To operate lean and successful organizations, many leaders consider outsourcing their shared services functions to reduce costs. We recommend asking yourself the following six questions to help determine your long-term strategy for outsourcing:
1. What is the actual cost benefit to outsourcing shared services?
Decision-makers often see significant operational savings through outsourcing because of the reduction in fixed costs associated with hiring and retaining employees, physical office space, and ongoing training and certification. However, an organization must still provide training, oversight, and governance to the outsourced firm. From this perspective, while calculating the potential cost-savings, it is critical to allocate budget dollars toward internal personnel, such as a shared services leader and the Global Process Owners (GPOs), who will dedicate significant time to acting as the points of contact for the outsourced function.
2. Does your organization possess the right skillset to perform the job function?
To support the immediate need to scale, some organizations ask their existing employees to take on more technical responsibilities that they did not previously have. While this may help meet a short-term deadline, it does not provide the organization with a viable long-term solution. Instead, it might be pertinent in this case for the organization to either hire someone with the required technical background or consider outsourcing that function. A growing enterprise may not have enough work for a full-time role, and outsourcing may be the most cost-effective route.
3. Are the Service Level Agreements (SLAs) acceptable for the current business practices?
Organizations expect their finance and accounting functions to complete certain tasks within a designated timeframe. For example, an organization may set their month-end close timeframe to two weeks, and others one or three weeks. As a key consideration, the organization must decide whether the agreement with the outsourced function can support the required timeframe, which may include calling on surge resources in order to meet what was agreed within the SLA.
4. What are the fees?
Another key consideration is negotiation of the fees. Consider negotiating per deliverable rather than by headcount. Often, there is not a one-for-one resource ratio when migrating processes from local to an outsourced model. If it takes more resources at the outsourced location, costs may increase and SLAs may not be met if the contract does not take these items into consideration.
5. How will your customers respond?
For all organizations, people are the most valuable asset. Do your internal and external customer bases have strong connections with the function you are considering outsourcing? Would a face-to-face conversation be ultimately replaced with a phone call, web chat, or e-mail service? If part of the organization’s intrinsic value and success has come from the interaction between the employee base and your customers, it may hurt the organization’s long-term success by removing the interaction.
6. Are the sacrifices worth the cost savings?
In some cases, outsourcing operations involve leveraging firms outside of the existing organization’s geography. Differences in time zones may require organizational staff to be available during non-business hours to address questions and ensure timely completion of deliverables. It is critical to consider the indirect costs associated with outsourcing including quality, oversight, and control. While most outsourcing firms are bound by contractual SLAs, these generally provide them room for error and delay.
The decision to outsource carries considerable pros and cons for an organization. Aside from the likely cost savings, the organization’s leaders must also assess the impact of outsourcing on qualitative and reputational factors, and document these in the shared services business case. After a thorough assessment of these considerations, if an organization does move forward with outsourcing a portion of its operations, it is critical that it establish and monitor the third party to ensure the success of the relationship.