“Do what you do best and outsource the rest” was the challenge posed by Peter Drucker – widely accredited with developing the case for outsourcing back in the late eighties.
For those of us who’ve experienced running businesses in the facilities management sector, the arguments for outsourcing are well rehearsed. We use them in our marketing all the time. So widely established are they that we expect these arguments to fall on fertile ground with most business managers. So why do we hesitate in fully embracing outsourcing for our own businesses?
It’s worth reminding ourselves of the arguments:
1. Focus company resources on your core activity
If you’re a security company providing people, selecting, training, deploying, motivating and managing security officers should be your overriding concerns; all of your resources should be focussed on these activities. Anything else – running computer systems, maintaining your offices, screening new recruits – distracts you from your core activities. And if you’re distracted by the non-core minutiae of supporting activities you won’t be providing the exceptional front-line service that your clients love and value you for.
2. Get access to highest quality specialist suppliers
If you have your own staff performing non-core supporting activities they may well not be as efficient or as capable in doing those things as a specialist supplier would be. Because your specialist supplier provides the non-core service for many clients, they’ll have more opportunity to learn better and more efficient ways of delivering the service and to evolve their service to stay in line with industry best practice and any regulatory requirements. In other words, they should be better at it, and because they’re better at it the improved efficiency will contribute to your overall effectiveness as a business.
3. Create the ability to flex capacity
If you should find that business volumes turn down, and if you resource non-core activities with internal staff, you’ll find yourself carrying expensive surplus overheads and will face difficult decisions. With an outsourced supplier, you simply reduce the amount of work you give them and your costs reduce in-line, immediately. You don’t have that same flexibility with internal resources. The temptation is to retain those resources on payroll in anticipation of the volume of business increasing again, which may or may not happen.
Expansion of business can pose the opposite problem. With internal resourcing, as the volume of work exceeds the capacity of staff to handle it, you’ll face a lag in response as you attempt to hire more staff and, in the short term, quite possibly an increase in unit costs if you need to run overtime to plug the capacity gap. A good outsourced provider should be able to accommodate the additional volume easily and may even offer you a lower unit rate as the volume discounts you’ve sensibly negotiated come into play.
4. Increase accountability
As a responsible employer you’ll want to support your employed staff through any problems that affect their productivity or availability. Thus, a spell of illness or absenteeism for whatever reason will impact capacity, productivity and unit cost of the non-core activity concerned. It’s easier to apply and enforce Key Performance Indicators with outsourced suppliers. If they fail to meet agreed KPIs it’s their responsibility to rectify the situation. Ultimately, if they fail to do that you fire them, without distracting and often costly complications.
5. Reduce costs
Cost reduction is a lot like marketing; the best businesses do it all the time. A financial downturn is not the time to start a cost-reduction programme, just as a slump in business shouldn’t be the signal to create a new marketing campaign. It’s too late!
In principle, with many non-core support activities, by the time you take into account all of the costs associated with doing them in-house it will almost certainly be cheaper to outsource them. Unit costs go down, margins go up. And that assessment has to take account of opportunity cost for your own resources. If your staff weren’t spending their time labouring on non-core activities, what impact could they be having on delivering a better service to your customers?
The Outsourcing Dividend
In principle, by identifying non-core activities, recruiting the right outsourcing partners and negotiating the right contracts, there’ll be an outsourcing dividend for your business. How you use that dividend will depend on your business strategy and where you are in your particular business cycle. It could be re-invested into your business, it could be banked as retained profit and/or distributed to your shareholders.
Finally, no business blog post worth its salt (in these times) would be complete without some reference to Brexit, so here it is. Even the most ardent Brexiteer would acknowledge that the UK business environment is facing a period of uncertainty. The extent of the impact of Brexit is unclear. That there will be an impact is unquestionable. In uncertain times we should be looking to sharpen our delivery. We should be focusing on improving quality and value to our customers to maximise our competitiveness. We should be engineering agility into our businesses and, where we can, reducing the cost of non-core activities.
affordable screening 