A: There are many reasons businesses outsource certain functions. The main reason is usually the lack of existing skills. This could be due to the fact that nobody in-house has the necessary skills, the skilled employee's time is needed elsewhere in the business or that the skills are only needed for a couple of hours a month. Other reasons could be to replace or improve a poor internal service or that the process may be performed better or cheaper by another company or person. The function could also be time-consuming or difficult to manage in-house. In most cases the process does not contribute to competitive advantage of the company's product offering.

Small business owners should assess their strengths and core business activities before looking at outsourcing. These functions should never be outsourced. The other activities should be listed and assessed and then outsourced in order of importance. Bookkeeping is a good example as it is a very important function of any SME. This function must be performed timeously and regularly to be effective, making it the perfect activity to outsource. Marketing is another such function.

Advantages of Outsourcing

Outsourcing has many advantages - the most important being the fact that it allows the business to focus on its core activities and increase turnover. It can also contribute to streamlining the business' operations and gives small businesses access to professional capabilities. Done right, outsourcing certain functions should leave the owner with peace of mind that the process is in good hands.

If the outsourcing involves technology such as web hosting or design it also means that the small business owner does not have to continually introduce new technologies, which could save money and time to investigate possibilities.

Disadvantages of Outsourcing

Outsourcing unfortunately has its disadvantages as well. The first disadvantage is the double edged sword of loss of control. While delegating certain functions can be an advantage, it might be scary for business owners to lose control of a crucial function of their business

There is also always the fear of the service provider letting you down or ceasing to trade as a result of bankruptcy or mismanagement. It is therefore a good idea to ask potential service providers for a bank reference or company report to ensure that the service provider has long-term financial stability.

Once you have made a decision on a preferred partner, a business owner should do an in depth study of their contract to ensure that they are liable to live up to expectations and quality service. Also find out the procedure for negotiating any issues and how much control you will have over the process.

Be sure to communicate regularly with the service provider. Ask the provider to explain everything he or she has done, even if you may never perform that function yourself. In the end you have the responsibility to provide input as well and your business' name is on the line.

Another disadvantage is that the service provider may be servicing other companies and might have more than your business' needs and best interest on their mind.

Luckily many of the disadvantages can be avoided if a business owner researches the service provider and not regard outsourcing simply as a money saving scheme.

Choosing the right contractor

The two most important factors in a successful outsourcing relationship are trust and security and it is crucial that business owners take the time and effort required to find the right partner in order to optimise outsourcing benefits.

Ask for references and check up on them. Look for someone who recognises the importance of the service in your business and employ someone who will fit in with your organisation's values and management style.

The primary reasons for outsourcing remain cost efficiency and access to expertise. Once you've established expertise, it is important to discuss fees and contractual details. Flanagan and Finger recommends asking what preliminary work your staff can do to reduce costs. "Never make a decision on the basis of cost alone. Good solutions take time - and cost money."

Remember, the cheapest is not always the most cost effective. Try to steer clear of an hourly rate. Rather agree on a price for the job. This way you know what you are in for financially.

Outsourcing should never be seen as a short-term solution or cost saving answer to a problem or need. To be truly effective, business owners should look at outsourcing as a long-term solution whereby building a continued business relationship with the contractor will offer long-term benefits to your business and its customers.

Willie Nortier, Regional General Manager, Business Partners Ltd

If you have a business question, why not ask our Business Partners Ltd and Sanlam panel by emailing vnish@businesspartners.co.za