The COVID-19 crisis has turned the employment market completely upside down across the UK – and in almost every sector. With companies and business owners looking for a way to stay afloat or even grow during these troubling times – many have looked at outsourcing part of their operations to cut costs.
To find out more about the benefits of outsourcing, Business Leader Magazine investigates.
Outsourcing is the business practice of hiring someone or another firm, outside of the company, to perform tasks, functions and services that would traditionally be performed within the structure of the business.
From hiring freelancers to utilising mass outsourcing (such as call centres and international manufacturing), there are many factors a business leader must consider before proceeding with it.
Whether a business has been outsourcing some of its functions prior to the outbreak, or are just looking into it now, there are some commonalities across the wide reach of outsourcing you should be aware of.
What are the benefits?
Business owners across the world have had to adapt to survive over the last few months, and many have looked at cost-cutting measures – and this is just one of the advantages that can be seen in companies that use outsourcing.
Jon Dawson is a Partner at multi-disciplinary professional services firm Moore Kingston Smith, and also the Head of Outsourcing. He said: “Outsourcing offers valuable flexibility to businesses, enabling them to access the right level of expertise across a wide range of accounting services at a considerably lower cost than employing people in-house. Because you only pay for the resource you need at each level, without incurring any employment, HR or training costs, you effectively get the ultimate accountant for the perfect blended rate.
“By outsourcing back office functions to us, business leaders are free to focus on their core business activity. We also often find that businesses ask us to measure a wider range of business areas than they would otherwise be measuring. So, they get a better view of how the different areas interrelate and, coupled with more accurate, up-to-date management information, ultimately make better management decisions.
“Outsourcing causes greater productivity because more employees are working to generate profit for the business rather than supporting it. Over the years, we have seen a shift in businesses outsourcing non-core activities so they can focus on what they are really good at. There’s also more accountability in teams and departments, as there is an independent, external organisation reporting to the management team on their performance.”
Louise Deverell-Smith, Founder of Daisy Chain, a recruitment platform that helps connect employers and highly-experienced candidates seeking flexible work, shares many of Dawson’s observations; and with the struggles facing the economy at the moment – outsourcing could help revive the fortunes of many industries.
She said: “The benefits of outsourcing can be significant: from cost savings to gaining a competitive advantage. When you outsource a role, you can pay the individual as a contractor. This will not only reduce the number of employees you have to manage on the payroll, but it can also lead to cost savings with regards to reduced infrastructure overheads.
“Outsourcing can also help to make your business more flexible and efficient, whilst also providing service level improvements. For example, you can hire an external company to manage a particular function that you do not currently offer or have the capacity to manage in-house. This will enable you to extend your product offerings and can help you provide a more productive and efficient service with specialised experts on hand to support.
“Outsourcing can also help free up employees to focus on core tasks that play to their professional strengths, rather than trying to cover extra roles or provide additional services. This not only helps to alleviate additional pressures on your employees, and therefore makes for a better working environment, but it also helps ensure that employees have the space to develop in their own roles and pursue new strands of activity.”
Although outsourcing has long been utilised, the current coronavirus crisis and the subsequent impact on the levels of employment in the UK has increased the need for what the function can offer businesses across a wide range of sectors.
UK firms are increasingly dependent on third party providers for business functions, including IT, logistics, human resources, sales and marketing, and accounting. But what impact does outsourcing have on businesses’ risk profiles and how could it impact their insurance? Gary Fletcher, Managing Director – South, for Gallagher, explores the risks associated with outsourcing for businesses, and how they can be best managed.
He said: “For UK businesses, the benefits of outsourcing can be substantial – for reasons including cost-savings, freeing up internal resources to focus on core business activities, or improving the efficiency of time-consuming processes.
“However, one of the pitfalls of outsourcing is that businesses can be held liable for failings in the provision of services – or failure to provide services – to their clients, over which they do not have full control. This includes operational risks associated with underperformance, unethical conduct, theft of intellectual property, or security breaches due to the transfer of data between firms, for which penalties can be severe.
“As well as financial loss, these risks can result in operational disruption, reputational damage and regulatory or legal action, as well as loss of confidence amongst partners and stakeholders. It is therefore vital that firms can demonstrate that they have a framework in place to control and minimise risks resulting from third-party relationships.
“To effectively monitor contractual requirements, organisations should establish controls and performance metrics. A service-level agreement (SLA) defines the level of service expected from a provider, outlining key performance indicators (KPIs) by which service is measured, as well as any financial penalties that are applicable, should the required service standards fail to be achieved.”
Away from any potential problem caused by the risks and insurance associated with outsourcing, one of the most negative characteristics linked with it is the perceived level of control a business owner has over the function that has been outsourced. This is why an SLA is the first step in setting up a successful outsourced function.
Dawson comments: “Inevitably, change can bring challenges, so consideration should be given to change management. It’s important to make sure that those within the business and at the outsourcer firm understand their roles. There can also be certain perceptions of having a call centre provide services, and the turnaround times are not the same as asking across a desk. But you can help overcome this with an appropriate SLA and greater visibility on self-service options. An SLA is crucial, so that everyone is clear on their responsibilities and what’s expected of them.”
However, even when appropriate legal paperwork is in place, there are still times where an outsourced function might not be achieving what it needs to.
Deverell-Smith explains: “When it comes to outsourcing a service or role, you can lose some of the control within your business, as you are effectively handing over the reins of a particular business function or process to the third party. Whilst contracts will be in place, this process can sometimes result in challenges: for example, with service delivery issues or quality disputes. It can also be hard to create a strong company culture if you are outsourcing different functions of your business.
“If hurdles such as these start proving a detriment to your business, it may be worth considering if a more flexible approach could work better. For example, rather than outsourcing roles entirely, could you hire staff on a part-time or project basis instead? Both these options will give you more control and input as an employer, whilst enabling all employees to become engaged with the company and its values.”
Impact of COVID-19
It is no secret that almost every sector across the world has been deeply affected by the coronavirus pandemic; with many countries falling intro recessions, meaning mass unemployment. This has led to government’s trying to kickstart economies and job markets by introducing unprecedented support.
Deverell-Smith comments: “The pandemic has taken its toll on the economy and, unfortunately, the jobs market often carries much of the burden during a decline. In fact, the Office of National Statistics (ONS) recorded a 730,000 drop in workers on payroll from March to July this year.
“Whilst many companies had no choice but to cut jobs in order to stay afloat, this process has undoubtedly left a gap in the market for roles that still need to be fulfilled. At the same time, employers have been extremely conscious that re-routing additional work to retained employees is not a viable solution. As a result, we are seeing more and more companies outsourcing certain roles. For example, when the furlough scheme was announced, there was a spike in demand for external HR services to help provide advice and guidance on the scheme.”
The HR Dept is a UK-wide network of HR licensees, with independent business owners providing high quality, bespoke HR advice and support on an outsourced, personal basis. The company was set up in 2003 and started franchising two years later. Today, it has 78 licensees operating in the UK, Ireland and Australia, serving well over 6,500 SMEs globally.
Stacey Mead, HR Director, comments: “From our own HR perspective, we have seen a dramatic increase in new clients since COVID-19 broke. People are understandably nervous about managing their staff, and recognise the importance of getting the complex furlough rules right.
“There will be many businesses that have to make difficult changes over the coming months; it’s a situation which is alien to many employers. They want to know that they can limit the pain and risk of any costly tribunal claims, and therefore, they understand the value of getting expert advice. This pandemic has accelerated change in many aspects of our working lives, and I believe outsourcing will become more popular as business owners recognise that effective, expert work can be done remotely.”
Is outsourcing the future for businesses?
With an ever-increasing number of people losing their jobs, businesses struggling to cope with the current economic climate, and seemingly no end in sight regarding COVID-19, many business owners will be looking for some respite from the storm. So, is now the time for you to start or increase the levels of outsourcing in your business?
Deverell-Smith: “The UK job market is going to look very different in twelve months’ time, and in order to weather the current economic crisis, I think businesses will need to continue to embrace a more flexible model that opens up alternative opportunities for all prospective employees. Ultimately, it is down to the individual business. However, I think outsourcing certain roles and moving away from the rigid 9-5 working day can open up great opportunities for employers to develop their company’s expertise, reduce costs and help plug the growing unemployment gap in the UK labour market.
“Many businesses in the UK have already shown great creativity and flexibility to overcome the past turbulent months, and I think it will be hard to go back to the ‘old way’ of doing things now that companies and clients have seen the benefits of adopting alternative working models.”