Outsourcing trends
Organisations are continually seeking ways to leverage competitive advantage to expand markets and increase profits. Increasingly, they are outsourcing non-core activities. Nevertheless, management remains ultimately responsible for risk management and implementing an effective control framework. This has led to a greater demand for assurance standards such as ISAE 3402 or ISAE 3000 for activities performed by third parties.
History
For much of the 20th century, the most popular business model was the large integrated company that managed and controlled its assets directly, focusing on diversification to broaden its business base and benefit from economies of scale. Many large companies developed a new strategy to concentrate on their core activities, enhancing flexibility and creativity. This required identifying critical processes and deciding which processes could be outsourced.
Outsourcing
Due to globalisation, increased competition, and cost pressures, organisations are outsourcing more essential business functions to service providers. Outsourcing core processes has a direct impact on a company’s financial statements and key business processes. It is no longer limited to routine back-office tasks. How can organisations gain confidence in outsourced business processes? How can they ensure control and assurance over these outsourced processes?
The increase in outsourcing, especially of crucial business information, also brings heightened risks and security concerns. Organisations may face operational, financial, or even reputational damage due to security shortcomings of external service providers. An independent review of critical outsourced business processes or IT systems helps organisations identify and manage these risks and regain assurance over outsourced processes.
The most common reasons for outsourcing are:
- Control and reduce operating costs
- Improve focus on core business processes
- Access world-class capabilities
- Free up internal resources for other purposes
- Increase efficiency in specific functions
- Insufficient internal resources
- Share risk with other organisations
The current phase in the evolution of outsourcing involves strategic partnerships. Until recently, it was taken for granted that organisations could not outsource core competencies. This has changed, and ISAE 3402/SOC1 or ISAE 3000/SOC2 has become commonplace.
