By Loral A. Narayanan
Outsourcing certainly can help in such a situation, but it has become much more. It has evolved into a powerful management tool that can help you innovate and reshape your department, and your function.
Every company and department within a company has skills and knowledge that give unique value to customers and create a competitive edge. These are their core processes or competencies. Any process that supports a core competency, but does not generate income, is viewed as non-core. Non-core processes are potential candidates for outsourcing.
The premise is that there is a limit to how many things an organization can be best at, and the cost of going beyond that limit is the loss of attention to areas that matter most. Outsourcing allows organizations to realize financial and competitive advantages by reallocating internal resources to focus on these areas.
Benefiting The Company
Broadly, outsourcing enables companies to gain the benefits of state-of-the-art skills and technologies without directly having to invest in their development. Outsourcing also allows access to individuals with specialized skills which the company might otherwise find expensive or difficult to attract and keep. It lets companies offer value-additions or services to their customers which they might otherwise find strategically, physically or financially difficult to provide.
The Outsourcing Institute has described ten drivers behind today's outsourcing decisions. They are as follows.
- To improve company focus, while leaving operational details to the outside expert.
- To access world-class capabilities.
- To accelerate benefits of re-engineering -- improvements in cost, quality, service and speed -- by handing the job over to the specialists to obtain immediate benefits without assuming the costs or risks.
- To share risks. Markets, competition, government regulations, financial conditions and technologies all change extremely quickly. Outsourcing is a vehicle for sharing these risks across companies.
- To free resources for other purposes. Resources freed through outsourcing are generally people resources. Outsourcing non-core functions can redirect staff energies toward key strategic areas.
- To make capital funds available. Instead of acquiring certain resources -- like computers, fleet vehicles, buildings -- through capital expenditures, they are contracted for on an as used operational expense basis.
- For cash infusion. In some cases, outsourcing involves a transfer (or sale) of assets to the provider.
- To reduce and control operating costs.
- Because resources are not available internally. Outsourcing can provide resources without the company having to build from the ground up.
- Because a function is difficult to manage or out of control.
Benefiting Workers
Outsourcing has emerged as one of the most effective tools to address the demands of today's challenging and unpredictable business climate. The shift to outsourcing has allowed organizations to stay competitive, safeguarding the welfare of productive employees.
For treasury and credit pros, managing the company-outsourcing agency relationship has provided the means to progress from mere transaction processors to strategic decision-makers.
The Credit Department
Although credit experts may disagree on the specific role of outsourcing, they do agree that managers and executives tasked with improving performance and efficiency in the credit and A/R areas should look closely at several opportunities for outsourcing functions, including:
- processing of credit applications and approvals
- collecting from billed customers
- investigating and resolving unauthorized deductions
- covering added volumes during crunch periods
- outsourcing the entire credit and/or collection process
- some portion of any of the above
Credit and accounts receivable departments testing the waters with outsourcing are generally looking at it as a convenient tool to deal with overloads or nuisance duties.
Of course, collecting past due accounts is the original outsourcing service provided to credit departments. After collections, the most well-established is management of unauthorized deductions -- the bane of consumer goods manufacturers selling to retailers.
Even some CFO's continue to view outsourcing as either a temporary measure or one geared to handle tactical, detachable or lower priority assignments. However, there is a growing trend toward looking at outsourcing as a strategic management tool.
Other projects being sent outside include:
- pre-collection, transparent follow up on accounts that are just past due
- cash application
- sales tax auditing
- payables auditing
- bank and trade reference checking / risk assessment
- inbound and outbound customer service contacts
Choosing a Service
The most important requirement for a successful outsourcing relationship is confidence and trust -- on both sides of the table.
A significant commitment exists between the client and service company, and that relationship requires ongoing coordination and communication.
Responsibilities must be clearly defined and standards, policies and work schedules coordinated if the function is to successfully integrate with your organization. A single point of contact on each side is usually required. Developing a strong relationship with your provider -- at multiple levels -- is also essential.
Other criteria to keep in mind include the potential service provider's:
- expertise/experience with the type of project you're considering outsourcing
- experience working with others in your industry
- technology/skills
- length of time in business
- financial status
- insurance status
- business ethics and corporate culture
- client testimonials
- pricing (What add-ons will they charge for?)
- staffing (Do they have the organizational structure to provide the support you require?)
- flexibility
- internal control processes
- client support structure
Making It Work
As in any relationship, there are things you can do to help ensure success. Here are some to keep in mind when outsourcing:
- Define and set interim and long-term goals.
- Be clear on your priorities.
- Work with your outsourcing provider as a partner in attaining your goals.
- Keep expectations realistic and allow for a learning curve.
- Be prepared to make changes and revise procedures as necessary.
- Keep in mind that the relationship will require attention in order to remain successful.
And, perhaps most importantly, don't be afraid of the concept of outsourcing itself. Utilized wisely, it provides a unique opportunity to increase your department's efficiency while giving you time to focus on the broader issues you'd rather deal with, but never seem to have the time for.
OutsourcingCentral.com