United States

Utilizing outsourcing to counteract rising labor costs

INSIGHT ARTICLE  | 

The labor market is shrinking and putting a strain on finance, accounting and IT resources for companies in all industries. With wages set to increase, organizations must have a plan in place to hire and retain qualified talent Outsourcing is a key strategy to address staffing concerns, control costs and leverage experienced resources to become more strategic while optimizing operational effectiveness and efficiency.

In the current environment, hiring and retaining talent is highly competitive, and many companies are offering costly incentives to attract qualified employees. Recruiting skilled employees, particularly in finance and information technology (IT), is already a challenge that will only become more difficult as labor costs increase and if an economic downturn begins.

In the past, companies could get by with a relatively lean staff of generalists in their finance, accounting and IT functions. However, that strategy is no longer feasible with the vast array of evolving trends in both functional areas. IT hackers are targeting middle market organizations due to their general lack of technology sophistication.

Accounting and finance is becoming increasingly complex, requiring specialized expertise across a spectrum of roles and skills. Unfortunately, this often cannot be handled by the small staff of generalists in place due to the budgetary constraints that are common in many midmarket companies. Meanwhile, emerging cloud and mobile technologies present new concerns at the intersection of finance and IT. As a result of these trends, organizations require qualified resources that allow executives to focus on their core business strategy while improving operations and managing the growing number of regulations and risks.

Many companies have avoided outsourcing because of negative perceptions relating to offshoring employees, and thoughts of losing some control and quality. While that may have been the prevalent model in the past, nearshoring is becoming a more common concept due to its effectiveness relative to evolving business needs. Nearshored finance, accounting and technology resources are now typically within a time zone or two of their client and are interested in gaining a more intimate understanding of their client’s organizational requirements and goals, removing communication barriers that can hamper productivity and enhancing security.

Outsourcing may start out solely as an initiative to cut costs, but because today’s outsourced providers typically are able to recruit and retain better talent than can many middle market companies, these resources often better understand the business and can quickly become more strategic. Outsourcing can provide tangible and attractive cost savings, but the sophistication in proactively implementing best practices and staying aligned with current trends and technologies can also lead to improved strategic decision-making and enhanced flexibility to make future improvements. Companies rely on business process outsourcing firms to reduce operational and personnel costs, but can also benefit from enhanced productivity, efficiency, customer service capabilities, scalability, technology utilization and process transformation, ultimately helping to grow the company.

Given the speed of change in technology, it’s very easy for organizations to lose sight of developing trends and get left behind. And with financial regulatory requirements and the steady stream of new and evolving accounting pronouncements, it can be challenging to keep pace and remain educated on the latest rules and regulations and their impact on the business. Employees are busy with day-to-day processes, and often fail to think about strategic opportunities to save money, increase efficiency and become more secure. An effective outsourcing partner can identify emerging practices and innovations that companies may not be aware of, and offer informed insights about their potential for the organization.

Two key outsourcing benefits that organizations may overlook are analytics and accuracy. Businesses in all industries struggle with analytics, and an outsourcing partner can leverage available benchmarking data for greater insight in order to run the business effectively. Outsourcing also can increase effectiveness in several areas of the business, enabling compliance with regulatory measures, enhanced security to protect against cyberattacks and increased back-office automation. In fact, banks and private equity groups value organizations with back-office optimization, placing more trust in their numbers, sustainability and scalability.

In many ways, outsourcing itself has become a commodity, as the majority of organizations leverage the strategy in some manner—threatening to leave behind those that do not. But to be effective, the selection process is critical to finding the right outsourcing partners and determining what value they can provide. For example, a firm that utilizes offshoring may have the least cost but it will likely not receive the advanced service and understanding of the business required to make strategic decisions, may face communication barriers, or find that the organizational culture of the outsourcing provider does not meld well with the company using the services.

In addition, some business process outsourcing firms do not provide the value-added consultative work and do not embrace process optimization because it ultimately affects their revenue under time-and-materials pricing structures. Furthermore, a boutique firm may not be the best fit for all companies, because their niche focus may keep them from understanding broader trends that are becoming mainstream. Conversely, a large firm may not be able to provide the specialized attention and insight some organizations require.

It’s important to keep in mind that outsourcing is a journey. While the temptation is to fix all issues overnight, the objective is to strengthen operational infrastructure— people, processes and systems—over the long term. A successful outsourcing strategy begins by optimizing processes and removing unnecessary, non-value-added aspects. After working together and understanding the business, the outsourcing firm should be able to make changes based on company culture, approach and goals. Then the firm can begin implementing strategic observations and suggestions that can have transformational effects for the business.

It may not be six or even 12 months from now, but in the near future, companies will begin to feel the effects of increased wages or an economic downturn, and possibly both. The dearth of skilled talent is not expected to improve; therefore, many companies can benefit from a strategic business process outsourcing partner to help navigate the troubled waters ahead. Considering recent strategic changes and upcoming challenges, organizations should look at outsourcing through a different lens to avoid paying more for resources later; doing so will help position the company for continued success and sustainability.

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