Outsourcing Versus Insourcing: A New Perspective

Outsourcing Versus Insourcing: A New Perspective

 

Imagine you are building your company and humming along when someone in your back office quits. Before you instantly rehire, you might want to rethink the insource versus outsource question from a new perspective.

Bear with the accountant here, because I’ll use my department (accounting and finance) as an example of a typical back-office function where we have observed some dynamics and trends to consider. We see employees searching for something you can’t provide, and ping pong tables and bean bag chairs aren’t filling the void. When it comes to back-office employees, culture may not be able to overcome some of the natural forces working against you.

There are two defined groups within any company: revenue centers and cost centers. Appropriately, revenue centers get nearly all the resources and attention. Developers drive new features, sales drives growth and customer success fosters retention and upsells. As for the back-office cost centers — accountants are just a necessary evil, a cost of doing business. And, no matter what you try to do to prevent it, accountants feel that way when they are inside your organization. No entrepreneur wants a cost center to be some huge department with a large headcount. That makes those cost centers lonely.

Now let’s add in the impact of the macro trends around the incredible strides in back-office technology. You no longer have a team of bookkeepers looking for transposition errors in a green bar ledger or checking the addition on an invoice. Don’t laugh — these are things that have changed within my professional life. There is almost no need for any form of data entry anymore. Gone is your father’s accounting department.

How would you like to be the employee in a function that, if you did it right, meant you worked yourself out of a job? Welcome to the world of the back office. If your back-office folks do their jobs correctly, which I define as building sustainable processes and implementing the best technology, then the necessary people time is reduced.

For most businesses, that means reducing their back-office role to less than full-time. The current target metric is to keep accounting spend under 2% of revenue. So if, for example, you are one of the roughly 5 million small businesses that have 19 or fewer employees in the United States (per U.S. SBA), that means you should have no more than 0.4 accountants. At least you aren’t alone in the quandary, but your accountant in the back office is. There is no collaboration in a department of one.

Because of these dynamics and trends, accountants are starting to find refuge at outsourced accounting firms. As they have discovered such firms, they realized that they are valuable — not because of anything their new employers are doing but because they are now in a revenue center.

Our natural tendency is to obsess over making revenue centers’ lives easier. We constantly think of how to retain them, keep their compensation fair and invest in their training. The last thing on our minds is how to cut costs in revenue centers. Our only thought is how to do more to keep them engaged and help them do their jobs better.

It is not a fair fight and, as the sharing economy continues to take off, you rarely win, even if you have really comfy bean bag chairs.

The question for you is: should you fight the trend or begin to embrace it?

This article was written by Forbes Finance Council from Forbes.

The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank.