Delegate to accumulate

Time and money are limited for any new business while demands and obligations seem to be never-ending. So start-ups must think carefully about their requirements and how to resource those either in-house or through outsourcing.

There are many reasons to outsource. These could be based on running costs, reluctance to undertake significant capital investment, greater efficiency, encouraging best practice and technological innovation. It also means ?a firm can concentrate on its core offerings and expertise.

You cannot cover all bases in a small firm. And you do not want people dabbling in areas that are not their specialism. Good designers do not usually make good accountants and vice versa, so people should not try to do both jobs. At Reeves we do not provide our own legal advice, nor do we design our website.

Some services need to be outsourced - or it would be foolish not to anyway. We have probably all worked for firms where attempts to save money by performing certain tasks in-house have ended up costing more money than they have saved. Ferrero made its Ferrero Rocher 'ambassador' ad in-house but got lucky. The result was so excruciatingly bad that it became a cult hit (it's on YouTube if you need reminding).

For small firms, outsourcing makes financial sense until you have enough work to hire someone in-house. An example might be an external telephone reception. While you are receiving five calls a day, it makes little sense to pay someone in-house. When there are 100 calls a day and regular visitors, it's essential to bring that service in-house.

As your business grows you will continually need to re-evaluate the services that you source. At what point do you have an internal IT specialist? When do you employ a specialist HR person? The answers to these important questions will vary between businesses.

Competitive edge

But don't include just anything. Clearly you would not want to outsource a core competency or something that gives you a competitive advantage. That would make you beholden to a third party. ?The business could go under then choose not to renew your licence agreements, and its products could even fall behind the competition. You need ?to retain control of your destiny.

Importantly, outsourcing should not be regarded as an abdication of responsibility. It is a delegation. Any firms that you use should be constantly monitored. Potential providers need to be leaders in their field with the ability to work collaboratively. Each contract needs to be measurable against clearly defined parameters and targets, and underpinned with guidelines.

Boeing's 787 is a good example of where things can go wrong. The company enthusiastically embraced ?the concept and outsourced about ?70 per cent of the development and production. This is not unusual in high-tech industries such as aviation because holding all the required technology skills in-house would be very expensive. In Boeing's case, rather than the anticipated significant savings, the costs were several billion over budget and the first planes delivered three years late.

Ultimately, the main point of outsourcing is to make money, either through reduced expenses or through a more focused and effective core offering. However, there are also other benefits. Your business probably already outsources some of its requirements, so why not carry out a review to decide whether you can create a leaner, slicker business?

 

Geraint Jones is a private client partner at Reeves

He writes the regular in-practice article on doing business for Private Client Adviser