The world in which we live
Many of us pay for our internet, telephone, utilities and even settle our credit card bills using standing orders and direct debits. These types of payments mean we don’t forget and make life easy. However, our ability to assess the quality of the product or service and measure it against our expectations before choosing to pay (or not!) is gradually being eroded.
The flip-side is when we do have the opportunity of true discretionary spend our expectations are significantly sharper because these decisions have become rarer. We expect a greater degree of expertise from a service provider, and we expect a result significantly better than could have been achieved had we done it ourselves. If we engage a builder, plumber or decorator, for instance, we find it easy to generate an expectation of the result we want and to measure output against this expectation. We can be a very exacting customer indeed.
The discerning but cost-sensitive SME is no different when it comes to assessing their service providers. Don’t get me wrong this is a good thing for both the SME and the service provider, but as an experienced provider of outsourced accounting I always start our journey together with a mixture of interest and trepidation.
Outsourcing, it’s all in the SLA
The first step is the creation of the service level agreement (SLA). It forces the SME to identify and understand exactly what goes on in their business and in particular the finance process. It establishes their priorities, and determines the measurement criteria against which we, their service provider, will be paid. On paper this would not appear to be too onerous a task but the reality is sometimes quite different. Too often finance is viewed as a black box. I frequently hear “it requires ten full-time people” swiftly followed by “although I can’t honestly say why” before concluding, “but surely a professional outsourcer like you can do it in half time?” Whilst I am confident we could do it faster the accountant in me is always a little sad at the lack of understanding of this pivotal function.
Having agreed the SLA, it is vital that this is kept as a living and evolving document, receiving continual feedback and refinement. So at any particular time it is a reconciliation of expectation against reality.
I encourage my clients to frequently ask themselves (and me):
- “What is the real cost of the finance function?”
- “What value has it brought to my business during this period?”
- “Are we monitoring and measuring the right things?”
- “What could we do differently?”
- “Can we do this better, quicker, or cheaper?”
By doing this I know when it comes to asking the client to sign a cheque or sign-off an invoice we are delivering the highest quality service and delivering the most value we possibly can.
Crucially the SLA can also help the business to drive better behaviours in other parts of the organisation. It is sometimes easier to justify tweaks to processes in order to keep your outsourcing costs down than it is to point out inefficient parts of the organisation – for example in sales invoicing and cash collection (two key processes in any successful SME).
Value versus cost
The SLA depersonalises the outsourcing service, focusing instead on the work being delivered to quality and to timescales NOT on the individual doing the work. Through the SLA a business has full and absolute power and control over the service. It is much, much harder when dealing with employees.
Too often the salary cost is reviewed only as one or two lines in the profit and loss account page of a set of management accounts. Senior management rarely look at the equation of value versus cost. How many companies measure the output and value of their employees? How many companies set out a detailed service level agreement (SLA) for each employee? How many companies measure performance each month against the SLA before they pay an individual’s salary? Our staff are answerable for their time. This is rarely the case with employees.
Additionally, there are differences in motivation between employees and outsources. An employee wants career development, personal development, a specific environment to work in and nice people. Employees want training, latest hardware, paraphernalia which shows their rank and seniority and some need their egos massaged! An outsourcer asks for none of this.
Signing the cheque
I believe the benefits of outsourcing are more tangible and easier to quantify for the SME, firstly because money is tighter and value is therefore paramount. Secondly management bandwidth is a limited resource. Management haven’t the time to focus on the company minutiae. They want to focus all their energy on revenue generation, profit optimisation and growing their business.
I genuinely believe an outsourced accounting service provides a better value for money to an SME than an in-house team where the monthly cost of finance has not been monitored and measured for a long time and gets washed into the general bucket of all the other salaries.
Without fail, when a customer is presented with our invoice for payment they ask themselves (and sometimes me):
- “Was this value for money”?
- “Did you deliver to my expectation? “
- “What were the issues that occurred?”
- “Were there any errors or omissions?”
- Or indeed “What extra performance did I get that I wasn’t expecting?”
This level of scrutiny is a positive thing in my opinion, it keeps our standards high. Our systems and processes have to be top notch. Our people have to be first class. We have to continually strive to maintain high standards and continuously search for the best most efficient processes or solutions.
An SME’s high standards and low tolerance of error combined with the outsourcer’s eagerness to please and the simplicity of the commercial transaction results in significantly better quality work. Like it or not, there is always the threat to the service provider of terminating the contract. In the modern employment world this is a much more complex process and significantly more expensive and risky. Because of our inbuilt tendency to avoid conflict the option to terminate an employee relationship is rarely followed.
Does signing a cheque deliver higher quality for the SME? In my opinion, it most certainly does.
First published in Outsource Magazine