Fresh fruit smoothie-maker Innocent Drinks likes to think of itself as tech-savvy. The firm is heavily reliant on email and mobile working and encourages consumer contact through printing email addresses on all its bottles, leading to high volumes of data transfer across the system.
But back in 2004 Innocent Drinks went through a growth spurt that threatened to topple its already over-stretched IT systems. Forever close to its 16Gb limit imposed by Microsoft on its Small Business Server, staff were frequently disconnected from the server due to overflowing email boxes, resulting in up to four hours’ downtime a day.
Lacking the capacity for change in-house, Innocent Drinks opted for a fully managed communication and messaging service from Cobweb Solutions. The service includes 24x7 management of email, spam and virus protection, as well as archiving, backup and remote access capabilities.
Andrea Kalavsky, systems manager at Innocent Drinks, says the firm no longer has to worry about system downtime. It is also able to access the latest technology – and, most importantly, people skilled in its use – at an affordable price, while keeping staff overheads to a minimum.
Innocent Drinks is just one of a growing number of small businesses that are using outsourcing for strategic purposes. From accounting and finance to technology, HR and recruitment, firms are gaining cost, time and even competitive advantages through outsourcing some, or all, of their work.
Outsourcing may not be an immediate option for every business, but it should at least be an option, believes David Rankin, managing director of Vantis, a provider of accounting, business and tax advisory services. “Most companies will have an investment in infrastructure that cannot immediately be written off, but for those undertaking significant change – from growth that demands new finance software to a management buyout or acquisition – outsourcing should be a consideration.”
There are disadvantages to outsourcing that companies would also do well to consider. Some firms may feel uneasy about handing over control of key business functions to another company, while it’s fair to say that your outsourced function is only as good as the firm you partner with, and your own reputation could be on the line if they’re not up to the job.
But by properly vetting all potential partners and taking up references – not just those from clients they want you to talk to but from others on their list – and having clearly defined service level agreements (SLAs) to outline what is expected of them and when, many of these doubts can be laid to rest. It’s also an idea to make sure you meet the people who will be working with you on a day-to-day basis, rather than just the ones you talk to when setting up the contract in the first place.
And the benefits to businesses can be immediate. “Costs are controlled and the supplier performance is contract-based with SLAs and financial penalties providing a quantifiable cost versus value for every business function,” says Rankin.
Branching out
VisualMedia, a London-based creative visual communications agency set up by brothers Scott and Dan Shillum, currently outsources two of its main business areas: accounting and IT. According to the
firm’s co-founder Dan Shillum, there are two key reasons for outsourcing: expertise and cost. By using an external supplier, the company is able to call on many accountants with different areas of expertise at a fixed cost, whereas it would be very difficult to bring that breadth of knowledge in-house.
But Shillum is strongly of the opinion that certain business functions would not work on an outsourced basis – notably sales and marketing – because they require in-depth knowledge of the company. “Sales and marketing has to be done in-house because it requires a significant level of understanding of how the business works,” he explains. “That would simply not be possible if it was outsourced.”
VisualMedia’s experience shows that the type and amount of work that a business chooses to outsource is dependent on the particular requirements of each company. Companies should undertake a clear and full evaluation of the business’ needs before entering into any agreement and should identify what is done well and where help is needed. The more time spent preparing for and planning an outsourced arrangement, the greater the rewards will be.
That evaluation should include an assessment of the types of outsourcing agreements available. There are a number of outsourcing models to choose from. Some service providers will handle the whole business function, while others allow customers to pick and choose from the services they offer (see Pick’n’Mix box).
One type of outsourcing arrangement getting set for a resurgence is the application service provider (ASP) model. ASPs typically host software on the web, which customers can access on a ‘pay-as-you-go’ basis. Costs are shared across the service, so that the more customers there are, the cheaper it is. Access to both off-the-shelf and customised applications are generally available including payroll, benefits and administration.
London-based ADS Portal has been offering an ASP service since June 2002. Its Online Desktop service provides fast-growth firms a ‘virtual’ desktop on a rental basis. The pay-as-you-go model allows users to pick and choose which software applications the business needs and provides access through hosted servers housed in the company’s three UK data centres. It offers about 200 applications, including everything in the Microsoft stable, insurance risk modelling, AutoCAD and new applications can be tested and made available at a cost of £1,000.
Business clients pay a base cost of £84 per user and a monthly premium for the applications used. The service is especially popular with businesses that do a lot of ad hoc or contract work as they can rent the software as and when it is needed, keeping overheads to a minimum.
Talent management
For the smaller organisation, one of the most important benefits of outsourcing is getting access to specific expertise that cannot be supported in-house. For example, The FD Centre in Swindon provides finance directors and financial management services on a part-time basis to businesses that recognise the need for a more experienced person in the role, but may not be able to afford, or want it, on a full-time contract.
Colin Mills, founder of The FD Centre, says the firm most often picks up business from fast-growth companies that are going through the “pains of growth”, and which want to do so profitably and in a controlled fashion. But it also helps “companies that have hit a problem or two, and need help to get through that”.
There is also a growing trend for business from clients that just want a little hand-holding. “We are seeing more business owners whose companies are going well but who want to have a peer, or simply someone to sit beside them, and give them that confidence to do the things they want to do,” Mills explains, “or to recognise the things they shouldn’t be doing and help them to pull away from them.”
For a small business owner who has been involved in every part of the operation from day dot, letting go of a key function may be the business equivalent of watching your child go off to university. But for the company to progress, outsourcing may be a way to get experts involved in running a vital part of the business without having to employ someone full-time.
There will be parts of the company you’ll always keep in-house – probably those which make your business unique – and some people may even prefer to keep everything under their own roof. But for companies looking to improve quality of service without adding too much to their overheads, outsourcing is certainly an option to consider.
