We Aren’t Headed Toward Recession — We’re Already in One
Are we in a recession? This is the question we’ve been hearing for upwards of six months now. And while no one seems to want to “call it”, we have seen the indicators – two consecutive quarters of negative GDP growth, inflation and, most recently, rounds of layoffs. So are we there yet? I say yes. While this isn’t welcome news for the C-Suite, it doesn’t have to be all doom and gloom. The way we go about getting through isn’t easy, but it’ possible. The answer is preparation and a little bit of strategy re-focusing. For smart leaders, this will mean moving into a position that empowers them to rise to the challenges economic uncertainty present. Outsourcing prevails as a strategy during a recession that shines in lean times, making it possible to outlive what's coming and ensure you can emerge — thriving — on the other side.
The “Why” of Outsourcing is Changing As Companies Face Turbulent Times Ahead in This Recession
With a recession in sight, the reasons to outsource become even more impactful. As the host of CFO Weekly, a podcast for top finance leaders, I speak to CFOs every week facing the same challenges that outsourcing solves—limited talent pool, high turnover, and the need to cut costs, to name a few.
Before the pandemic, when interest rates were low and cheap capital was relatively easy to come by, we were more likely to see leaders put outsourcing on their radar if they were struggling to fill vacancies in lean — and competitive — labor markets, like bookkeeping and accounting.
In September, for instance, we surveyed 800 executive-level finance leaders, 79 percent of which said that they were considering outsourcing for the first time in their current roles to deal with the shortages of qualified accounting talent against the headwinds of a labor market that's kept the finance function stubbornly understaffed for years.
Now, I see the conversation changing to the ways that outsourcing benefits companies working to fulfill the triple mandate of strengthening the balance sheet, reducing capital expenditures and preserving cash. Outsourcing frees up the most important resources leaders have — and protects hard-won existing resources when they're needed most.
But why now? This recession is especially fit for outsourcing as a strategy for these six reasons:
Outsourcing Solutions Have Come a Very Long Way
2022's outsourcing landscape looks much, much different than it did a decade ago. Augmented by technology, accountable to global standardization and increasingly adopting stateside attitudes around employee engagement — including professional development and upskilling — has increased client confidence in the output quality their partners can provide.
This is especially true of work within the finance function. In countries with an educational framework that's vastly similar to U.S. based models supplying workers that are trained to follow GAAP, we're seeing more processes along the O2C, R2R and even FP&A outsourced. Ten years ago, it was practically unheard of to even consider delegating work outside of P2P to offshore teams.
Not only is the quality of talent akin to the U.S., but so are the team sizes. Outsourcing no longer demands huge teams of 100 or more. And in fact, at Personiv, we often start with an accounting team of one, be that an accounts payable or recievable specialist, bookkeeper or tax specialist. It’s easy to build up from here because in some cases, offshore labor pools are even healthier than they are at home.
For instance, this year, LinkedIn's research determined that turnover in the accounting profession third lowest for the year at 9.4 percent, for an average retention rate of 90.6 percent. In Manila, we were able to retain 98.5 percent of the qualified accounting professionals on our team for the same time period.
There's Never Been a Better Time to Manage a Hybrid Team
Historically, the number one aspect of outsourcing that's kept businesses from benefitting from it is a hesitancy to manage a distributed team. Suffice to say, the events of the pandemic have made that hurdle much easier to clear. Seventy-two percent of the finance leaders we surveyed said that the Covid-19 pandemic affected their ability to retain qualified talent on their teams with more and more employees looking for remote work. Of our survey participants, only nine percent of their workplaces remain full-time, in-person environments.
For context, that's almost exactly opposite of what work in 2019 looked like, with just six percent of American workers telling Gallup they worked exclusively from home. Anyone banking on that reversing again is likely to be sorely disappointed. Frankly, the question of whether you’re going to end up with remote workers has already been answered. All that remains is determining which approach you'll take. You can actively participate in vetting a dedicated team managed remotely in the U.S., or you can retain the same level of talent offshore at half the cost.
Now is the time to take advantage of the outsourcing industry’s decades of experience setting up the infrastructure, collaborative tools and quality control checks that ensure virtual work is done well.
Cash is King — and Outsourcing During the Recession Will Keep It Flowing
Let's get right to the point: outsourcing is a cost-reduction strategy. That's often the primary reason that businesses seek out outsourcing partnerships in the first place. There are many more benefits, of course, but in the thick of a recession, anything that allows an organization to provide the most return on each dollar spent will rise to the top of the strategic to-do list.
Outsourcing provides a straightforward way to adopt a fixed-cost approach instead of the unpredictable variable rate structures that plague in-house and staffing firm recruitment processes at a time when unpredictability is anathema to survival. Shedding the costs of recruiting, training, retention and the employee burden — which can easily add 35 percent to the top of every payroll dollar you spend — can be a game-changer in a recession.
Outsourcing Doesn't Just Cut Costs — It Reduces Burnout During a Recession
Retaining staff in a recession won't mean much if they're so burned out that productivity dwindles, and they make a break for greener pastures as soon as recession hiring freezes begin to thaw. It's a mistake to backfill your best workers' calendars with hours and hours of busy work, drudgery or other work far outside of the scope of what you hired them to lend their expertise to in the first place.
In a recession, it's imperative to retain the key people that drive your business. That means retaining customers on one side, and on the other, high-performing and highly skilled full-time employees on core teams. Protecting the time and tolerance of your best workers will ensure you have a team with the expertise and innovative mindset to come out swinging in a friendlier economy.
It's More Important than Ever to Reinvest Time into Business-Critical Work
In a recession, paring output down to what will make the most impact is often do-or-die. You don't have time or dollars to waste on transactional, tedious and error-prone work. Many leaders see this as a time to hack-and-slash SG&A wherever they find it when a much more surgical approach is appropriate. Outsourcing provides the scalpel.
Businesses that have been weighing automation and long-overdue tech implementations will face a dilemma: forego the benefits that these initiatives provide in the long run or divert much needed resources and manpower to seeing them through in the short term. Outsourcing provides a way to bypass this catch-22.
Companies That Outsource Keep Scaling While Competitors Play Catch Up
While competitors are still reacting to the news of a recession by implementing zero-hour hiring freezes and amputating initiatives that were taken on to expand or innovate client offerings and experiences, companies that leverage outsourcing can preserve these critical differentiators.
To stay competitive themselves, outsourcing providers must be able to offer more than just warm bodies during a recession. High retention, stateside-comparable CVs, process improvement, organizational agility and nimble implementation are all there for the taking with the right partner. It's a proactive approach that allows for optimization and efficiency at a time when many market players are simply hoping to tread water. In the end, you only have so many arrows in your quiver — once you've reduced cash burn and cap backs, you need somewhere to go. Now is a better time than ever to turn to outsourcing.
About the AuthorFollow on Linkedin More Content by Megan Weis, CPA, MBA