11 Jun How to save a business from insolvency with offshoring
There is no respite for businesses on the edge of insolvency as the ATO doubles its “pay up or wind up” orders. This comes on the back of a period of an ongoing high number of business failures due to insolvency, and the resulting personal bankruptcies as directors run out of money to prop up unprofitable businesses.
These sorts of sobering statistics reveal it’s still a tough business environment out there, as economic challenges mix with unprecedented amounts of change from technology disruption, generational spending patterns, and globalisation.
Having worked on implementing global-resourcing in my own businesses and many others over the past 5 years, it does surprise me that this is not more often pursued as a way to solve business financial failure. I have seen businesses both small and large turn around a desperate situation where directors were facing bankruptcy, to soon becoming strongly profitable within a short space of time.
Yes, in these sorts of situations, there is no doubt that local jobs are shed in favour of lower cost full time staff in a country like Philippines. But the flip side is that without exception for these kinds of rapid turn-around scenarios, more Australian jobs are saved than are lost offshore.
Global-resourcing offers the opportunity to completely rethink the efficiency of a business – both to fix and enhance profit, and also to provide better customer service.
Let me show you an example.
For various reasons, the business was not making a profit for well over a year, and this was gradually draining the cash reserves of the owners. Pride and fear stopped them from seeking help until it was almost too late, and by the time they came to me we literally had 3 months left to start making a solid profit or the owners were going to lose the business and their home.
This business had 24 office-based staff, but the same principle can be used on almost any sized business. This is how we saved the business in 3 months.
1. My firm did one day of consulting with the business, explaining a blueprint for implementing global teams in a low risk and highly successful way, and how to avoid the mistakes of others. We next examined all 24 roles and broke them apart into tasks. We figured out which tasks could be done in the Philippines, and created new roles.
Lesson 1: In all Australian businesses roles are made up of high skill and lower skill tasks. You should NOT try to shift roles offshore – whether you’re in a rush or not. This leads to many assumptions and failures. Think at a task level and get advice on which tasks can be most readily moved.
2. We selected an appropriate offshore facility with relevant expertise. This is not ‘process outsourcing’ as such – it’s more like setting up a second team with your own full time staff, in a serviced office, in the Philippines. Recruitment began immediately.
Lesson 2: The “outsourcing” industry has completely evolved over the last 10 years and there are now 9 different staffing models, with any level of control possible. There are also a lot of poor quality facilities, so get help to choose a good and ethical one.
3. Having looked at all the tasks we could strip off the Australian team for the offshore team, I knew we could combine several similar roles in the Australian team to reduce local staff numbers.
Lesson 3: It’s important to not lose key people in your team during this process. Keep the talent that you worked hard to assemble, and in time you’ll be able to offer them even greater opportunities. It’s not easy to let some staff go, but its easier than losing your whole business and everyone losing their jobs.
4. Of the 24 roles, we could safely and easily combine 6 pairs of them to eliminate 6 local roles. We identified another 4 roles that were somewhat harder to shift but still possible if we had to.
Lesson 4: When offshoring, always start with the easy stuff, and if faced with a time deadline, identify the fastest cash wins.
5. We announced the changes to the Australian team, explaining the financial situation and telling them that we needed to restructure the business with global teams in order to continue, and that 6 people would be losing their jobs, so that the rest would be saved.
We explained a new vision for the business, giving the team confidence in the new plan. Their customers were none the wiser, and the local team rallied to support the transition.
Lesson 5: Be upfront and clear to your team, this is NOT a trial – this is the new business model. Sell the benefits of them being able to do more of the high value tasks, and potentially some will supervise small teams of their own.
6. We completed offshore recruitment, after careful testing of the applicants. The first 6 roles were a mix of administration, finance and high skill engineering-related positions. Combined, the six roles would save over $26,000 per month in salary and on costs alone, and by month three they had paid redundancies and started to reduce debt.
Lesson 6: It does not take many offshored roles to potentially save a business. Wages average out at one fifth for a skilled and qualified Philippines team. Even moving one or two roles in a small business can have a huge impact on profitability.
7. Although that was the end of the immediate financial problem, the business owners now understood the potential for restructuring and optimising their business for greater efficiency. Over the following 12 months they gradually worked on their internal processes to focus more on customer service, which lead them to remove 4 more local positions, and add 8 new offshore positions, including a new marketing department which directly stimulated growth.
Lesson 7: Although reducing costs is often why businesses start the offshoring journey, it’s my belief that the biggest win is ultimately to optimise the business for throughput as opposed the standard method in Australia of simply minimising the number of staff. This builds a stronger business which is more able to survive financial challenges, and more able to grow into new markets.
Not only did this business survive, with its new structure, high profit, and confidence in operating outside of Australia, it is now looking at selling into other countries. They’ve already hired several new Australian positions because they are growing again.
The owners feel very grateful that they saved their house and business, have a strong and capable offshore team, and that this team helped them to save many Australian jobs, and create more local opportunities now and in the future.
By all means talk to pre-insolvency advisors and your accountant about your own options, but many of these advisors have no direct experience with offshoring so are unlikely to suggest this as an option, so you may want to seek additional assistance as well.
Scott Linden Jones is the founding adviser at Easy Offshore, providing global-resourcing educational and implementation services to Australian businesses via tours, seminars and consulting.