Growth businesses should not be scared of outsourcing
No business type in Britain is more reluctant to engage in outsourcing than SMEs. In a recent study by the Open University Business School, just 14 per cent of firms with a turnover below £100,000 used outsourcing as compared with 33 per cent of larger companies. Furthermore, almost four out of five (79 per cent) SME respondents reported that they have not contracted out any services in the last two years. Paradoxically, it is growth companies which have the most to gain from outsourcing as they typically do not have the resources to provide the number or quality of services that outsourced specialists could offer.
SMEs are a vital growth engine and if they embrace outsourcing more enthusiastically it could transform their performance and help improve that of the wider UK economy. Below I outline some of the major challenges for growth company engagement and suggestions on how to address them.
Spread costs and show value
Providers need to better understand SMEs budgets and needs. SMEs were particularly badly hit by the recent downturn. As a result, over the past few years most have been more concerned with survival and conserving their cash rather than expensive development projects or outsourcers. A key SME engagement tactic would be to spread transitions costs over time so SMEs do not face significant lumpy expenditures.
Moreover, the difficult economic conditions have been monopolising management time, meaning SMEs have had precious little to spend on overseeing and monitoring an outsourcing partnership. Offering an economically viable option that also builds a framework for a longer-term outsourcing relationship might give SMEs the confidence to reduce management time spent on oversight because they know they are important and valued clients.
Most SMEs do not have experience in outsourcing and do not feel confident that they have the skills or resources to identify the right option at the right price according to the Open University Business School survey. Furthermore, they do not want to pay lawyers and consultants to advise them on this, nor can they fund the often-high transition bills.
Government and business support groups could take on more of an advisory role, providing SMEs with information and guidance about outsourcing so they do not have to rely on expensive outside lawyers and consultants. This could be supported by providers designing flexible solutions that allow SMEs to pick and choose which services they want and for how long.
Downplay importance of size
Growth businesses also fear a large outsourcing provider will likely be focused on more lucrative deals with big-name clients and the quality of the service and engagement they receive might suffer. Moreover, many SMEs doubt the capacity of large outsourcing providers to offer them the local, customised and flexible services that they require. The Open University research found that SMEs outsourcing is ‘overwhelmingly local’ – 82 per cent of those that did outsource reported that they chose contractors based in the same region, 21 per cent said they used outsourcers from another part of the UK and only five per cent said they used offshore providers. To deliver the more local service which appeals to SMEs, providers could consider a regional bureau structure or partnerships with local firms. This would also help outsource vendors offer a more local service and diversify risks.
The economic crisis hit outsourcers badly, as businesses cut operational costs and many contracts were left to expire. Processes were brought back in-house and outsourcers, perhaps unfairly, were viewed as slow to keep up with the pace of technological development. However, now the environment has changed and the nascent economic recovery is gathering pace, outsourcers should once again engage mores strongly with SMEs and demonstrate the benefits that outsourcing can provide in terms of allowing them to focus on maximising the opportunities that recovery is presenting.
If they do, outsourcers could well receive a more enthusiastic response than they anticipated. In a recent survey by Deloitte, it was revealed that cost was not the primary decision for a business to outsource – rather it was overwhelmingly that companies saw increasing the flexibility/scalability of their offer as a key driver.