Outsourcing is big business.
Updated 24 August 2016
According to Global Industry Analysts, the globe market for business process outsourcing (BPO) - subset of outsourcing that takes in tasks such as customer care, finance and accounting, human resources and procurement - is projected to reach UD$220 billion by 2020, driven by mounting pressure among companies to rationalise costs, improve operational performance and increase customer satisfaction.
So quickly has offshore outsourcing grown in the past few years that for many enterprises it is now seen as a part of their everyday operations, rather than a risky proposition.
The dearth of accountants willing to do compliance work has convinced some firms to take a leap of faith.
Done correctly, there is little doubt that outsourcing tasks to skilled operations in cheaper countries such as India, China and the Philippines has the potential to deliver cost savings and create access to new streams of talent and efficiency.
Get it wrong, though, and it can upset your customers and damage your business.
INTHEBLACK canvasses the views of three outsourcing experts to get their advice on how to make sure the experience helps, not hinders, your business.
Outsourcing innovator, KPMG
Offshore outsourcing deals come with a lot of “moving parts” that can have an impact on service quality, according to Tom Reilly.Culture, language, time zones, holiday schedules, connectivity, inflation, information protection, resume fraud – they are all factors to consider.
While the vast majority of offshore outsourcing alliances work well, Reilly says problems can arise if the client is unaware of such issues or fails to address them.
“If I have one bit of advice, it would be to arm yourself with information and be an informed buyer,” Reilly says.
Choosing the right provider is the first task. Reilly warns against going on gut feel and focusing on relationships at the expense of finding a vendor fit for purpose.
“A good relationship helps you get out of trouble when it arises, but even the best relationship in the world will not help with the wrong provider.”
He says almost all outsourcing failures can be traced to a lack of clarity around the requirements of the arrangement. Attention to detail is crucial.
“It sounds obvious that requirements must be clear, but the reality is that too many organisations try to take shortcuts in this area.”
To help offset outsourcing risks, Reilly advises regularly reviewing the provider’s performance to ensure they live up to their promises.
He notes that almost every outsourcing contract allows for regular audits of the provider, “but many clients fail to perform them”.
It is generally accepted that clients should review four key elements: quality assurance, service improvement, compliance and customer satisfaction.
Some critics argue that as labour costs rise in countries such as China and India, their comparative advantage will diminish.
Therefore, businesses may at some point be better off “reshoring” – that is, bringing work functions back to their home offices.
However, Reilly believes there is considerable life left in the offshoring model.
“There is no question that the attractiveness of locations changes from time to time, especially in terms of costs and labour availability,” he says.
“[But] in a properly constructed outsourcing agreement, the provider will have a responsibility to maintain this price competitiveness to some degree and, if you have chosen a suitable vendor, they will manage any movement within their network or delivery centre to maintain these levels.”
Reilly says most organisations that outsource for cost reasons do so to achieve total savings in the range of 40 per cent to 60 per cent from their current locations.
"And for most outsourcing destinations in Asia, these levels of savings are sustainable over the next decade.”
Tom Reilly is a partner in the KPMG shared services and outsourcing practice and a veteran of the outsourcing industry. He has led groundbreaking outsourcing engagements in the Asia-Pacific region, Europe and the Americas, including setting up One Resources Group, China's first business process outsourcing firm, in the late 1990s.
Accountant, outsourcing service provider, AccSource
If firms are serious about benefiting from outsourcing, they should commit to system and process changes, according to Andrew Noble.
“You can’t carry on business as normal,” Noble says. “If you take up outsourcing, you really need to think about how you are going to best utilise the resource.”
That means not only adopting the workflow guidelines of the outsourcing provider, but also structuring internal systems to complement the outsourcing model.
Noble says the key is to streamline operations and avoid friction points.
“That’s why the more successful firms will have the outsource workers log in to their systems to work directly on data files without having to move the data files around. Once you start doing that, you have a whole heap of friction.”
Noble believes the growing use of sophisticated cloud computing will enhance outsourcing results.
Set up in 2008 by accountants in Western Australia and India, AccSource has an offshore centre in Chennai that handles services such as bookkeeping, compliance and personal tax work.
One of the best ways to avoid outsourcing pitfalls, Noble says, is to try before you buy.
Test outsourcing platforms with small jobs before signing up to a long-term deal which also provides a pointer to pricing.
Noble advises factoring in all aspects of a job when assessing quotes. “Don’t focus on a price differential of A$50 if you’ve got a set of working papers that are going to halve your review time from two hours to one hour.”
Noble says the efficient use of working papers is essential in an outsourcing partnership.
He prefers highly interactive papers that minimise the need for senior partners to spend time in a compliance loop.
“That means when you do a review you can fly through, click, click, click – and you can see all the associated referenced working papers without having to navigate through a set of papers.”
With technology, Noble says it is important to ensure seed data files can be properly exported to the outsourcer.
Again, he is confident the switch to cloud solutions is easing concerns in this area.
“Effectively, you can just provide access to a platform and accountants can log in and do the work rather than from seed data files. So the cloud accounting systems will actually drive outsourcing further and faster. And I think you will see new models evolving around how and what you get done by your outsource team.”
As automation becomes increasingly common in the accounting profession for simpler tasks, Noble expects increased flow-on effects for the types of services offered by outsourcers as they seek to move up the value chain.
“So whereas they may now be doing preparation of tax returns and financial statements and that kind of thing, once that part of the market gets chewed out by technology – which will inevitably happen – you’ll see them have to go up the value chain and do analytics-type work, reporting-type work and any of that value add.”
Andrew Noble is a founder of AccSource, which provides offshore accounting services for accounting firms and small and medium enterprises. Through Western Australian firm Noble & Associates, he has been involved in public practice for more than 20 years and has a special interest in IT systems for accountants.
Outsourcing executive, BOSS
Lee Court says handing projects to an outsourcer should not result in losing control of the work. Check the provider’s credentials in advance.
Make sure they understand what you want and ensure they have monitoring systems in place to meet your rigorous standards.
“It’s important to ensure that the work delivered, and the way it is delivered is in line with the way [your] firm works,” Court says.
Founded in 2004, BOSS is an outsourcing operation that uses accountants from India and Australia.
Court believes many businesses are becoming more comfortable with the concept of outsourcing overseas.
He offers four tips.
First, choose an outsourcing partner with a reputable history that understands the relevant national tax rules and regulations.
Second, after selecting the provider, get organised. When dealing with an offshore company, in particular, it is crucial to have protocols in place and client documentation in good order before sending out jobs. “That means there will be less need to go back and forth.”
Third, consider assigning a person in your office who prepares documents and takes care of most interactions with the outsourcer. It does not have to be a senior partner – a receptionist who has some training can do the job.
Fourth, ensure the lines of communication between your firm and the outsourcer are clear and quick, using tools such as Skype and instant messaging. Also open channels of communication must go both ways between the firm and the outsourcer, according to Court.
Just as accountants working in a firm want to be able to quickly liaise with colleagues in an office, the overseas professionals working for the outsourcing firm should be afforded fast access to the client firm’s people.
Daily team meetings are advisable to check on progress and discuss problems.
On the security front, it is important to discuss potential risks – and any safeguards – with the outsourcing provider.
Protocols such as limiting workers’ access to USB drives and emails should be discussed in advance.
Court says reputable outsourcing providers will typically take more stringent security measures than an average business or firm.
“So the risk of security breaches is low. If anything, you are more likely to have a problem with an [in-house] employee in the sense that they’ve got more incentive to take your clients and perhaps set up their own practice.”
Court says firms should have realistic expectations about the capacity of any outsourcer. “Sometimes there is a perception that you can throw work at the outsourcer and expect it to all come out perfectly in the end.”
Professional training standards and language skills should be top of mind when choosing an overseas outsourcer.
Court says outsourcers with ties to India, for example, can draw from a huge pool of accountants.
English is also India’s language of business, making it an ideal outsourcing destination.
“If you are looking for what’s important – you should go for professional qualifications and a country where English is their second language,” Court says.
Lee Court is a solution expert for BOSS, an outsourcing provider that supplies dedicated or casual staff to accounting and financial services firms. The head office is in Australia and a subsidiary is based in India.
This article is from the December 2013 issue of INTHEBLACK magazine.
- Test outsourcing platforms in advance to assess service and pricing.
- Commit to revamping internal systems and processes when you outsource.
- Check security protocols with outsourcers to manage risk.
- Set clear delivery requirements in advance of signing up with an outsourcer.