Chapter 11. An Alternative Way of Approaching the Competitiveness Problem

Business satellites 127

How a local authority might develop a BS venture 130

SDC’s second joint venture 136

Further explanation of the business satellite examples 138

The most important conclusion from the last chapter is that to achieve competitiveness the client organization needs to involve an external specialist. However, to maximize the chances of success the client needs to take some equity in its chosen provider to ensure that it always receives first call on the skills available.

I fully appreciate that it is going to be very difficult for even major client organizations to obtain such an equity stake in existing outsourcing service providers. The alternative, as I see it, is for client organizations to create and build their own service providers.

In this chapter I am going to suggest ways in which organizations of various types and size might go about creating their own providers. However, for many, these notions might require a leap of faith that is difficult to contemplate. In other words, some readers might react by concluding that it might work for others, but it would not be suitable for them at the moment. For that reason I have prefaced my ideas with the following story, which indicates how one group of normally very staid organizations have benefited from taking radical leaps of faith into the outsourcing world.

In an Executive Report on outsourcing finance for The Institute of Chartered Accountants (ICAEW) publishing company in 1995, I included the paragraphs shown below.

If we imagine an industrial estate of ten small manufacturing companies on the edge of a provincial city we would all accept that each company would need some form of security. In turn most of us would agree that it would not make financial sense for each company to set up its own security system from scratch, each with spare sets of security guards, dogs, etc. for emergencies.

What is so very different about the finance departments? Even if each of the ten manufacturing companies has different systems, staff levels and degrees of integration into other parts of their business, what’s to stop some entrepreneurial accountant or accounting firm taking over responsibility for all the accounting functions on the industrial estate and developing a system to cover all of their needs?

The above extract came from a section of the book in which I was trying to establish the following five points.

After the report was published, a number of people contacted me regarding this idea and in turn I extended my reasoning in a couple of articles. About a year later I was asked to address the annual meeting of the ICAEW’s general practitioners group. The general practitioners account for virtually all the ICAEW members working as auditors outside the big international firms. Obviously, my task was to explain what was happening in financial outsourcing and to explore with them any potential new markets.

I expected that most of the delegates would have little interest in the ideas I was presenting and in that respect I was not disappointed. Nevertheless, many others were sufficiently interested to move quickly into a non auditing environment and over the following days and weeks many of them kept me informed of their plans. These were typically to target potential clients in their locality that were not already auditing clients.

The most important discovery made at this conference, however, was that a number of firms were well ahead of me. One firm had effectively given up auditing altogether and concentrated instead on providing comprehensive business process services over what was a relatively small geographical area. They had in fact started by targeting local business estates. Others were using the internet to promote their services. Very soon, articles appeared in the national newspapers explaining how British firms of chartered accountants were doing the daily accounts for both local and international companies. One firm was even receiving the daily accounts by fax from a manufacturer in the former Soviet Union.

I anticipate that more and more firms of chartered accountants will obtain business in this way. Nevertheless, without extensive discussion and publicity, my view is that growth in this business area is going to be relatively slow. Let’s face it – it is difficult to bring about a change as fundamental as this in long established organizations. Apart from challenging the very concept of shareholder accounts and even the need for professional qualifications, it might also suggest to some accountants that auditing is being exchanged for low-grade work. After all, there are non qualified or poorly qualified people making a living by acting as part-time accountants for one or more small manufacturers and service companies in most towns.

Other reasons, such as an aversion to selling, may limit chartered accountancy firms from developing this business area quickly, unless the internet comes to their rescue or their potential clients were to see these firms as outsourcing service providers independently. But if some firms of chartered accountants can make the enormous leap of faith by becoming outsourcing service providers, then it should be possible to think of other ways of meeting the competitiveness challenge.

I have suggested above that outsourcing arrangements are more likely to work for the client organization that obtains a large measure of control and ownership of the service provider than one with less control and ownership. But how would a client organization set about obtaining equity in one or more service providers?