What research says about accountancy outsourcing
Do the benefits of outsourcing actually outweigh its potential risks? Fans claim that it saves businesses time and money. On the other hand, critics argue that it is unsustainable, leading to job losses and poorer quality work. At Wagner & Experts, we want to resolve this debate once and for all. We’ve analysed academic papers and reports on outsourcing from MIT, Harvard, the International Monetary Fund (IMF), Deloitte and PWC. This is what we found out:
1. Outsourcing is growing across all sectors
Outsourcing is growing rapidly, with a particularly strong demand for financial and accounting outsourcing services. In 2007, PWC found that 44% of enterprises were planning to increase outsourcing of financial and accounting activities over the next five years. Unlike many other sectors, outsourcing benefited from the 2008 financial crisis. As more and more businesses needed to lower costs and increase efficiency, outsourcing grew in popularity. This trend is set to continue. In Deloitte’s 2018 Global Outsourcing Survey, 39% of participants said they used financial outsourcing. In addition, 89% of these respondents stated that they intended to maintain or increase their levels of outsourcing.
The range of outsourcing services is also growing. Previously, outsourcing was limited to manufacturing processes. Now, thanks to the internet and globalization, outsourcing is available to anyone anywhere. Moreover, due to the economic effects of COVID-19, it is expected that growth in the sector will continue. Over the next decade, expect to see more virtual assistants, customer service teams and professional outsourcing.
Although some critics question whether this growth is really sustainable, research shows that the outsourcing model is in fact sustainable. For example, the IMF concluded that ‘aggregating up to 100 sectors, there were no job losses associated with service outsourcing’. In other words, fears over the impact of outsourcing on job markets are groundless.
2. Outsourcing increases firm performance
There are many different types of outsourcing: business process outsourcing, professional outsourcing, project outsourcing, to name a few. As a consequence, a one-size-fits-all approach will not work if we want to understand the relationship between outsourcing and performance.
Let’s focus on service outsourcing. Research shows that service outsourcing does lead to performance gains. For example, the IMF found that ‘service outsourcing has the potential to make firms/sectors sufficiently more efficient.’ Another paper published in the International Journal of Economics and Finance showed that accounting outsourcing, in particular, positively correlated with strong financial results.
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3. Outsourcing saves you money
Most businesses agree that outsourcing saves money. For example, 73% of respondents to the PWC survey said that they outsourced to lower costs. This comes as no surprise. After all, hiring an in-house professional is very expensive. Employers must not only pay salaries and social contributions, but also cover the cost of training, equipment and office space. By outsourcing, businesses get rid of these expenses.
There are indeed some unreliable outsourcing firms that will charge hidden fees. However, studies show that most companies do save a lot of money by outsourcing services. For example, an MIT research paper on outsourcing concluded that ‘business executives are increasingly convinced that outsourcing of professional services can provide their companies with major cost benefits’. The researchers found that without ‘the traditional barriers of national and corporate boundaries’ ‘ goods and services [can] be produced at the most economic prices’.
4. The majority of businesses would outsource again
Our research revealed another fascinating fact. Although experiences of outsourcing did vary – only 31% of respondents said that they had ‘completely’ achieved the results that they wanted through outsourcing – a staggering 91% of companies surveyed said they intended to outsource again.
Why is there this discrepancy? It is due to the fact that although companies tend not to regret outsourcing, they do often regret their choice of outsourcing company. In other words, the majority feel that they have simply not found the right outsourcing company.
This leads us to our next point…
5. The benefits of outsourcing depend on you and who you choose to outsource to
Outsourcing is essentially a collaboration between two companies. As a result, outsourcing is subject to the same problems that arise in any business collaboration. Lack of communication, lack of transparency and a lack of any proper agreement between companies will lead to disappointment. In the 2018 Deloitte global survey on outsourcing, companies were asked what they had learned from their outsourcing arrangements. It is telling that the most popular lesson learned (according to 42% of respondents) was that a company should spend more time selecting an outsourcing company. In addition to this, 18% of respondents said that they had learned to construct a more detailed service level agreement.
Therefore, the solution is clear: be careful about which outsourcing company you choose. Ensure that all communication is clear and transparent, particularly with regards to your outsourcing agreement.
In summary, research proves that outsourcing services can benefit your company. Outsourcing to the right company leads to improved efficiency and cost savings. However, success depends on the outsourcing firm’s reliability, professionalism and quality.
Our clients recognize that at Wagner & Experts, we take our work seriously. That’s why we have never lost a single paying client to the competition. If you’re interested in learning more about what our outsourcing firm can offer you, leave us your number and we will contact you about the services we provide.
Amiti, M. and Wei, S. (2004). Fear of Service Outsourcing: Is it Justified? IMF Working Papers, 04(186), p.1.
Deloitte (2018). The Deloitte Global Outsourcing Survey 2018. Deloitte.
Kamyabi, Y. and Devi, S. (2011). Accounting Outsourcing and Firm Performance in Iranian SMEs. International Journal of Economics and Finance, 3(4)
PwC (2007). Outsourcing comes of age: The rise of collaborative partnering. PwC.
Seshasai, S. and Gupta, A. (2004). Global Outsourcing of Professional Services. MIT Sloan Working Paper No. 4456-04.