In or out? When is outsourcing right for your company?

November 26, 2017

If you want something done right, do it yourself.

It’s a well-used business maxim. After all, nobody cares for your business as much as you do. But what happens when things get too much to deal with on your own? The challenge of overseeing a thriving, growing business is a nice problem to have. But you can’t be everywhere at once. So how do you get more person-power on board?

Of course one obvious route is to hire additional staff. But another option is to look at which parts of your operation you could be doing elsewhere.

Outsourcing is growing – according to one report, the UAE has the second highest rate of outsourcing in the Middle East and North Africa (MENA) region. Even the government is embracing the idea. Delegating work elsewhere can help clear the decks – and your diary – allowing you to concentrate on the things that really matter. But if it’s not done properly, or your suppliers fail to deliver, you risk damaging your reputation and your business.

Outsourcing is growing – according to one report, the UAE has the second highest rate of outsourcing in the Middle East and North Africa (MENA) region.

What do we mean by outsourcing?

In his book Managing the Risks of IT Outsourcing Ian Tho gives the textbook definition: ‘an activity where the supplier provides for the delivery of goods and/or services that would previously have been offered in-house by the buyer organisation’.

That’s straightforward enough, but Tho notes that outsourcing as a discipline has become much more fragmented in recent years. We now speak of ‘selective outsourcing’, ‘strategic outsourcing’ and ‘competitive outsourcing’. Certain areas have become self-contained industries, including payroll outsourcing, IT outsourcing and sales process outsourcing. Even cloud computing is technically a form of outsourcing.

At its most basic, though, outsourcing comes down to paying another organisation to carry out part of your work. In the end there are four key reasons why you might do it: to save time, to expand resources, to drive down costs, or to seek expertise you don’t have in your organisation. 

Outsourcing in the UAE

As the report mentioned earlier suggested, outsourcing in the UAE has been gathering pace for a few years. As early as 2010 it was highlighted as a potential area of growth, particularly in the IT sphere. And the Dubai Department of Economic Development (DED) honed in on it as part of the emirate’s efforts to diversify its economy, as enshrined in Economic Vision 2030. Consequently Dubai even has a dedicated free trade zone for outsourced services: Dubai Outsource City (formerly Dubai Outsource Zone) provides a ‘comprehensive infrastructure and environment for outsourcing companies to set up global or regional hubs servicing the worldwide market’.

It seems to be working. According to one recent report, the UAE now has over 60 specialist agencies representing more than 24,000 white-collar outsourced workers – that’s up 20% since only last year. The same report shows a breakdown of what these outsourced workers are doing. Sales and marketing top the list with 28%, while administration and support sits at 23%. Call centre/service staff are at 15% and IT carries a big chunk too at 11%. And the trend is likely to continue, with Deloitte finding in its 2016 Middle East Human Capital Trends survey that ‘43% of Middle East respondents will increasingly rely on the use of contingent, outsourced, contracted and part-time employees …compared to previous years’. 

Examining the pros and cons

So outsourcing is big business in the UAE. But why would you choose to outsource? Let’s look at the pros in more detail.

1. Cost: You don’t have to pay as much. Outsourcing can mean getting the same job done for less. That’s true the world over, but in 2014 UK newspaper The Guardian found that in some cases the difference was as much as 15%. More competition in the outsourcing industry will mean a race to the bottom – taking wages with it.

2. Talent: Access to a bigger pool of talent. Hiring locally can limit your options, especially in a country that continues to be dogged by job-hopping and competition. Outsourcing, on the other hand, opens up your needs to the world.

Access to a bigger pool of talent. Hiring locally can limit your options, especially in a country that continues to be dogged by job-hopping and competition. Outsourcing, on the other hand, opens up your needs to the world.

3. Recruitment: Avoiding taking on more employees. If you outsource your work, you’re sending it to an existing organisation that’s ready to hit the ground running. That means no on-boarding, no issues around team fit, and no benefits packages.

4. Focus: You can concentrate on what really matters. By outsourcing, you effectively rid yourself of the day-to-day tasks that get in the way of innovation. It’s a way of transferring procedural ‘heavy lifting’ out of your organisation, giving you time back for more value-added activities.

5. Specialisation: Hiring real expertise. Maybe your organisation is skilled in some areas but lacking in others. You could embark on a programme to bring those weaker areas in-house, or you could simply find an organisation that already has the skills and resources to do them for you. A good example is the planned introduction of VAT in the UAE this year, which is likely to require up to 30,000 skilled professionals to implement, taking in accountants, economists and legal professionals among others.

In a recent piece, Forbes Magazine noted that small and medium enterprises ‘can clearly separate their core value propositions from functions better left to others’. Forbes stated that outsourcing can allow businesses to take care of the back end of their business, leaving them free to focus on the front end, generating more revenue and increasing their chances of survival.

Downsides

So these are all strong arguments in favour of outsourcing. But some of them contain hidden dangers too.

1. Back to costs: You don’t have to pay as much. We’ve looked at this already, but let’s look again. If your decision to outsource is driven purely by profit margins, it’s likely that you need to think very carefully about what you’re doing. We’re talking about quality. We’ve talked about how nobody cares about your business as much as you do. That may be true even for your closest employees, but outsourced staff are further away from the heart of your business, both literally and figuratively. If they’re paid less, they’re also likely to be less motivated to do the job well.

2. Another look at talent: Access to a bigger pool of talent. We’ve seen this one before too, but is it necessarily a good thing? More choice isn’t always better. If you want the right people, it may be better to spend more time casting into a smaller, local pool of expertise, than trawling a distant, larger one. Outsourcing shouldn’t be seen as a panacea – there’s no substitute for knowing your industry and making time to seek out the best talent.

3. The other side of recruiting: Avoiding taking on more employees. You get the picture: there’s a flip side to this one too. Training, on-boarding and nurturing staff may be more time consuming than simply shipping work elsewhere, but if you’re looking for devoted, productive and committed people to help your business along, you may not find it in the outsourced domain. This is especially important in areas like providing great customer service, maintaining reputation and establishing client rapport. Can you really achieve or enhance these objectives by outsourcing? Also think about whether your business handles confidential information. Do you – or, more importantly, do your clients – trust an outsourced solution to cover that difficult and sensitive area?

So what to do?

Outsourcing, if you choose to do it, must have real, tangible benefits for your business, but also for your reputation and standing.

Outsourcing, if you choose to do it, must have real, tangible benefits for your business, but also for your reputation and standing.

In Deloitte’s 2016 Global Outsourcing survey, they noted that cost-cutting remains the biggest reason why firms outsource; but right behind it was focusing on core business. With this in mind, Deloitte presented three key findings which encapsulate the message for those firms looking at outsourcing. First, invest time in the initial stages of outsourcing, to make sure the relationships will generate value throughout. Second, while the focus may be to save money, it must also include achieving a strategic advantage and maintaining a good reputation with suppliers. Third, invest in establishing strong processes for transition and governance with your suppliers.

Outsourcing has a time and a place, and it may well suit your business needs at the moment. But it’s important, when you embark on any association that may have a significant impact on your business, that you select a partner who understands and respects what you need to achieve. Establish solid rules and expectations before you start, then maintain constant communication throughout, and build in contingency. Keep in mind the project management triangle – aka ‘fast, cheap and good’.

You can combine two of these elements, never all three.

About the author: Neil Petch, Chairman at Virtugroup
About the author: Neil Petch, Chairman at Virtugroup

With a history of business successes, Neil Petch is well known in the UAE and beyond as a visionary entrepreneur with a passion for helping others establish and grow their own businesses. Neil founded Virtuzone in 2009 and quickly established it as the region’s leading company formation expert, before launching Virtugroup, a holding company that has a wider mandate of supporting startups from establishment; to successful market entry; and all the way through to exit.