Outsourcing in the Modern Business World – Not What You Thought

Outsourcing in the Modern Business World – Not What You Thought

Dozens of organizations have already transitioned to hiring employees more easily by outsourcing their operations.

Outsourcing is designed to save management efforts, but can it provide complete exemption?

“Outsourcing” is a modern management method based on the central idea of transferring a variety of activities that are not part of the organization’s DNA to another company or contractor, with the aim of leaving only direct management, operations, and core activities within the organization. This method allows the organization to focus on its area of expertise and maintain better control over its productive departments.

About 20 years ago, when I began my career in bookkeeping and was employed at an accounting firm, I handled a significant number of bookkeeping files. Later, I continued working at high-tech companies that grew and developed gradually until the need arose to establish in-house bookkeeping departments. In other words, their bookkeeping transitioned from external management to in-house management, and I had the honor of accompanying them through these processes. Over the years, I found myself recruited for many such projects.

The experience I gained in the corporate world and the world of outsourcing makes me uneasy because I discover the huge gap between the academic definition of “outsourcing” and what actually happens in practice, which I will elaborate on further.

What is happening today in the field of outsourcing, and at what developmental stage is this method?

In the academic definition of “outsourcing,” several claims can be isolated, and we are here to examine how well they reflect reality (spoiler: not always).

The first claim is: “Outsourcing is a modern management method.”

Is it really? In practice, outsourcing as a method has existed for decades.

In the relatively recent past (the 1960s – 70s of the 20th century), when people talked about a “company,” they knew it referred to an organization with shareholders, senior managers, junior staff, an office with carpeting, and a landline phone. The TV series “Mad Men” clearly depicts the power dynamics within companies of that time.

What characterized companies back then was a fixed hierarchical structure. Everyone knew where they stood on the career ladder and what to expect. Those times were marked by a permanence and stability that we don’t know today. People would wake up in the morning, get ready, kiss their spouse, get in the car or take public transportation for another day at the office, at the end of which they would return home to handle household matters, rest, and wake up the next day to a similar routine. The company to which the employee belonged formed a closed circle of interpersonal relationships and secrets. Layoffs were “unspeakable,” and anyone who was fired was considered unlucky. Moving from one company to another was seen as betrayal and scandal.

The business world reflected the general morals of that time. For example, the highest value was family stability. Divorce was not an option, privacy was paramount (dirty laundry was not aired outside the home), and of course, there was a family hierarchy. The man was the head of the family, earning money and providing for his family’s needs, while the woman helped and supported him, being the mother to his children. It’s hard to imagine, but in those times, outsourcing relationships couldn’t exist because their nature is more open.

In the 1990s, the trend began to reverse. With the invention of the internet, the world became more open. With the development of computers and operating systems, everything became faster and more accessible, marking the early stages of globalization. The phrase “time is money” became central in personal and business relationships. Companies began to streamline operations and didn’t want to waste time on activities that didn’t directly generate revenue. During this period, there was a wave of layoffs for employees whose importance was not deemed high enough, leaving only essential staff. The movie “The Secret of My Success,” released in 1987, conveys to viewers the business atmosphere of that era.

During this period, companies began to expand the boundaries of their business relationships, marking the foothold of outsourcing in the business world.

And what is happening today? We live in an era where globalization has gained significant momentum, peaking during the COVID-19 pandemic. The physical distance imposed on people created an immediate need to develop communication means and change the business world to maintain full functionality without requiring physical presence in the office. ZOOM took over the world, turning it into a global village where any company can easily employ workers from another country on the other side of the world. After COVID-19 disappeared from our lives, the trend of change remained. Salaried employees felt they were not ready to return to the previous format of employee-employer relations, of office work from 9:00 AM to 6:00 PM plus overtime and prolonged absence from home, which came at the expense of their personal and family lives. De facto, salaried employees built a relationship with their employers similar to outsourcing. Companies realized this method works, making the transition to outsourcing a natural and necessary step.

It can be said unequivocally that today’s business world is shifting to work using the outsourcing method, which has become the leading management method in the modern world.

The second claim is: “Outsourcing is about transferring activities that are not part of the organization’s core to another company or contractor, intending to leave only its core activities in direct operation and management.”

The business relationship between employers and employees is an agreed framework of working hours and days based on meeting the task schedule, which allows companies to transition more easily to outsourcing.

Today, the transition to outsourcing is a fairly safe move. Agreements are signed with confidentiality and non-competition clauses, comprehensive cyber protections, and high-speed internet in most regions worldwide, allowing not only ancillary activities but also core business activities to be outsourced.

Here we come to the revolution unfolding right before our eyes.

Against the backdrop of accelerating the outsourcing of core business activities, there is a need to strengthen the “management core” of the business, which consists of:

  • IT and Cybersecurity, Administration, and (of course) Bookkeeping and Finance.

In other words, what was previously considered secondary activity is gaining momentum and a central place in businesses. And this is no coincidence!

When the core activities of the business are conducted among different entities in various countries, there is a need to strengthen the internal systems within the company to manage and synchronize these entities:

  • IT and Cybersecurity ensure the continuous operation of various entities producing the company’s output through outsourcing and located at significant distances from the company. IT departments are also responsible for an increasingly central aspect of importance to every business – protection from cyberattacks.
  • Administration ensures operational support for all entities, regardless of geographical distance, such as purchasing computers and peripheral equipment, providing a unique email address, coordinating meetings and appointments, booking flight tickets for business trips, arranging participation in international conferences, etc.
  • Bookkeeping and Finance are responsible, among other things, for collecting, approving, and recording the accounts of outsourced activities, making overseas payments on time and in compliance with international tax regulations.

The third claim is: “Outsourcing allows an organization to focus on its area of expertise, invest most of its resources in it, and maintain efficient control over its productive departments.”

Outsourcing reduces costs and allows businesses to concentrate on important matters rather than spreading themselves thin over irrelevant issues. However, today this doesn’t necessarily pertain only to ancillary activities in businesses.

Generally, businesses invest significant resources in their core activities, something that should return the investment through the sale of their products. Thanks to the development of communication and the internet, many businesses feel that competition in every field is only increasing. To stand out among competitors, they must be the best in their profession, know how to market, and gain the trust of potential customers. The professional bar is rising, and companies don’t miss the opportunity to hire professionals in outsourcing from around the world at reasonable prices.

The real savings lie in outsourcing core activities!

At the same time, ancillary activities that make up the “management core” remain within the business, including bookkeeping, for two main reasons:

  1. The work of the “management core” (bookkeeping services, IT, and administration) consists of a large number of tasks and sub-tasks that require maximum availability and mobility for the business. The multitude of tasks to be performed through outsourcing significantly increases their cost, making the transition to outsourcing unprofitable.
  2. Knowledge and experience in the specific country where the company operates require the employment of professionals in IT, administration, and bookkeeping from the country where the company’s headquarters are located.

In today’s world, it is crucial to keep the “management core” within the business as it enhances control over core activities performed globally through outsourcing.

Top level bookkeeping.IL was established as an outsourcing business for bookkeeping services, with the unique aim of strengthening internal bookkeeping departments within companies as part of the “management core.” This enables companies to perform tasks efficiently, easily, and accurately and adapt to the rapidly changing business world.

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