There are some key advantages to outsourcing services. Often these relate to cost, however as we will see, there are some other important factors to consider.
Outsourcing was first introduced in America in the 1980s in an attempt, not to save money per se but to increase the earning per employee for organisations that were listed on the New York stock exchange.
To explain further, if an organisation has 100 employees and turns over £100 per year then the earnings per employee are £1.
If the organisation outsources some or all of its support services and so reduces its headcount to 80 but its turnover is still £100 then its earnings per employee rises to £1.25 per employee.
This makes the company appear more successful and the value of the shares increases. Note, however, that it is turnover, not profit. The cost of outsourcing may be more expensive than retaining services in house and therefore profit could go down. This largely depends on how well the balance is achieved between cost and efficiency savings (see below) and the profit margins of the outsourced contractor.
The main advantages of outsourcing services however, are detailed below:
Focus on the core business
If an organisation is growing, or wants to grow, the support services will need to grow to support the core business. This can be costly both in terms of finances and human resources and may take the focus away from the core business.
Cost and efficiency savings
Outsourcing support services to an organisation that specialises in providing these services can utilise economies of scale.
Overhead costs of performing a particular support service function are extremely high. You could consider outsourcing those functions which can be moved easily.
By outsourcing some or all support services it is possible to prevent costs spiralling out of control. Departments may be poorly managed or may be managed by people who do not have the skills to run them efficiently. These would be prime cases for outsourcing.
Outsourcing will allow operations that have seasonal or cyclical demands to bring in additional resources when you need them and release them when you’re done. Maintenance of buildings and physical assets would be an example. This is not required on a day to day basis and so you would not need to keep maintenance engineers employed ‘just in case’.
Continuity and risk management
Your organisation will not be susceptible to staff leaving or going off on long term sick leaving you understaffed or without the skills required to undertake the work required. The outsourced company will have to provide the staff and therefore will take on the risk.
Develop internal staff
Bringing in external expertise through outsourcing will enable internal staff to work alongside and learn the new skills. Organisations whose core business is maintenance, for example, will be more likely to stay up to date and bring innovative ideas into the organisation that your staff can benefit from through shadowing.
Of course, as with all such initiatives, not everything is simple. In a separate article, we will consider the disadvantages of outsourcing Facilities Management services (or any service, for that matter).
IWFM (BIFM) Qualifications
This article relates to the following IWFM (BIFM) Qualification Units:
- IWFM (BIFM) Level 3 in Facilities Management
- FM3.01 Introduction to Facilities Management
- FM3.03 Customer and Stakeholder Relations in Facilities Management
- FM3.04 Specification and Procurement of Facilities Supplies and Services
- FM3.08 Understanding Facilities Management within the context of an Organisation
- IWFM (BIFM) Level 4 in Facilities Management
- FM4.01 Overview of Facilities Management
- FM4.04 Understanding Facilities Management Support Services Operations
- FM4.21 Understanding Procurement and Contract Management in FM
- IWFM (BIFM) Level 5 in Facilities Management
- FM5.01 Facilities Management Developments and Trends
- FM5.02 Organisational and Facilities Management Strategy
- FM5.21 Managing Procurement and Contracts in Facilities Management
- IWFM (BIFM) Level 6 in Facilities Management
- FM6.01 Strategic Facilities Management
- FM6.05 Strategic Management of FM Support Services Operations
- FM6.12 Procurement Strategy for Facilities Management