As the organization develops and becomes larger and more financially secure, the manager faces an increasing number of organizational issues that need to be addressed in real time. If organizational issues are not resolved in a timely manner, the organization will incur losses and suffer other negative consequences.
Timely adoption of the necessary strategic decisions and organizational measures can help to solve a number of problems facing the business and reduce the negative consequences if negative events occur.
One way to influence the situation is to transfer the internal processes of the enterprise to the management of an external company or specialist, that is, use the outsourcing strategy as one of the ways to develop the business. About the advantages and disadvantages of such a strategy in the article.
Business development issues
As already noted, business development is associated with an increase in the number of ongoing business processes accompanying the main process.
Among others, the so-called “weakly managed processes” pose a significant danger, which at different stages of the company’s development could have not been so strong and were solved by simple organizational techniques: by consolidating the duties of the organization’s employees; they simply did not pay attention (that is, a problem had already formed that was not responded to in a timely manner); or others.
It should be noted the inevitability of the need to make managerial and organizational decisions regarding developing auxiliary and poorly managed business processes, the effectiveness of which will determine the ability of a business to grow and possibly even to exist.
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Effective and timely solution of organizational and managerial problems of business development is the key to successful development.
The development trend of the core business process has a cumulative effect. If at an early stage of development, such functions as document flow for transactions, contracts for services, works and others, for financial and tax reporting, these functions could be combined with the functional responsibilities of the workforce, then with an increase in their number and complexity, there is a need for automation these processes (which is not always a valid solution), or transferring them to a specific enterprise specialist (or even more than one).
Solving one problem by increasing the staff, the business will receive a number of other problems associated with the human factor and work with the staff itself, and therefore it is not known which of the above is worse.
About the readiness of the business to apply the “outsourcing” strategy
Regardless of the decisions made earlier, if the organization develops, then as the organization develops, any manager inevitably faces a choice: to hire performers as employees to service the processes, thus increasing the staff of the organization, or to hire a specialized company (an external company). One way or another, both options are inherent organizational costs.
If the head of the enterprise decides to transfer his own internal business process of the organization to the service of an external company, then in fact he has decided for himself to work according to the “outsourcing” strategy. The essence of the strategy is to transfer to an external company poorly managed and other processes that are not a source of profit for the organization.
After deciding to transfer the process to external management, it is necessary to develop a strategy and plan for organizing the business system in accordance with the changing conditions for running your own business. Such a strategy should include an assessment of the impact of the new organizational structure, the risks of such an impact, as well as practical and organizational techniques to avoid possible negative consequences of changes.
An important factor is the readiness of the business to apply the strategy. Outsourcing, although it is an effective business optimization strategy, does not guarantee exclusively positive consequences from its use.
Readiness in this case is the ability of the company’s management and its staff to cooperate with third parties in the process of doing business. For example, one of the problems will be a change in the document flow within the company and the structure of responsibilities regarding it.
This is not to mention the fact that at this stage the business must clearly comprehend all internal business processes. The transfer of functions has a specific format, not a general focus. Understanding internal processes contributes to the potential of the business to optimize them.
Describe the benefits of an outsourcing strategy
WebYurist specialists from the practice of servicing (legal support, accounting and tax accounting) of enterprises highlight the following advantages of the “outsourcing” strategy:
- The transfer of poorly managed processes allows the manager to free up time and effort spent on them, on the main process that brings profit to the organization. The manager can focus on the main business process that generates income for the company and work with the staff that provides the main process. Thus, an external company that serves the internal process of the Customer’s organization helps to increase the profitability of this organization.
- Organizational problems associated with personnel providing a poorly managed or secondary process disappear. Among these problems are:
- no need to organize systemic advanced training of specialists, systems and management techniques to motivate employees, purchase special literature, subscribe special periodicals;
- the administrative superstructure and the personnel performing the functions of maintenance, control, coordination, coordination regarding the secondary process are being reduced;
- lack of organizational costs for renting premises, utilities, operation of information systems and applications, purchase of office equipment, its maintenance and repair, purchase of consumables and stationery;
- no problems with sick leave, vacations, absence of a full-time employee at the workplace due to family reasons, etc.;
- The management of the organization is improved, for example:
- working with an external company on the basis of a contract allows you to translate the main indicators of a poorly managed process into a system of money / deadlines / quality, evaluate the actual amount of existing work, the level of qualification required to obtain a result, etc.
- as a result, the process becomes manageable. as a result of increasing manageability, it becomes possible to build a “flexible system of payment for services”. Such a system of relations allows you to save money while decreasing and increasing the amount of work, which is not always possible when working with a full-time employee who receives the same salary, regardless of the amount of work and the complexity of the tasks;
- in relation to the Customer, the specialists of the involved company will always show objectivity, adherence to principles, loyalty, maintain confidentiality of the information received;
- upon agreement with the Customer, it is possible to technically ensure the viewing of the assets and liabilities of his enterprise, as well as the state of accounting for all business transactions in electronic form at any time convenient for the Customer to make operational decisions.
- Instead of a single specialist who can take years to develop, an external company offers a group of experienced, trained and qualified specialists in demand in the market for the services they provide.
- And others.
From the practice of using the services of external companies to manage auxiliary weakly controlled processes, it can be concluded that the Customer’s cost savings are up to 50%. But, you should not count on direct financial benefits from working with an external consultant, due to the reduction in the cost of functional duties, this does not work in all cases.
The main benefits of an outsourcing strategy in legal, financial and tax matters are the change in the level of service quality of business processes (provided by an external consultant of services).
Description of the disadvantages of the outsourcing business strategy
The disadvantages of working with an external consultant include:
- the need to adjust and adapt the structure to work with an external consultant and the possible internal resistance of the labor collective and the enterprise’s management bodies to them;
- Internal resistance associated with a change in the functional structure and a violation of the internal relations of the governing bodies and the workforce.
This is a serious problem for large organizations. External interference in the internal relations of the team can reveal information regarding the sabotage of personnel, efficiency and real workload, and similar stories that are harmful to the business system as a whole, but allow individuals of the enterprise to receive income from direct losses of the company.
Touching on “selfish” (individual) interests, one should expect serious resistance up to the dismissal of a large number of employees from the state.
Avoiding this problem, many managers give up on the idea of hiring an external consultant, because they are satisfied with the situation in which they allegedly do not notice the theft of funds than to change a large number of employees; - Potential conflict of interest with privileged persons of the organization. For obvious reasons, problems of efficiency or internal resistance can affect the manager’s relatives, friends and others who are not hired for a position in the enterprise because of their personal professional qualities;
- Potential leakage of information from the enterprise to an external consultant and confidential commercial data. These are mostly unfounded fears, since in most cases the alleged confidential information is of no value to the external consultant.
Organizational changes associated with the need for cooperation of the company’s personnel with specialists from an external service company create temporary organizational inconveniences, but in the future, such an organizational approach will allow the business to prepare for solving more complex tasks that arise during business development.
The contractual form of relations makes it possible to evaluate the effectiveness of the fulfillment of contractual obligations, in addition, to clearly assess the cost of maintaining a business process.
A contract with an external company can also be considered as an effective tool for organizing and structuring your own business system. The statutory document of a legal entity can be considered an analogue of such structuring. Within the framework of the contract, it is possible to provide for specific conditions related to the conduct of business and to introduce a system of responsibility, which seems to be more difficult when working with your own staff.
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