support functions that are not a core competency.
- Time – If your organization has the capability, expertise and competence, do they have the capacity or time to perform the role effectively and efficiently? If the business objectives cannot be reasonably accomplished in-house, if time is critical and staffs are lean, it might make sense to utilize an outsourced provider.
- Your costs – Costs of any internally provided function certainly entail direct and indirect labor, management and in some cases supplies and technology. A complete understanding of those components are necessary to conduct an effective comparison of internal vs. external support options.
Your Internal Make-Buy Analysis – Determine the following costs:
- Direct labor hours X rate of pay + benefits
- Indirect labor hours X rate of pay + benefits
- Management hours X rate of pay + benefits
- Materials, supplies, capital equipment and repairs required to support the function.
- Total all expense for the period.
- Compare your costs to the quotes received from qualified providers.
- Can your designated supplier meet all of your business objectives and requirements? Is the pricing competitive compared to internal costs?
There are risks inherent with any outsource strategy. Failure of senior management to address these issues and potential risks can lead to wasted time, increased frustration, disappointment and additional costs.
- Will the culture (management and employees) willingly accept the services of an outsourced provider and provide the time and support necessary to help the provider succeed?
- Is management willing to provide the leadership and engagement necessary to overcome the initial obstacles and roadblocks inherent in any outsourced engagement?
- Will management treat their outsourced provider as a key member of the management team?
- Will management have the patience to see results develop over time?
If the answer to any of these four questions is “no”, your organization may not be ready to successfully deploy an outsourced strategy. You might be well advised to invest and build those competencies in-house.
Popular outsourced services
We see the growth of outsourcing in a number of non-traditional areas. Creative entrepreneurs are providing a host of new cost effective services that help dealerships improve performance and significantly reduce costs. Services you may want to consider to help your organization’s top line/bottom line are:
- I.T. services – the outsourcing of I.T services is growing rapidly and includes remote monitoring of servers, server maintenance, system audits and much more and at costs that can rival any in-house function.
- H.R. services – a number of organizations provide consulting, training, risk assessments, benefits administration, and compliance management on a monthly retainer fee, which can be more cost effective than building an internal team of experts.
- Reporting – the challenges of extracting usable and timely information from DMS systems is widely known. There are organizations well suited to bolt on a very cost effective solution that will provide the information needed to manage and audit performance more effectively without adding additional resources.
- Marketing services – a number of creative marketing companies are readily available to create unique, high energy campaigns to drive traffic and increase sales and top line revenue growth
Outsourcing of key staff functions has been around for years. With today’s leaner organization levels, the notion of using qualified third parties to perform key functions is growing in a number of organizations.
If the organization is ready culturally, and has an engaged management team, the benefits of outsourcing are numerous. Since outsourced providers are dependent on a recurring revenue stream, their performance will usually be strong and their results tend to be measurable ensuring a level of performance that may not be attainable with in-house resources. For those seeking to improve top line, bottom line or organizational performance, consider the use of a well qualified outsourced provider.
For a copy of a Business Process Outsourcing (BPO) outline used for the development of business objectives, requirements and a comparison of internal-external costs, contact Doug Austin at 952-567-7979, or via e-mail at email@example.com.