Don't do it - outsource it! [SME Advisor Middle East]
(SME Advisor Middle East Via Acquire Media NewsEdge) When a company isn’t playing to its strengths, it makes sense to let a specialist provider take the strain and set your business free to get on with what it does best. 'Outsourcing' in this way is especially popular in areas such as ICT, where an expert business can consistently deliver the leading-edge capability and knowledge investment that would be impossible for a non-specialist SME. We spoke to leading telecoms provider Etisalat about the outsourcing agenda for ICT and how it works in practice…
One of the best-selling business books of all time has the title: 'Don't do – delegate!' The central theme of the book is that managers can exponentially leverage extra amounts of quality time if they ask their team members to undertake the less core tasks for them. The manager will in turn be able to ensure that the job is done by the most skilled and able person in the team, and that it will actually cost less in terms of the cost-per-hour resources being spent on it.
Any manager who has successfully delegated will know that there is a world of truth in this argument. So, if it works for individuals, how about applying it at a corporate level, as a business model for an entire operational aspect of the business? This process is best-known as Outsourcing – which is essentially no more or less than the effective delegation of key tasks to another business, to whom you will pay a fee.
Outsourcing ensures that the business plays to its strengths, rather than struggling with the areas it is ill-equipped to deliver on: no business can be a 'jack of all trades', and the statistics show that outsourcing is increasingly popular as a strategy for focusing resources and maximizing product and service delivery.
According to a major survey undertaken by Deloitte's – the 2012 Global Outsourcing and Insourcing Survey – there are four main reasons why businesses choose to outsource. These are:
To lower costs – the main reason for 76 per cent of respondents To gain access to top talent – 70 per cent of respondents To give key tasks to specialists so that they can be done better – 63 per cent of respondents To increase the business model flexibility – 56 per cent of respondents
What is being outsourced?
While you might presume that outsourcing would be very relevant for complex in-house procedures such as accounts payable, purchasing and accounts receivable, in practice, there is relatively little adoption of outsourcing for core business processes (only 23 per cent and 19 per cent respectively). It is in areas such as ICT that we see the most significant use – an average of 76 per cent of businesses either currently outsource or plan to outsource the ICT function in the near future.
Outsourcing ICT functions is in fact one of the most popular methods of reducing costs and overheads. Especially for SMEs for whom time, capital and ICT expertise can be in short supply, outsourcing these functions can help free up well needed space and capital. Meanwhile, for larger, enterprise-level businesses, giving ICT functions to third-party service providers has long been recognized as a key route to making tremendous cost savings and potential gains in efficiency.
Most SMEs are only able to sustain a small ICT function at best. So, outsourcing the potentially challenging ICT functions to outside service providers can provide the business with an effective advantage.
The 2012 Global Outsourcing and Insourcing Survey also revealed an attractive range of further benefits. For example, you can -
Reduce and control operating costs. When you outsource, you eliminate the costs associated with hiring an employee, such as management oversight, training, health insurance, employment taxes, retirement plans etc. Improve company focus. As mentioned previously, it is neither practical, nor possible, to be a jack of all trades. Outsourcing lets you focus on your core competencies while another company focuses on theirs. Gain access to exceptional capabilities. Your return on investment is so much greater when you outsource information technology to a firm that specializes in the areas you need. Instead of just the knowledge of one person, you benefit from the collective experience of a team of IT professionals. Outsourced IT companies usually require their IT staff to have proper industry training and certifications as well. Free-up internal resources for other purposes. Outsourcing allows you to retain employees for their highest and best use, rather than wasting their time on things that may take them longer than someone who is trained in these specific areas. Some staff may have reasonable competence in ICT concerns, but was this what they were actually hired to do? Deliver results in a function that is otherwise difficult to manage Outsourcing to experts can deliver expert performance. Remember, though, that you still need to be involved even after control is delegated – monitor the performance of the outsource business; is it on a par with what you were expecting? Make capital funds available. By outsourcing non-core business functions, you can spend your capital funds on items that are directly related to your product or your customers.
What the experts say
SME Advisor spoke to John Lincoln, Senior Vice-President, Small and Medium Businesses (SMB), Etisalat, about the advantages and protocols of outsourcing the ICT function in practice.
How can outsourcing the ICT function help SMEs deliver critical growth and competitive edge?
Between the promise of reshaping their IT landscape and powering innovation, ICT outsourcing delivers significant advantages to SMEs. They can largely benefit from leveraging the latest technologies, scale, reliability, operational efficiencies, sustained productivity gains, lower transactional economies and enhanced security – to name but a few.
SMEs are seeing the fastest growth in the UAE economy today, with them contributing to over 70 per cent of the GDP. To power and support this growth and transform their capabilities, SMEs need to drastically improve the customer experience and differentiate from their competitors (especially their larger counterparts). By outsourcing ICT, they can leverage the same or better technologies that their larger counterparts use and compete on a level playing field.
Fundamentally, an outsourced ICT function allows SMEs to use technology as a tool and an enabler rather than as a function within the organisation. That's a real paradigm shift.
Are there any particular areas of the ICT function which businesses most often prefer to outsource? (ie, virtualization, server hosting, switch to cloud, etc.)
Research from leading analysts states that a significant portion of the outsourcing market will move to the cloud (from 9B$ (2010) to 50B$ (2015)). This will be heavily driven by customer-facing and employee-productivity applications such as collaboration, CRM, e-commerce and web, as well as resource-intensive areas such as remote infrastructure management and disaster recovery management. Interestingly, we're seeing strong growth potential in specialised domains such as ERP and advanced security – where a skills shortage is very evident in the market place.
What are the key services which Etisalat can typically provide when taking over an outsourced ICT function?
Etisalat today offers a diverse set of managed ICT services in domains such as public and private cloud infrastructures (IaaS, PaaS and SaaS), communication and collaboration, remote infrastructure management, managed vertical applications (retail, hospitality, healthcare, etc), information security, machine to machine, managed connectivity services (Global MPLS, WiFi, VSAT), consulting and bespoke ICT outsourcing services. The key focus is on delivering these services through a very beneficial and transformative experience that is interactive, integrated and consistent across all touch points.
How does the transition to outsourcing work? Is it a 'one stop' process, or does it involve a structured handover?
Realizing the true potential and value of outsourcing depends on the ability of both the customer and the provider to plan and execute an effective transition. Transitioning to an outsourced model typically involves the process of migrating knowledge, systems, and operating capabilities between outsourcing environments to in-house staff (if they exist). Usually transitioning involves five key steps:
2. Solution Design/Planning
3. Testing & Pilot
4. Service Assumption
5. Steady State Turnover/Implementation
The key to a successful transition is to plan for and manage typical outsourcing difficulties – often stemming from a loss of management focus and involvement from the customer after the contract has been signed. Factors to consider include: cost overruns due to milestone slips in the schedule; changes in customers' evolving business requirements, leading to delays; and finally, a quicker-than-desired stabilization of the services. These are all key contributing factors that need to be managed well to enable a really successful outsourcing initiative.
Does outsourcing work on the basis of a monthly fee being paid to the outsource business? Or does the outsource business have to meet a monthly 'effectiveness' target? Perhaps you have a 'pay as you go' model?
Typically, most outsourced offerings are a 'pay as you use' model with a well-defined service level guarantee, providing customers with assured levels of service and deliverables. Selectively, service credits can also be offered as a remedy to missed guarantees in specific instances.
Is there a limit to how small or large the function can be for it to be outsourced?
The advantage of an outsourced ICT model is that SMEs can leverage diversity of products and technologies, scale, and the same quality and levels of service irrespective of their size. Ideal solutions scale from a single user to many thousands delivering a unified experience across multiple products. Outsourcing allows companies, small or large, to focus on their core business vs managing ICT as a function.
Does the company handling the outsourced function work in a 'white label' capacity – ie, are customers aware that the function is being handled externally?
Ensuring a seamless, unified experience for delivering solutions across various platforms and touch points is fundamental to providing a smooth customer journey, irrespective of who is actually delivering the service. Telecom operators spend a considerable amount of time, money and resource in delivering this key aspect as part of the entire proposition. Customers expect the service to be delivered in a secure and compliant manner and in accordance to the terms and conditions of the contract. Who and where the service is delivered from is generally irrelevant, unless the customer specifies conditions in a contract which requires elements such as service provider-owned resources and locally staged data for compliance purposes.
How regularly do SMEs outsource the ICT function?
SMEs are increasingly looking to outsource key functions that are largely capex driven, resource intensive, or lighthouse technologies that effectively leapfrog their current capabilities in serving existing (or reaching new) customers. Typically, functionality such as e-commerce/web, collaboration, CRM and remote infrastructure management are increasingly outsourced. We see many 'greenfield' companies looking at outsourcing from the very outset. We expect that annually, every SME considers outsourcing during their budget planning cycle or while adopting or upgrading to newer technologies. It has indeed become a de-facto part of their discussion, strategy and approach.
Is outsourcing more or less popular in the GCC than in other parts of the world?
Outsourcing in the GCC was at a tipping point for several years in the past. This was due to key factors such as the availability and choice of providers, the completeness of the solution, data privacy concerns, SLAs, the economics and the overall end-to-end integrated experience of such services. The landscape is, however, changing fast, due to the availability of world-class services within the GCC delivered primarily through telecom providers – as well as by the global cloud providers coming in to the region.
How can outsourcing supercharge a business' capability – ie, can it help a business make the technology leap it may have been putting off – benefits like upgrade to cloud, mobility of data across devices, etc.?
The basis for most outsourcing projects is that another specialized entity can deliver the same non-core function better, faster, reliably and at a lower cost than oneself. More importantly, existing resources can be deployed elsewhere in core functions to deliver better economies. In some cases, especially in SMEs, these functions would be more time consuming, expensive or downright impossible to deliver in-house due to lack of dedicated skilled resources in ICT.
Besides delivering new disruptive technologies and services to their customers, outsourcing can often deliver productivity increases, better information resilience, enhanced security, increased scalability – as well as offer significant cost savings compared to keeping things in-house.
Some examples of innovation are:
- an SME using a 24x7x365 remote infrastructure management solution to keep their systems and productivity levels of employees at a level comparable to a large enterprise providing a similar service
- a small retail outlet leveraging a Mobile POS and payment gateway solution or a location based service on the cloud for a monthly fee and serving more customers
- a small clinic can deliver the same levels of sophistication in handling their patients compared to a large healthcare conglomerate, by using a cloud-based clinical management system that would cost them a fraction of implementing it themselves
-or a small SME delivering sophisticated e-commerce and supply chain solutions to their customers through an outsourced pay-as-you-go model.
In reality, the possibilities for SMEs are endless in leveraging outsourced ICT to drive their business to the next level…
Working in harmony – and enjoying the rewards
As well as 'getting the job done', once you have an established outsourcing relationship, it can deliver a number of major rewards which would simply not be available from other business strategies. Consider the following as major incentives -
Access to the latest and best in technology. Software and hardware becomes rapidly obsolete and outdated. This won't happen when you're working with a specialist ICT provider, offering a team of IT professionals, whose collective knowledge and skills are working to your benefit and who will know exactly how to plan ahead. Cost savings. Outsourcing your IT services provides financial benefits such as leaner overhead, bulk purchasing and leasing options for hardware and software, and software licenses, as well as potential compliance with government regulations. High quality of staff. Outsourced IT vendors look to hire staff with specific qualifications and certifications – whereas an SME may not know what to look for and tends to recruit generalists.
So – will you Outsource? It can be a powerful tool in your business' upward growth and a key strategy for building momentum and all-important liquidity.
(c) 2014 Corporate Publishing International. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info).
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