Smaller businesses are increasingly outsourcing non-core or peripheral work, as Gabriella Griffith discovers
Jazzing up a PowerPoint presentation so it’s fit to be presented to Madonna, booking a seat on Virgin Galactic, organising a shipment of politically sensitive documents to Rwanda – this may sound like the to-do list of a modern-day 007, but they are just a few examples of services small and medium-sized businesses (SMBs) have outsourced through a company called Time etc.
“Most of our clients are time-poor SMB owners who perhaps can’t justify the spend for a full-time assistant or full-time employees, so they pay our skilled freelancers at set hourly rates to pick up the slack,” says Barnaby Lashbrooke, founder of the UK and US virtual workforce platform.
Madonna and her presentation requirements aside, outsourcing among SMBs is on the rise. Not only is the strategy becoming an increasingly important one, both the reasons for SMBs to outsource, and the services and functions they are choosing to give to third parties are shifting also.
Sourcing advisory company Information Services Group (ISG) recently reported a decline in the value of outsourcing contracts during 2013. ISG says 167 outsourcing contracts were awarded in Europe, the Middle East and Africa in the fourth quarter of 2013, a 25 per cent rise year on year, but the annual contract value fell to €2.16 billion, a 20 per cent decrease quarter on quarter. Rather than a slowdown in outsourcing, this is because businesses are opting for more, but smaller, deals – pointing to SMB activity.
It has always made sense for smaller operations to outsource some of their services, but the recession has made this even more pertinent. Outsourcing gives SMBs the flexibility they need to have services on hand when they need them, but not have to pay a full wage when they don’t. An SMB can increase and decrease its size quickly and without having to make difficult decisions around staffing.
“The major advantage is having flexibility, being able to buy in expertise when you need it,” says Kate Russell, managing director of Russell HR consulting. “Not having to pay National Insurance contributions is a big cost-saver and therefore very attractive to small businesses. Having trusted associates can improve problem-solving and make your business look bigger, which means in business terms that you can punch above your weight.”
Outsourcing allows a business to focus on growth and build on the strengths that are key to its expansion
Of course, it doesn’t just come down to cost-saving and, as we emerge from the credit crunch, experts anticipate no slowdown in outsourcing – this strategy is no one-trick pony.
“With a degree of economic uncertainty remaining and 49 per cent of SMBs still in survival mode in 2014, it’s no surprise that many business owners are making the smart decision to outsource,” says Patrick Gallagher, chief executive of CitySprint. “But unlike last year, when SMBs were outsourcing for survival by reducing costs in the downturn, they are now outsourcing for success.”
The way SMBs view outsourcing is changing and it’s opening up a whole world of opportunities to outsource more non-traditional functions.
“This year’s Collaborate UK 2014 report identified a shift in focus for outsourcing among SMBs. Rather than focusing on inward-facing support, such as IT, legal and training, business owners are now seeking marketing and advertising, IT, and sales and customer services expertise – in other words, external, reputation-enhancing functions,” says Mr Gallagher.
Along with cost-savings, outsourcing has a number of benefits for SMBs. Outsourcing can help a company to deal with seasonal fluctuations, it can give you access to high-quality skills you might not have been able to attract previously and it also makes the world a lot smaller.
“Outsourcing is an enabler for international expansion,” says Arnold Cobbaert, chief executive of Conectys. “The right partner can help an organisation tap into new markets by instantly adding multilingual and multicultural capabilities to the business. It allows a business to focus on growth and build on the strengths that are key to its expansion.”
If the days are gone when outsourcing was relegated to payroll functions, although clearly these are obvious choices, what kind of things are SMBs outsourcing these days?
Wales-based entrepreneur Chris Niall outsources dangerous research projects for his company Hyderus. Outsourcing has given him a level of access to parts of the world which are integral to his research.
“A lot of Hyderus’ work involves field work in countries across the world, including areas of political unrest like Egypt or Somaliland. Travel to these areas from Wales is both costly and dangerous, but research there is essential to the success of the business,” says Mr Niall.
Social media has taken a hold on society like ever-present, attention-seeking wildfire. It has changed our personal habits beyond belief, but it has also changed the way we do business. Catherine Clavering, founder of lingerie brand Kiss Me Deadly, outsources her production selection process to her fans on social media.
“Unlike most people in fashion, we kept our fulfilment in-house, but outsource plenty of other things, including picking what goes into production,” says Ms Clavering. “Every season we come up with more designs than we can afford to make, in terms of both cash and, more importantly, factory time. As there are more brands than factories, for a small brand, you’re fighting against everyone else for time.
“Now we use software created by a Twitter developer for brands to create a simple-looking ‘hot or not’ style voting website. The genius of it is that the back-end uses some complicated maths – non-pareto voting methods – so we can see, not just which products are most preferred, but if there is any internal competition between products.”
Meanwhile, far away from frilly knickers and suspender belts, you’ll find the world of investment management is also seeking new functions to outsource in a post-recession world. Vast changes to the regulatory environment have meant many small firms don’t have the resources to deal with the swathe of new requirements.
“Outsourcing in the investment management industry is a continuing trend,” says Steve Young, chief executive of investment management consultancy Citisoft. “As firms face the consequences of the financial crisis that gripped the markets in 2008, the challenges of running an investment management firm have multiplied considerably. In a recent EY survey, 84 per cent of European asset managers said that compliance with regulatory requirements was still the primary challenge they faced.
“Investment management firms must have undertaken thorough reviews of their operating models, with an emphasis on which areas they need to retain in-house and which functions can be outsourced to a third-party supplier.”
Naturally, SMBs must be aware of the challenges of working with third parties. It shouldn’t be seen as handing a problem over to someone else; it should be collaborative wherever possible and ensure company culture is mirrored as much as possible by the outsourcing partners.
“Put the same amount of effort into finding the right outsourced workers as you would for an in-house team,” says Elance’s UK country manager Hayley Conick. “Remember that highly skilled outsourced workers are just as in demand as top-talent permanent employees, so be clear about why your project might be of particular interest to them. Distance management is an art and communication is critical. You need to make sure you communicate clearly and frequently.”
One last important consideration for SMB leaders is that outsourcing your personal tasks can be almost as much benefit to your business as outsourcing company functions.
“My piece of advice for any business owner running an SMB is outsource and automate as much as possible in their personal lives as well as their professional lives,” says Gem Griffiths, managing director at The Crowd & I. “Outsourcing the tedious tasks, such as cleaning your home or sorting your bills, frees up mind-space to help you concentrate on the more important business decisions and things in life. It helps the entire process to run smoothly.”
After all, no one should have to book their own seat on Virgin Galactic.
ACCOUNTING FOR INDIA
HW Fisher & Company is a medium-sized firm of chartered accountants within the top 30 in the UK. Founded in 1933, the practice comprises 29 partners and some 260 staff. The firm is arranged as a series of partner-led departments covering a full range of dedicated industry groups.
FisherE@se, part of the company, outsources a large portion of its work to dedicated sites in Bangalore and Delhi. It has been outsourcing a range of services to India for the past decade to maintain a competitive advantage over smaller firms with lower overheads and less-costly compliance measures.
HW Fisher operates a standalone office in Bangalore, as well as having a dedicated team at a large accountancy outsourcing provider in Delhi. The type of work outsourced is mainly back-office, such as client bookkeeping, preparation of working paper files, tax return preparation, corporation tax returns and preparing annual accounts.
“Outsourcing enables us to maintain a competitive advantage in the UK where, in most cases, we are competing against smaller firms and one-man bands who don’t have the overheads we do,” says Mukesh Shah, head of outsourcing. “I’ve never found the time difference a problem as India being five hours ahead means that by the time I come in, often the work has been done and is ready for review or approval. We have a few hours overlap where we can discuss anything that needs doing before they leave for the day and we continue the work. It is almost creating a 24-hour office.”
STAYING CLOSE TO HOME
Heating Master is a Nottingham-based firm established in 2013, specialising in underfloor heating products. Director Sean Liu’s family runs a successful underfloor heating company in northern China, so the business runs in the family.
“We are small in size, but a rapidly growing business,” says Mr Liu. “We sell underfloor heating products and building materials, wholesale and retail, such as insulation boards, heating mat and cable, thermostats and accessories. More than half our sales are via online channels, such as our own website, and eBay and Amazon. The remainder are via off-line wholesales.”
Heating Master outsources its fulfilment to UK-based Core Fulfilment. This takes the pressure of handling complicated logistics off the company, so it can concentrate on other parts of the business and its growth.
Core Fufilment provides a “pick and pack” service to e-commerce businesses of all sizes. It fulfils e-commerce businesses’ customer orders from holding stock, downloading the orders, packing up the product and posting it out.
“At the early stage, we really want to win more frequent customers by giving them a good, professional first impression,” says Mr Liu.
“This is already paying off, with many of our customers becoming long-term clients. Core Fulfilment could also provide customer service outsourcing, answering customer telephone inquiries, e-mail inquiries, and so on, on our behalf. This is a facility we would like to start using in the future.”