Industry June / July 2010

Business Support & Outsourcing

Throughout my career in the Asia-Pacific region, I have enjoyed helping businesses in a number of ways, more recently to consider and implement outsourcing. I have helped large businesses and SMEs outsource key processes and this article features some of the considerations and opportunities related to successful outsourcing.

Why outsource back-office work?

  • Increases focus of managers on core business areas
  • Reduces head count and substantial costs — large firms usually have much larger indirect costs (such as substantial staff benefits) than those that outsourcing firms have, which can result in significant savings
  • Flexible arrangements to deal with peaks and troughs of business volume and activity
  • Improved internal control through a good division of duties
  • Access for head-office management overseas to trustworthy local advice and expertise in Japan
  • Helps local managers to secure significant specialist expertise with fixed-price arrangements
  • Ensures confidentiality of key information (particularly appropriate for payroll)
  • Key intermediary role helping head-office management (such as financial controller) communicate with local management (e.g., Japanese general manager)
  • Avoids staff loss resulting from a smaller firm unable to give advancement opportunities to staff in bookkeeping and administrative roles
  • Gives cost effective purchase of a wide range of vital skills offered by a number of different employees at the outsourcing firm, instead of employing one or two staff with a limited range of expertise

Finding an outsourcing strategy

  • Identify work and processes best done in-house and those that could benefit from outsourcing — this can be verified later with a more thorough examination
  • Consider how internal controls can be improved as a result of outsourcing, such as ensuring independence of processing and recording of transactions
  • Ask if all parties can work together on the same software or IT platform using different passwords to gain access
  • Review existing reporting and reduce it to a minimum that can be done on a timely basis
  • Ensure your outsourcing firm is committed to levels of service and has strong technical capability, particularly in answering difficult head-office questions
  • Ensure that there is good cultural compatibility between you, your firm and the outsourcing firm, and that you will be able to get good communication in all the languages you require
  • Take long-term costs into account (including a realistic estimate of indirect savings from not hiring people) to either save money or get better quality and speed to compensate for extra net cost

Typical savings from outsourcing

  • Salaries
  • Government insurance
  • Benefits such as transport, entertainment
  • HR management costs
  • Rental space
  • Training costs
  • Hire of temporary staff to cover holidays, maternity leave, etc.
  • Direct recruitment costs, such as advertising and commissions
  • Down time from recruitment process
  • Redundancy costs for recruits who fail to perform
  • Cost of mistakes, such as penalties and fines

Potential novel solution
One way to deal with an overmanned and inefficient back office is to propose to the outsourcing firm that they employ your existing staff. The outsourcing firm may be able to redeploy the less suitable staff on other assignments, for which their skills area is more appropriate, and generate a big win all round. This negotiated solution can usually be achieved without too much redundancy cost.