From October 22 through 25, in Moscow, Russia CFO Summit organized by the Adam Smith institute took place. The event was attended by experts from the BDO group in Russia. Lyudmila Shusterova, a deputy General Director of the BDO outsourcing division contributed a report entitled "Insourcing vs Outsourcing". Elena Khromova, a partner of BDO's in Russia, expanded on how to make the auditor a reliable partner in business risk optimization.
In her report, Lyudmila Shusterova compared the two ways of resource management, insourcing and outsourcing.
While outsourcing means hiring an outside contractor to perform the company's non-key processes, insourcing implies the use of inner resources of the company for performing some or other business or IT processes. Most often, in the latter case, the company has an internal Shared Service Center, such as a call center or an accounting center servicing the company's many offices, etc.
According to Lyudmila Shusterova, companies have about the same reasons to either create Shared Service Center or switch to the outsourcing of accounting functions. Companies begin using these models of controlling providers when there is a need for making accounting transparent and independent of regional managers, for lowering tax and legal risks, while increasing the quality of work and cutting the cost of services.
Lyudmila compared the basic advantages and disadvantages of using outsourcing and insourcing. The advantages of the latter include a lower cost of servicing business processes, the unification of work with some or other process for the whole company or group of companies and better quality. Outsourcing also allows to cut the cost of performing non-key functions, using the best practices available in the industry while servicing some or other business processes. Besides the outsourcing of accounting functions helps lower tax risks and reduce the financial consequences of errors because providers, under agreements, usually compensate their clients for fines paid and losses caused by the provider's mistakes.
The basic disadvantages of the creation of Shared Service Centers include considerable initial investments in infrastructures and the need for developing methodologies and recruiting and training personnel. Besides, in such cases, companies need to make themselves competent in areas, which to them are non-key. To put it short, this means the creation, within companies, of their own outsourcing centers that will require that their creators should acquire new knowledge and skills in order to manage them. Besides, rather often, companies are unable to control the growth of the cost of services provided by Shared Service Centers, while needing to maintain the high quality of those services. Controlling, in this way, an outside contractor is much easier because such contractors must continuously compete with their colleagues.
Whether companies create their own processing centers or outsource the functions in question, the ingredients of success are the same. They include correct methodologies, teams and technologies. Should just one of these ingredients be missing, an outsourcing company or Shared Servic Center will equally have no success.
We can see that, despite certain differences, the two models of controlling providers, insourcing and outsourcing, have a lot in common. In order to increase its clients' business efficiency, the BDO company successfully uses both approaches. Lyudmila Shusterova related a case when BDO created an Shared Service Center for one of its large international clients. The so created SSC performs financial accounting for the client's offices in nine countries.
Elena Khromova, a partner of BDO's reported on how outside consultants may be of help when insourcing is used, that is inside servicing centers are created. She pointed out the special knowledge and licensed activities where insourcing is ineffective. Such are cost consulting, tax and legal consulting and auditing.
