If you've weighed the pros and cons of offshoring your finance team and have decided to take the leap, here's what you need to know about how to do it right.
Who’s doing it?
A 2008 survey by Global Industry Analysts predicted that finance and accounting outsourcing will eventually make up 70 per cent of the BPO (business process outsourcing) market. Unions estimate that more than 20,000 service sector jobs are offshored each year, and 24% of those jobs are within the financial services sector. According to a 2011 report from Ernst & Young, 30% of companies surveyed expect to increase outsourcing across all areas of finance and accounting. Among the Australian companies that have hired teams overseas in the past few years are Fairfax Media, Virgin Australia, Telestra, Qantas, and even the NSW government.
What are the cost savings/productivity benefits?
A 2011 report from Ernst & Young revealed that companies who offshore financial services can expect to reduce operating costs by 20-55%, reduce overheads by 5-10%, and see productivity and process improvement of an estimated 5-15%.
The lower cost of living in other countries means a company can ethically pay a relatively low wage which will create wealth and increase standards of living for employees while saving money on wages. Overseas employees are often more accurate and more motivated in their work, meaning companies can expect to see an increase in productivity even though they are paying less.
When and how to outsource successfully
While cutting costs may seem like an obvious motivation for offshoring, it shouldn’t be your only reason. Offshoring should align with your overall business strategy - for example, if you need to adapt to fast-changing markets, outsourcing could help you achieve this. Most importantly, you shouldn’t wait for a crisis to arise before you set plans for offshoring in motion. Offshoring is a long-term business strategy, not a quick fix to be implemented in a time of crisis.
It is not necessary to perfect or even optimise a process before offshoring it - McKinsey recommends adopting a “ship, then fix” strategy. According to research from McKinsey, offshoring a process and then implementing improvements delivers one-and-a-half to two times the value of the “fix, then ship” approach. Your offshore team may have some solutions in mind that you hadn’t previously thought of, and you’ll end up with a better process or product in the end.
To ensure a smooth transition and long-term success, it is essential to write an effective Service Level Agreement (SLA). The SLA should use unambiguous language to define what needs to be managed by whom in precise language - this is especially important in situations where there may be cultural differences or a language barrier. It is also important to coach managers and employees to help them communicate with each other and work together effectively despite cultural gaps.
Pitfalls to avoid
The most common mistake made by companies looking to offshore is choosing a vendor based solely on cost. While cost savings are important, quality of work is even more so. Other causes for failure could include moving too fast with hiring or vendor selection (without setting up a proper process), a lack of communications strategy and oversight, and not putting effort toward the “internal sell” to get the Australian team motivated to work with their offshore counterparts.
When transitioning to your offshore model, remember that it may take some extra effort to make things work with team members in a different time zone. Be mindful of time differences when setting up meetings, and realize that an email sent when your offshore team is typically sleeping will not get answered right away.
Offshoring can reduce overhead costs and allow you to attract dedicated, capable talent from all over the world. The money your company saves by offshoring could be best put to use by hiring highly qualified candidates at home that will increase your profits and drive your company's mission forward.