Outsourcing, as a business practice has existed in one form or the other from time immemorial. In the modern world, with the fading boundaries of the business world, and hence with the ever-increasing complexity of doing business, outsourcing is emerging as a strong tool to gain competitive advantage.
By definition, outsourcing is a practice adopted by businesses to obtain services (or goods) from another business entity instead of having provision to deliver or produce those in-house. With that, a company can choose to outsource virtually any kind of functions, while holding back the absolute core of the business at home. Today, for most of the companies, irrespective of the size and scale, the decision to control the function in-house or to outsource is a major strategy and business decision.
Lets delve a bit deeper into this now.
So What is it That You Can Outsource
“Everything in your business can be outsourced, if you are not emotionally attached to doing it all”
– Richard Branson, Founder, Virgin Group
Whether to outsource or not remains one of the most critical decisions for organisations, as it can provide a serious competitive edge, if thought through and executed well.
Here are a few factors that can play a significant role in driving your choice to outsource or otherwise:
1. Core Competence
As you’d imagine it would be really difficult to give out something that is the very heart and soul of your business, and hence a vast majority of organisations would choose to keep the functions that make their core competencies in-house. This lets them build their knowledge, expertise and brand equity over time.
On the other side of it, functions that are peripheral at best can be easily outsourced, e.g. a banking organisation, will not find it difficult to outsource its travel-related task to a professional travel company.
2. Financial Objectives
Outsourcing decisions are often driven by financial objectives and goals of the company, or even of the divisions within a company. Financial considerations play a big role when, for instance, a company has to decide whether to set up a new production line/factory of its own or to outsource the production of its goods. Likewise, setting up an inhouse team would involve costs related to hiring and training manpower, visa and medical expense, and ongoing employee benefits.
3. Expertise Required
There are times when a business requires specific tasks to be carried out for short or long period, and the required expertise may not be available within the company. Also, there are instances when a company would need someone with an unbiased opinion to advise it on a specific matter. Consultants operating in different fields are the perfect example of this.
4. Stage of Business
A start-up would typically want to test waters, focus on building its core offerings and business model, keep a lean structure and aim at driving business growth. Such newly formed companies would not build different departments and teams to manage its various functions; they’d rather outsource most of their functions and focus on building the core business. As against this, a well established company would have already built its own teams to manage various functions and may have created a sustainable work model around it.
SMEs find it especially difficult to make this choice, more so if they have gained a particular threshold level of business and are on the cusp of further expansion and growth.
5. Availability of Eligible Suppliers/Partners
If you have a roundtable of experts available to give you advice and work to help you achieve your business goals, why would you not choose to outsource that function? As against this, if you have got best of talent available to you within the company, you may not find reasons enough to prompt you to look outward.
6. Demand and Supply Dynamics
In the times of extremely high and unmanageable demand, companies do have to look at outsourcing, even their core functions. Consider a well known manufacturer of a popular shampoo brand having a sudden surge in demand, to an extent such that its own factories are unable to cope. This company would surely be open to looking at partners with similar competencies, who are in a position to offer their production lines, albeit at a cost.
7. Speed of Execution
Looking outwards is a great option when you are looking at quick execution. Building in-house teams and training them is always a long drawn out and painstaking process. This becomes more pronounced for newly founded businesses that are trying to establish themselves.
“Do what you do the best, and outsource the rest”
– Peter Drucker, Management Guru
Here are some of the functions, though very integral to an organisation, can still be outsourced:
When your core strength lies in marketing, sales, and distribution, and there are trusted production facilities available to lean on, outsourcing your production can be a great idea. This also ensures that you don’t have to block your capital to build up the manufacturing facility.
Sales and distribution
It is very difficult for any organisation, especially one that is distribution intensive (e.g. consumer goods industry) to build its own fully fledged distribution force. Taking the help of distribution experts with sound market knowledge and connections often is the best and possibly only option that they might have.
IT infrastructure and IT maintenance
IT being a technical field, and often a support function to most organisations is best to be given out to be managed by experts in the field.
HR and Payroll management
HR actually is quite an integral part of any business. However, companies that are just about starting their business, or yet to attain a sizeable scale, may find it prudent to outsource their HR function. Even in bigger organisations, specific HR functions like staff recruitment are more often than not outsourced to professional recruitment agencies.
Office and Factory Admin, Facilities Management
There are professional service providers available in the market that can manage these services for your office or factories, and deliver a high quality service at a cost much lower than that which you would incur to set up an in-house team
Maintaining Accounting Records
Accounting is an important function that reflects the financial performance of a company and allows management to assess the results of past decisions and to take decisions about the future. An outsourced accounting function relieves management of the onus of its administration but benefit from its output.
Why You Should Consider Outsourcing Your Business Accounting Function
Working with subject matter experts – If you are a start-up or even an SME in business for a couple of years, you might not find it worth while to hiring just an accountant when there are experienced accounting experts who bring a wide range of skills and experience. This guarantees that your accounting records are always up to date, and payroll is managed on time.
Helps Saving Costs – It’s a given that setting up an accounting team in-house will involve a significant cost and effort, including hiring the right people and training them. In addition, expenditures related to accounting software, hardware, and other office supplies also kick in. All these can be significantly reduced if the accounting duties are outsourced. It would not be inappropriate to say that you can have a full team of experts working with you at a cost less than that of hiring a single accounting professional in your company.
Brings in Efficiencies – If you are starting a new business or expanding your reach to newer geographies, outsourcing your accounting duties can help you hit the road quicker. Professionals that you choose to partner with for your accounting needs can guide you with knowledge specific to that market, which otherwise may not be readily available. This enables you to focus on your core business activities and the growth thereof.
Best Practices for your accounting operations – Outsourcing your accounting function provides your business with an opportunity to improve and upgrade financial accounting processes. Outsourcing companies bring in their expertise of multiple industries and businesses and best practices to guide you through various stages of your business journey. Their sound systems ensure that business managers get timely and accurate information to support well informed decisions.
Use of the Best Technology Solutions – Outsourcing eliminates the necessity of investing in technology – both hardware and software. Accounting partners are up to date with the best and latest technology, and you can leverage that without losing your key business focus.
Peace of mind – Your accounting partner is an external party, and would be free of any kind of bias and who maintains confidentiality in this all important function in an organisation.
Accessible anytime, anywhere – A huge majority of accounting service providers use cloud-based accounting applications. This provides you with the freedom to access all the details from anywhere in the world at any time. This is all the more pertinent in the UAE, a market that on one hand happens to be a regional hub for many multinational companies, and on the other is a haven for new businesses.
Reduce carbon footprint – This is one of the most overlooked benefits that businesses fail to recognise. Outsourcing your business accounting will significantly reduce your requirement and usage of printers, toners and paper, and hence save on associated costs. Moreover, it allows you to work towards reducing your carbon footprint, thereby allowing you to actively contribute towards broader global goals.
Identify the Right Outsourcing Partner
Choosing the right partner can be the key lever of how well the outsourcing arrangement works out. As you embark upon a new business relationship that can potentially change the way you conduct your business, conducting due diligence on your partner is a must. A trusted reference from prior customers is one of the most authentic ways to hire a high-quality responsible outsourcing service.
PKF UAE is a global accounting firm recognised as one of the most trusted outsourcing partners in the UAE. The firm provides accounting and financial management strategies that enable businesses to maintain accurate financial statements and accounting functions. We bring in industry best practices from our global experience, and at the same time ensure that your business practices adhere to UAE-specific laws and practices. We use the latest software tools to enable our client organisations to cut down the cost and time that they otherwise spend on managing these functions.
Our team of qualified and experienced accountants and finance professionals ensure that you get the best advice and solutions for your accounting and business needs. We provide both project-based and ongoing service to our clients, depending on their requirements.