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The true value of outsourcing

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30th Mar 2009
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Vipul Sheth of AdvanceTrack Outsourcing explains why there are no limits when it comes to outsourcing; just our limited perception of what is possible.

It is always interesting to see the varied opinions on the subject of outsourcing, from those who say it will only happen in their business over their dead body, to those who embrace it in its entirety. This spectrum of opinion was voiced in AccountingWEB.co.uk’s Great Debate on the subject last summer.

As a fellow accounting and tax professional and a promoter of outsourcing, I support the view that all firms need to be true business advisors. Outsourcing supports this approach, but it is in no way a service that replaces the firm and the need for local delivery. Some may be surprised by this comment from an outsourcer, but I firmly believe that some work will and should always be retained in-house due to its nature, and also to provide the grounding for trainees to understand the basics.

Globalisation
Having said that, strategic outsourcing is of value to firms when delivered professionally. Globalisation has clearly introduced opportunities to deliver accountancy services around the globe. Technology is the key driver, as is the growing pool of talent from emerging economies as education, professionalism and knowledge levels rise to UK standards.

With highly skilled staff accessible across the globe from any desktop, organisations of any size can leverage the benefits of outsourcing. Aside from the obvious cost savings, additional reasons to outsource include standardisation of procedures to ensure a consistently high quality service.

Consider a situation when ten jobs arrive simultaneously and only three can be processed at the time. Access to an outsourcing service enables all ten jobs to be delivered on a timely basis. This enables professionals or businesses to focus on running their business whilst keeping costs under control.

Cost and profitability
At a time when cost and profitability are key drivers for all business, outsourcing is something all businesses may want to consider.

While cost is a key driver for outsourcing, strategic direction is a more important reason to outsource. Common considerations decision makers need to bear in mind before sanctioning outsourcing include consistency, reliability, quality and timeliness of service, capability to deal with local compliance issues, tracking work status and of course ensuring data security.

Data security
In undertaking outsourcing, firms need to ensure data security is maintained to mitigate the risk of prosecution and more importantly, loss of reputation.

Is your firm an efficient firm or an expert firm? Michael McKerlie of RAN-ONE discussed the various models of professional firms operating from the expertise to the efficiency model. Efficient strategic outsourcing may enable a firm to achieve both.

With a reduced intake of people at trainee grades, outsourcing offers a solution to ensuring smooth delivery of compliance services, on time with reduced time spent by more senior staff on training staff to perform basic compliance activities. This is akin to the efficiency model.

The skilled local staff should then be free to deliver value added services, thus delivering higher profitability and better service, i.e. the expertise model.

For example, consider a firm that processes tax returns. A typical tax return may generate £65 - £100 per hour in terms of billable time. Depending on your firm’s location and charge-out rate, it could be even higher. If this work is performed by skilled local staff, what is the opportunity cost if there is profitable advisory work they could be doing instead?

If this advisory work is not processed due to the need to deliver tax returns, it is arguable that the opportunity cost is the differential in charge out rates. For the purpose of comparison, let us assume that such work pays £150 per hour; there is a conservative opportunity cost of £50 per hour.

If a firm outsources say 600 returns which take two hours each on average, it is arguable that the firm can increase revenue by £180,000 by utilising the same skilled local staff more productively whilst the ‘commodity’ tax return is still delivered using quality outsourcing.

What is the true ‘value’ of outsourcing?
Even for a firm processing only 600 tax returns, after deducting the cost of outsourcing, the value of outsourcing is potentially additional profit in the region of £150,000. Such an approach can also enable staff to be paid more whilst adding considerably to the partners’ profits, thus retaining skilled staff locally and delivering better service to clients.

It should be stressed that the success of outsourcing depends to a great extent on the mindset of firms and clients and the degree to which they embrace technology. In our experience, many accountants find outsourcing to be a highly efficient and effective solution to delivering basic compliance work. Typically firms may outsource up to 50% of their compliance portfolio, representing up to 10% of total income. While this may grow, it certainly won’t result in an empty office.

Choosing a professional outsourcing partner is key to successful outsourcing. Accountants who have tried it once but did not get the desired service level from their outsourcer may be tempted to give up. Perhaps they should consider a different approach instead.

Outsourcing should allow firms to prioritise time and resources to provide the higher value services and the development of higher skills. This approach makes the expertise model more likely to be the model of the local firm, but leveraging the efficient outsourcer’s scale to deliver compliance services.

Responsive to client needs
In the constantly evolving economic climate and increasingly competitive market for firms and clients alike, advisers need to be well positioned to be highly nimble and responsive to clients’ needs.

The need is exacerbated by the increasing prevalence of competing advisers with MBAs. Firms can only maintain success through continued credibility. It is key to the long-term success of professional firms to widen the sphere of services that require more well-rounded business advice and develop quality relationships with clients. Having highly skilled staff is essential to support this.

Well considered strategic outsourcing can support the development of highly skilled staff by freeing up the time from the daily compliance work and re-allocating this to deliver services that clients value more highly and thus deliver higher revenue and profit to the firm.

To deliver the key benefits of outsourcing, the outsourcer must deliver:

  1. A quality product compliant with local standards. It is important that the process is overseen by knowledgeable staff.
  2. Data security
    Only a truly professional approach can deliver the benefits of outsourcing.

www.advancetrack.co.uk

Vipul Sheth ACA CTA is Managing Director of AdvanceTrack Outsourcing.

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