Adam Smith and Outsourcing
Written by
Chris Wright
July 6, 2019

Over the past 10 years outsourcing has become a buzz-word. But really all it is is a continuation of the basis of capitalism, specialisation. Adam Smith used the example of making needles to demonstrate why specialisation delivers more efficient production; contrast the one man making needles, sourcing the iron or steel, cutting it to length, sharpening it, selling it, keeping the accounts and records, sorting out his taxes, typing out orders, invoices etc, with a factory consisting of 10 men specialising in different aspects of the process. The one man can make, lets say, 1 needle in 1 hour, or 8 needles a day. The factory with 10 men can produce 1,000 needles in a day.

Similarly, you can see how focusing on the core activity of your own business can enable you to do so much more. By hiving off non core activities to specialists you can concentrate on what you do best. Why bother designing your own logos, managing your own SEO or Google Adwords, or entering bills into a book keeping system, paying suppliers, reconciling your bank account, submitting your VAT return.

This trend is magnified by increasing complexity in most of these areas. In marketing, now mainly digital, the parameters change frequently, as Google changes their algorithm and people move from the desktop to mobile. In accounting, changes like Making Tax Digital, cloud accounting, Stripe, GoCardless and so on keep coming at us, all to be learnt and mastered and then absorbed into the day to day routines.

I remember when I started in accountancy, as a trainee at Price Waterhouse (in 1982!), they had just set up a specialised tax department. By the time I left them to set up on my own in 1993 they had specialist departments for VAT, PAYE, Corporation Tax, IHT, estate planning. Now these departments have grown and spawned further specialisms. That is the way of the world.

We work with clients in many areas but the common factor is that they want to spend their time and resources becoming the best in their field of specialisation, while leaving us to deal with what to them is the trivia and distraction of book-keeping, accounting, VAT returns and even cashflow planning. Of course they want the input from us when needed and of course they realise that cashflow is vital to any business, but they understand that they don’t need to operate the processes that control and monitor it themselves, any more than they need to deal with suppliers, chase up customers etc.

So, go ahead, embrace outsourcing, just make sure that you work with reliable, trustworthy partners, and make sure that you identify what your core expertise is and concentrate on being the best at that. That is what we are doing.

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