Outsourcing is the practice of hiring a third party to provide a service that for whatever reason a company is not able or not willing to provide in house. If managed correctly it can be an incredibly advantageous tool, especially for small businesses. Letitia Booty takes a look at what it’s involved and how to go about it properly
According to the Arvato UK Outsourcing Index, Business Process Outsourcing (BPO) dominated the UK outsourcing market in the first half of 2015 – this accounted for 60 per cent of the overall spend and includes services such as accounting and human resources management.
“As a business develops and grows, it is often a necessity to outsource accounting,” says Philip Ross, head of business development and marketing at accountancy firm Sollertia. “One of the reasons for this is a lack of time and resources and the other reason is that financial affairs of company will become increasingly complex… rather than spending time doing the company accounts or preparing financial reports, you will benefit by concentrating on other aspects of the company, like marketing or sales.”
Across the market, 39 BPO contracts were agreed in both public and private sectors between January and June this year at a value of £1.4 billion, compared to 31 IT outsourcing (ITO) deals worth £868 million. HR outsourcing remains the primary function behind business process deals in 2015, accounting for 19 BPO agreements coming in at £50 million.
The desire to grow a business is often the driving force when it comes to making the decision to outsource. As Darren Lancaster, EMEA Recruitment Process Outsourcing (RPO) MD at recruitment specialist Hudson, puts it: “Having the ability to grow at pace with agility could be the thin line between success and failure…you may think that RPOs are just for larger organisations, but ‘on-demand’ RPO allows for quick scaling within a desired timeframe for your specific recruitment projects.”’
When it comes to outsourcing IT services, the impulse is often a result of a lack of skills in-house. This can include monitoring clients’ networks 24/7, delivering telephone and broadband services, IT consultation, large IT projects and technical strategy. “Partnering with an outsourced IT company lets organisations focus on core business functions without worrying about technology issues,” says Kevin from managed IT services provider Network ROI. “Most SMEs simply can’t justify having such a large IT team, and smaller companies don’t have the financial resources to employ dedicated IT personnel as well as covering additional costs, such as illness, holidays, healthcare and pensions.”
“In addition, it is very hard for people to employ others in certain fields when they are not skilled in the area themselves,” explains MD of My Social Agency, Mark Mitchell. “This means that often there is a higher level of eSkills within outsourcing agencies, who can provide greater creativity than clients may be able to provide in-house.
“Companies also choose to outsource their business to agencies as they can ensure that their work keeps up with modern trends. eSkills have a fantastic potential for continuous growth – for example, the face of social media marketing has totally changed in the past few years and will most likely continue to change rapidly over the next decade.”
The outsourcing market in the UK was dominated by the public sector, but there was still significant activity within the private sector, which accounted for 40 per cent of the total UK market value at £914 million.
In the private sector, the outsourcing market was lead by the transport and financial services sectors. The transport industry represented the largest contract value across the private sector, with deals worth £319 million focussing on IT infrastructure and cloud computing. In terms of contract volume, the financial services sector was the most active, with 10 deals worth £184 million.