Magazine article The CPA Journal

Outsourcing for Small and Mid-Sized Businesses

Magazine article The CPA Journal

Outsourcing for Small and Mid-Sized Businesses

Article excerpt

STRATEGIC OUTSOURCING IS EMERGING AS A PR.CCAL TOOL for "unbundling" the corporation, and it can also effectively create alliances and partnerships.

Small and mid-sized businesses face enormous hurdles: larger, more established competitors, the impact of globalization, the danger of technological obsolescence, and the need to contain costs. Focusing on one's core business can be difficult; growing pains can skew a CEO's perspective and obscure the market, often leading to dangerous results.

Business process outsourcing (BPO) is a strategic tool that enables companies to regain focus on their business, become more efficient, and even rival the systems and control level of larger companies. Most importantly, BPO helps companies focus their efforts on the value-added functions of their business, thereby improving the bottom line.

BPOs vs. ASPs

At one time, application service provider (ASP) services were popular solutions for companies that wanted to harness the functionality and power of high-tech software but could only afford to lease the technology. Companies connected to the ASP to use the software and warehoused data. But many companies realized this was only a partial answer. While the automation and ease of use provided by a good ASP helped a company handle certain functions better, service was often lacking.

In the BPO model, however, service and results are of paramount importance-the focus is on increased efficiency and output. This kind of outsourcing takes place when a company contracts business processes to an outside service provider. The company retains strategic control while the outside service provider takes on procedural control (i.e., day-to-day functions). The BPO provides a service rather than a commodity software product and technology.

BPO is not a new idea. It is a return to the basic business principle of service. In larger companies, taking specific business processes and assigning them to outside professionals is standard procedure. Outsourced functions usually involve a controllable, predictable cost and enhanced adaptability. Functions like payroll and accounting, legal services, and accounting are more efficient when they are outsourced.

But is BPO a viable answer for small or mid-sized companies? It can be. In the past, taking company functions outside the corporate structure was a question of cost. Teams of experts like lawyers and accountants were expensive to outsource. Because of increased productivity and improved communications technology, functions that can be readily automated, like payroll and accounting, can be outsourced at a reasonable cost even for small or mid-sized companies.

To be effective, BPO relies on two elements: organization and technology. The small or mid-sized company should properly plan and conceive any business process to be outsourced. Management should know exactly what it needs from a business process. This will determine the criteria for choosing an outsourcing provider. Outsourcing is also driven by technology. In general, the more technologically advanced outsourcing provider will deliver a greater level of service.

Who's in Control?

When outsourcing accounting, management generally expects more efficiency, increased focus, and enhanced scalability. The question becomes how much of the outsourced function management wants to move outside of its control. Companies usually procedurize outsourced functions and insist these rules are followed, keeping strategic decisions within the corporate structure and assigning day-to-day responsibilities to the provider. …

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