August 19, 2021

Common myths with offshore outsourcing

As the wave of outsourcing has taken centre stage amongst various business strategies of value addition to business, it’s important to debunk some of the myths that are holding back others to jump on to the outsourcing wagon as yet. Some of them are mentioned here:

1. Loss of control in business

Anyone who thinks against outsourcing F&A function with this concern has to stand corrected. Yes, handing over part of your business to a service provider to manage is a serious affair and cannot be taken lightly. However, when it comes to outsourcing of F&A the aim is to achieve more control by only shifting the process of information. This can be achieved without major glitches if the service provider has been communicated clearly the expectations regarding standards to be followed and end results that need to be achieved.

2. Main aim is to cut costs

If a business outsources F&A with the only aim of cutting costs in mind, it is not up for taking the right advantage of this strategy. One cannot deny the cost benefit achieved from this move, however the decision involves taking a serious look into the strategic benefits achieved for an expansion oriented business by having a much more competitive and efficient team at hand, compared to an in-house one.

3. Offshore service providers lack relevant knowledge

This one is far from the truth. In fact, one is totally missing the point of taking advantage of a globalized flat world. Outsourcing has at its core, the main benefit of specialized, experienced and competitive talent. In any case, if the concern is their knowledge of one’s industry or business model/ strategy, the outsourcing company
should take into consideration training of the service provider team for their tasks as well as the company’s culture, so as to ensure that both the company and the service provider team are on the same page as far as strategy and goals are concerned.

4. It’s only the ‘Big player’s game’

No it’s not! Outsourcing is a beneficial strategy for whoever is able to smartly work out the business arrangement, size of the company not being a bar. In fact many a time small businesses reap much more benefits as they can use talent and experience which might be out of their cost reach if full-time hiring is considered. Also, there is
flexibility available regarding using these services as and when needed, rather than hoarding expensive talent whose inputs are only required seldom.

5. Threat to company privacy

This holds only as much truth as it does for in-house employees who could move out sooner or later. As far as protection of financial information is concerned, the same measures can be applicable to outsourced staff as to in-house. If the service provider is brought under legal responsibility of any kind of financial responsibility and the right relationship with them is built, there is no threat to company’s financial privacy, as the service provider would want to ensure their own credibility in the industry.

However, those who have jumped onto the wagon in too much of a hurry, without understanding the nitty-gritty’s of this exercise also have to be shown a candle. We may want to ask why is there so much disconnect between theory and practice in outsourcing & why problems are so prevalent when the recipe seems so straightforward. Some such myths that pervade current outsourcing management approaches to cause more harm than benefit are:

1. The arrangement will self-manage itself:

Even though F&A function outsourcing might sound like a Finance department decision, the HR functions role in this cannot be overlooked. If organisations that enter outsourcing contracts do not have a coherent plan for the ongoing management of the relationship and the services that are provided& assume that the contract and the various service level agreements that are negotiated will be self-managing are in for a total disaster. It is imperative to invest in governance processes over the contract’s lifetime wherein HR has to play a major role.

2. It is a ‘win-lose’ arrangement between organisation and the service provider:

If organisations enter negotiations for long-term outsourcing contracts under the misconception that the service provider is the enemy& view the contract negotiations as a war in which there will only be one winner, the usual result is that both the organisation and the service provider end up losing. Service provider has to be seen as a partner in business for the arrangement to reach its success pinnacle.

3. Outsourcing is primarily a Procurement exercise:

While outsourcing, the strategy of ‘best price wins’, which is inherent to other procurement activities, cannot be applied. In reality, outsourcing of F&S is vital to corporate strategy, and therefore issues of capability, culture, expertise, and agility are more important to long-term success than price.

4. Business environment will be in Steady state:

The most common outsourcing arrangements seen today envision a steady state—the outsourced services will never need to change. Nothing in business operations today remains in a steady state for long, and when the needs change, outsourcing relationships build on this belief often break down.

5. Outsourcing is independent of business strategy

Value addition in business due to outsourcing is a function of whether the sourcing decision is in sync with the business strategy. If the nature of the outsourcing relationship formed is entirely incompatible with expected business results there turns out to be a huge disconnect between senior executives, the board, and operational managers, leading to a major failure.

Hence, although there are real risks involved in outsourcing, if one finds the right outsourcing provider for your company and ensures the right measures are taken before outsourcing, it is not such a big challenge to achieve these returns.