Virtual Back Office: Is It Worth It? - Part 1

Many companies do not understand the pit falls of having all the processes in-house until they foresee or have a disaster that disrupts all the operations for the company. Let us discuss the various disadvantages of having all the non –core and core business processes in-house.

1) Cost Incurred:

Every company tries to achieve the lowest costs possible by reducing overheads. They cannot be blamed for it in the current economic scenario. A company that has all the business processes in-house has the disadvantage of incurring large overheads like rent, setup costs, equipment, employee salary, welfare benefits, security benefits, etc. Each and every process requires its own set of employees, assets, and costs which can be saved if the processes are taken off the company’ hands.

2) Focus on Core Areas of Business:

When housing both core and non-core business processes, any entrepreneur is faced with the daily dilemma of focusing on both the parts. Focusing on one will lead to lax in another and at one point both the processes end up a failure. This is one of the main headaches for small business owners which can be solved by outsourcing the non-core processes.

3) Responsibility and Morale:

When process expertise is missing, it is evident in the work done. It is not possible for a small business to hire a expert for all the business areas. In such a case, the business suffers by either taking longer time than necessary to finish a project or re-working on it to make up for quality. In order to compete with top companies in the industry, a small business either has to have the expertise in-house or have ties with a vendor who does. Outsourcing companies have people who have hands-on experience and who become experts due to the sheer amount of work done. Also, when you have a vendor, you have a single point of contact to question in case of any grievances.

Even if outsourcing might sound the best alternative in the above scenarios, it has its own disadvantages. They are:

1) Control Over Process and People:

One of the basic disadvantages of outsourcing is that you don’t have much control over the outsourced processes. In case you want to change the priorities of a given process, you have to go through the necessary channels, which costs you time. The resources that are allocated for your purpose do not directly answer to you. This makes the channel of communication longer and in some cases ends with the misinterpretation of a given message.

2) Retention of Knowledge:

In most cases of outsourcing the agreement with the vendor company means that the work outsourced will be completed to the expectation of the client. If in case the client company is a small business without much expertise in the processes outsourced, such knowledge remains out of reach for the company as the vendor only aims to fulfill the transaction rather than impart knowledge to its client. This cannot be asked of the vendor who has kept up his end of the bargain.

3) Long Term Contracts:

Generally, most outsourcing companies go only for long term contracts. This might affect the financial capacity of your company by turning your cash-at-hand into an investment thus freezing you from using it elsewhere.

You might now be confused with the question, “If both in-house operations and outsourcing doesn’t work, what other options do I have?” The other most important option you can try out is a virtual back office. We’ll discuss what advantages you have when you use virtual back office, in “Virtual Back Office: Is It Worth It? - Part 2”.

To your success!