V. Srinivasan - Senior Director & Chief Strategy Officer, CRISIL Ratings, SME.
The immense pressures of chasing growth, managing cash flows and serving clients often leave small or medium-sized enterprise (SME) promoters and management with precious little time or resources to manage the everyday, but nevertheless important, functions on their own. One solution is to identify functions or tasks that are not core to the business and then outsource them to a good vendor.
While it makes good business sense for SMEs to outsource, some promoters feel that technology, finance, human resources, or marketing are too important and/or sensitive to be entrusted to an outside agency. However, the reality is that companies that want to grow in today's hyper-competitive world must learn to stay focused on their core competencies at all times. This doesn't mean that one hands over the keys to one's enterprise to an outsider; rather, it is about letting them take over those parts that are routine and time-consuming so that the business achieves better efficiencies.
Today there is a wide ecosystem of outsourced service providers who are well-equipped to handle the needs of small businesses. They can help SMEs achieve considerable savings in terms of effort, time and money. Back-of-the envelope calculations show that the finance and HR functions in mid-sized companies devote over 80 per cent of their time in processing routine transactions rather than strategic analysis and reporting. Outsourcing of technology development, helpdesk, accounting back-office, personnel management, etc. are some areas that SMEs are seeing great value in.
IT Services
The enterprise technology landscape is changing rapidly, and staying ahead of the curve can be challenging, especially for smaller firms. Making repeated investments in updated technology platforms may prove futile, since the arrival of newer technology may render its predecessor obsolete.
Also, the up-front costs of keeping IT in-house make it prohibitive. A data centre is one of the first major cost heads for an organisation. Then there is the human cost of managing the IT system, updating all operating systems, applications and devices, and trouble-shooting problems speedily.
Technology, therefore, is an area that lends itself to outsourcing. Outsourced technology services is already a flourishing business service being provided by IT services companies which provide customised, outsourced solutions for SMEs, including hardware, software and even applications. Since they serve multiple clients, they can afford to keep abreast of the latest technology, and have the human resources and expertise to tackle a wide range of problems typically faced by enterprises.
Our analysis shows that by adopting cloud-based solutions, an SME can cut down its IT expenses by around 40 per cent.
Talent Support
An organisation's biggest advantage is its human capital. However, managing employees can be a challenge for smaller firms, since it may not be possible for SMEs to have full-fledged HR teams that encompass hiring, payroll and benefits, training, retention and other key functions.
Given this fact, many SMEs now are going in for outsourcing of routine HR functions. These include hiring, training, performance management systems and payroll processing. Outsourcing HR saves the need to have a dedicated workforce to do the same, makes it more affordable for SMEs, and also gives them access to the state-of-the-art systems and processes typically used by larger corporations.
Financial & Accounts
While companies have traditionally had their own Chief Financial Officers and in-house finance/accounts teams, it is now possible to outsource even these roles. Many SMEs are getting third-party vendors on board to manage time-consuming compliance procedures, follow complex and timely accounting cycle closures and finally provide reliable, predictable and accurate financial information to drive business decisions. Having clearly-defined key responsibility areas (KRAs) and Confidentiality agreements will ensure that the client and vendor are both on the same page.
There is another benefit of outsourcing the finance and accounts function. The presence of an external, objective and expert vendor can reduce the possibility of fudging of numbers, and thus improve the corporate governance process.
Communication and Public Relations
Many SMEs complain that despite having strong business credentials, they don't get the visibility they deserve. While it is important to have superior products and services, it is even more important to communicate one's capabilities and strengths to one's stakeholders. Doing so effectively can help the brand achieve recognition and credibility, improve its prospects and give it the status of an 'opinion leader' in its industry. If companies lack the knowledge or bandwidth to manage communications or Public Relations on their own, a vendor can help give shape to their branding and communication strategies and align them with larger business goals.
These are just some of the areas where there is scope for SMEs to leverage outsourcing. Smart outsourcing can free up crucial management bandwidth and generate savings that can be ploughed back into the enterprise. An enterprise that frees up resources to concentrate on important goals and is able to make faster decisions, also finds it easier to raise funds or access loans since it helps them cut down on various risks and achieve a higher rating from credit rating agencies.
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