Is outsourcing a blessing or a curse for SMEs?

outsourcing can reduce office chaosAccording to the GMB union the Government’s use of outsourcing has increased since the collapse into insolvency of the firm Carillion at the start of 2018, pushing the value of contracts up by 53%.

Whether the increasing use of outsourcing is a good or a bad thing depends on many factors.

For those sub-contractors and suppliers to Carillion who either lost contracts, money or work, it clearly was not a good thing as they await the outcome of investigations by Insolvency Practitioners to see whether there will ever be any recompense.

Pertinently for those owed money when a company enters an insolvency process, its employees are paid in priority or by the government if there aren’t sufficient funds, whereas its sub-contractors are treated as unsecured creditors and rarely paid anything like the amount they are owed.

But many SMEs depend for at least some, if not all, of their revenue on providing various outsourced services to their clients, from IT support and website building, to supplying parts or labour as part of a supply chain in construction, engineering and elsewhere.

Many self-employed people also provide services, from book keeping to marketing services.

The problems come when the buyer of the services is less than prompt about paying, often much later than in the terms and conditions, or perhaps they put pressure on suppliers to do work either for free or at extremely low cost, offering the “carrot” of more work or exposure that will be good for their business and result in further work.

Many self-employed people report, however, that the “carrot” fails to materialise and that in fact it puts a downward pressure on people and businesses offering services in their sector.

There is no doubt, though, that for those SMEs with the right skills and offering, and especially where there is a skill shortage, outsourcing can benefit both parties.

How to maximise the outsourcing benefits and minimise the risks

While using outsourced skills can improve a business’ output and reputation while minimising costs or at least avoiding employee liabilities, there are some pitfalls to be wary of.

The main ones involve not having the skills and owning intellectual property in-house which can expose you to supply and demand costs when business is growing. This is common in the construction and IT industries.

There is also the potential for the leak of sensitive information by people who are likely to have less loyalty to the business than those who are directly employed.

Another common problem is a lack of clarity about roles and contractual obligations.

Consistent quality of the work being provided and also adherence to deadlines may also be a problem.

At the initial stages of choosing a business to which to outsource a function or task, therefore, there needs to be very clear and detailed discussion of all the above issues with clear contractual obligations underpinned by deadlines with processes laid down for quality control and confidentiality together with penalty clauses should the provider fail to meet them.

By the same token, there should be a clear agreement on payment amounts and dates.

All of these should be included in a written agreement and signed by both parties as a contract which most likely will only ever be referred to when disagreements arise.

Both parties, those offering outsourced services and those buying them, can benefit from the transaction, but only if there is transparency with safeguards in place as well as honesty and integrity.

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