Discussion of outsourcing has travelled a long way. Once used to cut costs, the process of transferring in-house processes and functions to an external provider has now become a core part of achieving strategic advantage.
Tony Stanbrook, outsourcing partner at Mazars UK, says: “In previous years, cost was certainly the primary driver to outsource but clients are increasingly looking to other factors.
“With the breakneck speed of development in the finance function and the need for medium and large organisations to constantly evolve their finance organisation through acquisition, merger or growth, outsourcing can provide a speed advantage to reach a desired target operating model.”
To mark the increasing importance and complexity of outsourcing, Board Agenda, in conjunction with Mazars, has produced a detailed exploration of the sector in Boardroom Insights: The Risks and Rewards of Outsourcing.
Outsourcing has become a sophisticated and multi-faceted tool. Beginning in the 1980s, it has grown to become a global industry worth hundreds of billions of dollars annually. But there are issues to consider.
Technological developments mean artificial intelligence and automation are transforming outsourcing services. Software “robots” make work possible 24/7/365, at a fraction of the cost of traditional workers.
The risks and challenges means it is essential for boards to find the right comfort level for ceding control of company functions, while new legislation—specifically General Data Protection Regulation—has introduced the potential for significant penalties in the event of a data breach. Cloud computing has become the default solution, bringing its own challenges.
José Canada, managing partner at Mazars Switzerland, says: “When it comes to the use of cloud computing it is crucial that the board establishes an adequate IT strategy together with a data governance policy.”
Outsourcing also comes with its own ethical considerations. Outsourcing services to low-wage jurisdictions raises key questions for boards. Indeed, just because a company outsources doesn’t mean it no longer has responsibility for ensuring an ethical supply chain and compliance with workers’ rights legislation. Failure to do so can come with regulatory implications as well as reputational damage.
Meanwhile, outsourcing developments show no sign of slowing. Indeed, the term outsourcing no longer reflects the entire range of services available, while providers have embraced new technologies to move away from “headcount-based” models of service provision.
And as they do that there is a trend for providers to integrate as far as they are enabled into the operations of their customers.
Given the strategic advantages of outsourcing and the developments that make it ever more cost effective, its use is only likely to increase. Being well-informed about the risks and opportunities has undoubtedly become a core component of boardroom responsibilities.
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