Outsourcing of key business processes has been around for years, but until recently it was reserved for large, multinational companies due to a number of reasons. First, the suppliers of outsourced services were looking for large contracts to achieve economies of scale to keep the cost of providing their services low. The model of large traditional outsourcing companies does not allow them to serve SME's cost effectively, even though they do posses the scale and capacity.

Second, whilst smaller outsourced service providers were looking to target the SME marketplace they lacked the scale to provide outsourced services profitably and their offerings were typically not of high enough quality. Third and finally, the average SME company was either of the opinion that there wasn't enough to gain for them to pursue a complicated outsourcing strategy, or mistakenly thought that the cost would be prohibitive.

Changing times
This has all changed though. Advances in IT and communication technologies created a new and profitable cost model for the provision of high quality outsourced services to the SME market. At the same time, SME businesses see willingness from outsourcing vendors to adapt their offering to suit smaller size businesses. It has become clear to SME's that they are able to gain similar benefits from outsourcing as their larger counterparts: lower cost, competitive advantages and the ability to focus their energies on core activities such as business growth.

In fact, an increasing number of SMEs are realising that by using selected high quality outsourced service providers they can create a business with a much more flexible cost structure and a broader range and depth that can easily cope with business growth or contraction.

Virtualisation
This latter phenomenon is known as virtualisation. Smaller companies are increasingly looking to sculpt their organisations by combining the services of external service providers into a cohesive organisation. Owners hire the services of marketing agencies, payroll bureaux, hosted IT providers and remote receptionists to relieve them of time consuming and non-core activities. This allows them to build up their organisation in an accelerated fashion without having to spend too much time worrying about staffing issues.

What can be outsourced?
Everything. Most commonly outsourced functions or processes include IT, payroll, finance, personal assistants and receptionists. But truly virtual
It has become clear to SME's that they are able to gain similar benefits from outsourcing as their larger counterparts
companies are springing up everywhere. One person hires all necessary resource into their business and keeps it as lean and flexible as possible.

Profitability
Research indicates that organisations that outsource aspects of their operations achieve higher profitability levels than those that don't. Companies that take the decision to involve third parties with their business are more likely to analyse, and make as efficient as possible, all other aspects of their business. When companies outsource activities such as finance, HR and IT they are able to obtain access to higher levels of expertise than those that would be available in-house as well as reduce cost.

However, doing all this is not without risks. Companies engaging in outsourcing need to make sure that the providers they select meet their needs and that there are adequate controls in place. If something goes wrong it is the company's reputation at stake, not that of the service provider.

Outsourcing finance processes
Outsourcing can actually help companies create higher performing finance functions. Strict processes and reporting routines give many providers an edge regarding compliance. In addition, with the use of advanced technologies, companies using outsourcing often have more control and visibility into their finance function than if it were in-house.

However, don't take this as fact; demand from your prospective outsourcing provider to provide you with empirical proof that they can indeed support your business in this manner.

For SME's two parts of the finance function are selected regularly for outsourcing. Historically it was book-keeping activity that was seen as a cumbersome and low value added activity that was easily handled by an outside provider. Latterly credit control activity has become a popular target for outsourcing. In SME's it is often the owner/manager that tries to get invoices paid, but combining this with maintaining a commercial relationship with the customers at the same time brings its own unique challenge.

Collecting outstanding invoices needs its own skill set that is rarely combined with that of a sales person. Divorcing the two improves the customer relationship two-fold: the commercial aspect gets more dedicated attention and expert attention to the way the credit control process is being run enhances the company's reputation.

Selection of provider
Outsourcing providers can be very inflexible in their offering due to rigid systems and processes. It is important that your provider adapts their offering to what you are looking for instead of the other way around. Set up service level agreements wherever possible and be aware of extended tie-in periods in the contracts you agree. Outsourcing providers for SME's need to be business partners that understand your organisation, they should not get away with offering a ‘one size fits all' service.

Finally, mind your return on investment. After all one of the main reasons for embarking on the outsourcing journey is to improve results, so you need to get value for money. When you find all the boxes ticked, you can safely outsource and rely that it will still be 'business as usual' but with improved results and reduced costs.

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