Simon Lindley says outsourcing is not just for the big boys

Outsourcing is not just for the big boys - a different model is emerging for SMEs to outsource non-core business and IT functions

Until recently outsourcing was seen as something only for large companies, with large IT budgets and thousands of employees. Hundred million pound deals, running for up to ten years, have become commonplace as company boards push for bigger savings and more ambitious deals.

But the association of the outsourcing market with large companies overlooks the powerhouse of the UK economy - small and medium-sized enterprises. And given their limited resources (staff and IT budgets) the case for outsourcing as a means of achieving economies and access to skills can make more sense for SMEs than multi-nationals.

Admittedly, the outsourcing market for SMEs is still relatively small. However, analysts believe it has potential for significant growth, particularly among medium-sized SMEs.

"We think SMEs could benefit from outsourcing their IT and business processes," says Gianluca Tramacere, an analyst at Gartner. The development by some larger suppliers of pay-as-you go charging for outsourcing services, known as the utility model, could also prove attractive to SMEs, he adds.

But SMEs are unlikely to be dazzled by the buzzwords churned out by suppliers. Instead, the interest is on how outsourcing can boost profits, help them to reach new customers and to serve their existing customers better.

Small business groups agree that medium-sized firms, particularly those undergoing rapid growth, could benefit from outsourcing. They add that outsourcing can reduce overheads but also stress that SMEs need to pay careful attention to the construction of the contract before signing on the dotted line.

The challenge for the SME is that large and small outsourcing contracts can have essentially the same issues, but that in the case of the SME these need to be resolved with a much smaller budget. SMEs therefore need to select and use their advisers who can help them focus on the key issues for the SME - helping them to do it themselves, rather than doing it for them.

Many of the larger suppliers are waking up to the opportunities SMEs present, and are showing interest in deals that they would never previously have considered. There is, however, a number of smaller scale specialist service providers that can offer a much closer service fit to the SME market.

What kinds of outsourcing will be of most use to SMEs? The fast-growing business process outsourcing market is one area. This covers three main areas: customer facing services like call centres; specific functions like claims processing; and whole departments such as HR, finance and administration.

There is also the offshore outsourcing option. A growing number of UK companies are outsourcing parts of their IT and business processes to countries such as India, where labour costs are cheaper.

Cost reduction is the most commonly cited benefit of outsourcing, but other benefits include improving customer service, access to skills, ability to deliver transformation and speed and flexibility to deal with changes in the business environment. Previously fixed costs for an in-house function may be replaced by variable volume driven charges.

A frequent benefit of outsourcing is an improvement in manageability and control of the function or processes outsourced. Many organisations find that a documented service level agreement, explicit measurement and reporting against Key Performance Indicators, together with best practice processes provide much clearer understanding and manageability of the costs, deliverables and capabilities than were available prior to outsourcing.

Large companies have ceased to have a monopoly on outsourcing. The case for transferring IT systems and business processes to a supplier applies just as much to smaller businesses. Increasing maturity of the supply side of the market and the proof of concept from existing deals suggest that now is a good time for those SMEs that want to stay or move ahead of the field to consider outsourcing.