A Third Option: Co-Sourcing

 
shutterstock_overhead_of_conference_table
© 

 

When Need Meets Reality
 
An organization’s tax function must contend with a myriad of competing external regulatory and internal stakeholder demands.  There is an increased call for tax to be a more visible partner to the organization, by maintaining a consistent presence at planning meetings, acting as a partner to the business units, and staying far more engaged in the non-routine, strategic aspects of tax.  Today’s corporate tax director must make critical resource choices and balance the pros and cons of various alternatives.  Ultimately, the decisions of the tax director will produce visible and varied levels of success, and will carry retention and succession implications for the organization.   
 
Considering Risk and Reward
 
The structure of a tax department is typically dependent upon a defined core mission, as well as the interplay of collaboration, budget, and resources.  During the course of any given year, a tax department’s challenges will range from the routine tasks of compliance, to the complexities of transaction analysis, and everything in between.  The capacity to handle these varied demands will test a department and its core mission to the organization.  Each tax department will have its own unique limitations of bandwidth, talent and priority.  When contemplating the execution of any tax department deliverable, the tax leader will make critical resource decisions after thoughtful consideration of these limitations.  
 
There are various competing philosophies among tax leaders regarding the relative importance of the many requirements of tax during the course of a year.  These varying opinions mold a tax department’s approach to its workload and resources.  The legacy of how the work is structured and resourced could oftentimes benefit from a fresh look and a renewed cost-benefit assessment in light of department changes and new service alternatives.
 
Weighing the Options
 
In-sourcing
In-sourcing is an ideal option for a well-staffed tax department with access to hiring talented tax professionals.  A healthy IT budget to accommodate the licensing fees for tax software and research tools is also needed.  All ownership is retained, and with appropriate headcount to devote to tasks, all institutional knowledge is retained within the organization.  Unique methodologies and processes may be implemented, and an essential training ground for less experienced professionals is established.
 
Larger, well-resourced tax departments can make this model work very effectively.  The department is typically large enough to accommodate the dedicated headcount necessary to perform a discrete function.  A challenge of this model can be the ability to cross-train or rotate professionals within the tax function, as some individuals may seek a broader experience or be apprehensive about taking on a narrow silo within tax.  With proper resource planning and coaching, these minor drawbacks are typically overcome.
 
Outsourcing
In an outsourcing scenario, all ownership is transferred to a vendor relationship.  The vendor will select a team for your project, and that team is generally controlled and managed by the vendor.  The vendor will likely impose its own standardizations and controls, which can result in unpredictable project timeliness and quality.  Additionally, the productivity of the vendor’s team will likely lag during the time necessary to ramp up on a new engagement.  If the vendor team remains intact, the productivity will naturally increase with time.
 
The biggest downside to outsourcing and the issue that clients struggle most with is the resulting loss of institutional knowledge.  Review of the vendor’s deliverable will never mimic the process of actually performing the work, and it is a critical decision point for the tax director to know when a project is outside of the department’s core function, if it is repeatable work, and if the benefits outweigh the cost.
 
Co-sourcing
Co-sourcing is a fairly recent trend that has evolved out of the limitations associated with traditional options of in-sourcing and outsourcing.  Co-sourcing has evolved as a third option and “middle ground” which offers the advantages of insourcing, without the necessary capital and resource commitments.
 
Different from outsourcing, co-sourcing offers a dedicated team that works under a tax director’s control and supervision, alongside the organization’s own team.  Onsite control of resources facilitates compliance with the organization’s own procedures and methodologies, and offers an extension of the existing tax department that will work alongside its own employees.  This proximity also builds key relationships between internal and external resources.  Knowledge is retained within the organization, and it has access to real-time, precise information on the progress of all projects.  This access gives the tax leader the ability to take timely corrective actions as needed.  
 
Through co-sourcing, knowledge is both retained and leveraged within the organization.  When unexpected attrition creates resource issues, a client may consider the need to outsource a previously insourced deliverable;co-sourcing can help bridge the gap in a manner that does not compromise the flexibility to easily return to an insourced model when staffing issues are resolved.
 
Choice Begets Opportunity
 
There are distinct advantages to co-sourcing over traditional outsourcing, and the co-sourcing model has been well adopted in large, global organizations.  As more service providers are recognizing this trend and building teams of tax consultants that are suited to and interested in participating in such a practice, the ability to co-source is becoming more accessible to small and medium-sized organizations allowing them to contract with local players in the co-sourcing space that can compete at more attractive rates.  
 
As our own co-sourcing practice has grown, we have watched relationships and loyalty blossom between our consultants and our client’s tax teams.  Our most mature co-sourcing client is in its fifth year at present, and our consultants will willingly forgo other opportunities that may conflict with the times they are needed at the client.  Making a commitment to a client for a consistent tax team year-over-year is the representation that we promise, and it is this commitment to true client advocacy that allows us to function as an extension your business.  True Partners Consulting will work with you to develop a co-sourcing solution that meets the unique challenges that your tax department faces.  For more information on what True Partners Consulting can do to for your business, please contact us.
 

Nancy Barrett
617.217.2067
Nancy.Barrett@TPCtax.com

To download the full article, please click here.

 

« Back

 

Comments

 

©2017 True Partners Consulting LLC. All Rights Reserved
close (X)