The aim of outsourcing – what are we trying to achieve?

 

There are many reasons that companies choose to outsource, but they can be grouped and summarised as: Compliance, Cost Effectiveness, and Control (administration). And while compliance is usually at the top of the agenda, outsourcing often comes with the caveat: ‘…as long as it saves us money… or reduces administration and provides control.’

Costs are regularly over-simplified, but this also causes issues to arise

When cost is the driver, organisations need to capture the total costs from the start, including all elements of the value chain attached. In my experience, it is often difficult to extract this information from a company, and, even then, it is not all-inclusive, but invariably based on a ‘cost of payslip’. The ‘true cost’ considers all related processes, systems, software, cost of cash, and those involved throughout the organisation in the non-core areas of business. Costs are regularly over-simplified, but this also causes issues to arise.

 

I have been into organisations where procurement have not been given a full understanding of the needs and have removed the payroll skills required, leading in real terms to far greater costs to the organisation as a whole than simply the ‘payslip price’. Therefore, the connection between greater administrative control, reduction of administrative work, and improved cost effectiveness should never be forgotten. With this in mind, ROI should be strategically defined by specialists with an understanding of all the ramifications of the change, to make sure the desired aim is, in fact, being met.

 

The total cost to the company involves a number of areas:

 

  • The people involved
  • Processes, including Tax and Policies
  • Software used, and systems integration costs and training
  • Administrative time
  • Banking and cashflow
  • HR and Finance

 

Understanding the aim and need for outsourcing is critical. As with any potential change management process, there needs to be measurable objectives and milestones that support the aim. But it is vital that they are based on a full and accurate picture of the situation, allowing the organisation to truly achieve the aims they set out for.

 

In Part 3 I explore the resources needed to help ensure a smooth transition.