It takes hard work to make outsourcing a success, but it can free up your team to focus on higher-value opportunities. Now a new guide from CPA Australia could help public practitioners build a better outsourcing strategy.
By CPA Australia Public Practice Advisory Committee
Outsourcing, where a business “contracts out” work or a process to a third party, is nothing new. It derives from the economic principle of comparative advantage, which was first identified by 19th-century economist David Ricardo in his tome Principles of Political Economy and Taxation. These days, outsourcing is often thought of as simply a way to save money, allowing a good or service to be supplied more cheaply than we can do it ourselves.
Sometimes a business may outsource the production of low-value goods and services even if it can produce them more efficiently in-house. This is because there is an opportunity cost: for every hour consumed by producing the good or service, there is some other higher-value activity the business could perform.
Another real opportunity in outsourcing is accessing skilled expertise. If dealing in specialist areas, this might assist a business to get things done at a higher quality for a lower cost.
Outsourcing can help a business to grow as it reduces the administrative load on skilled local staff, giving them more time to focus on higher value-add activities. This can be the case even after time is allocated to the quality control needed to ensure the accuracy and timeliness of work completed by lower-cost providers.
"[It's] predicted that 50 per cent of outsourcing attempts fail and 70 per cent take longer than expected."
Accessing specialist advice on attracting new business through digital communications and improved client engagement will also support growth.
Today, technology means that businesses of all sizes can easily outsource services; “offshoring” is also increasingly accessible. Offshoring is where activities are performed in a foreign jurisdiction. It’s a particular type of outsourcing, and has its own challenges and advantages.
Done well, outsourcing presents opportunities for a business to be more effective and efficient. Done poorly, it can result in business failure due to distractions, increased cost and poor outcomes.
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For outsourcing to be effective, business owners and directors need to confidently embrace outsourcing, and trust in their ability to achieve higher-value results by focusing on where their expertise lies. Getting the mix right on what is outsourced, and what is kept in-house, is crucial.
For accountants, APES GN 30: Guidance Note on Outsourced Services from the Accounting Professional & Ethical Standards Board (APESB) (first issued in 2013 and revised in 2015), looks at outsourced services in relation to both the professional and ethical obligations of CPA Australia members.
CPA Australia’s guide, Outsourcing: Opportunity or Threat, is also useful in assessing if a practice should outsource part of its own business and professional activities to a third party. For example, low-value transactional work performed within an accounting firm might be outsourced to a third party. This frees up your professional staff to work on high-value activities with clients.
"Getting the mix right on what is outsourced, and what is kept in-house, is crucial."
CPA Australia’s guide can also assist CPA Australia members when advising clients on whether outsourcing some of their business activities would be beneficial. For example, the practice might provide a strategic evaluation service to the client to identify opportunities for outsourcing business activities. By extension, it may also use this guide to assess if the client should outsource some of their business activities to the accounting practice, for example, bookkeeping or accounting services.
CPA Australia members should adopt a medium- to long-term perspective when it comes to adopting an outsourcing model. Researchers from the Boston Consulting Group and Gartner have predicted that 50 per cent of outsourcing attempts fail and 70 per cent take longer than expected. Time and energy will need to be invested over the long term to realise benefits from outsourcing. Outsourcing is not a quick fix and requires a lot of hard work.
This is an edited extract of CPA Australia’s guide Outsourcing: Opportunity or Threat? Lead authors are David Carter FCPA, chief executive of Odyssey Resources, and Dr Micheal Axelsen FCPA, director of Applied Insight.
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