| Being in business for yourself doesn't mean that you have to do it all. There are contractors out there who want to help you succeed by performing for you virtually any standard business function. They’ll answer your phones, type your memos, manage your finances or your human resources, and even mail out your orders. Large companies outsource -- hand off to contractors --
non-essential functions all the time; now smaller companies are turning with increased frequency to contractors instead of employees to get work done.
When Do Businesses Outsource?
Most businesses are already using specialized professionals for single projects. Especially for Internet entrepreneurs or others creating large-scale Web sites, much of the initial development hours are spent on one-time-only tasks. These are perfect candidates for outsourcing and include such staple items as business planning, research, Web site development, large-scale content development, data entry or database reorganization, and
online promotion.
Other work is seasonal. Accounting, data reporting, order entry, and even mailings seem to come in waves (or even floods). It usually does not make sense to keep staff on hand year-round to handle these functions. Outsourcing is an excellent alternative to hiring temporary help.
But on an everyday basis, outsourcing can free up a business owner from the mundane and even everyday tasks that put a strain on time and budget. By reducing the payroll, a business owner can afford to take a little more risk or just have a little more peace of mind.
Commonly outsourced, everyday functions include:
- Order fulfillment: Some companies are good at selling merchandise but don't want to deal with the nitty-gritty details of actually getting the product out the door and into the hands of their customers. That's where order fulfillment specialists such as 3pf.com come in. Formerly ComAlliance, 3pf.com provides
warehousing, just-in-time delivery, and inventory management to companies such as Bigstar.com, Ingredients.com, and Batteries.com.
- Office services: Companies both big and small are stepping forward to meet office services needs ranging from typing to bulk mailing. Among the most requested services are typing and word-processing. Janice Byer, owner of Docu-Type Administrative Services, says that 60 percent of her business is general word-processing.
Phone centers: Although more and more companies are relying on answering machines and voice mail, there's still a call for the good, old-fashioned answering service that will take calls and deliver messages.
Outsourcing can be a way for your company to save money and to draw on the know-how of individuals with extensive experience in a particular area. Kevin Brown Everest of Everest Software Corporation, a Dallas-based provider of outsourcing consulting, methodologies, and software, says, "Outsourcing when done right is a very beneficial event in the life of a business. It helps a business focus on its core competencies while
bringing a strong source of knowledge, talent, financing, vision, and the ability to implement the vision."
What Tasks Should You Outsource?
When you're evaluating whether or not to outsource a function, ask yourself the following questions:
- Is it a core function? Your core business is what makes you unique. Generally businesses that use outsourcing only send out non-core tasks, which allows them to concentrate on what they do best. For instance, a small antique-seller may outsource human resources, accounting, and Web-design services, and focus instead on finding and selling antiques.
The business may also outsource its packaging and shipping functions to ensure that valuable packages arrive safely to customers.
- Can someone else do it better? Some tasks such as human resources, accounting, and IT are better done by experts who have extensive experience and can do it better and faster than you could. Even such tasks as answering the phone, data entry, or report generation are often done better (and faster) by people who like to do those tasks and do them day in and day out.
Would keeping it in-house cost more? Evaluating the cost benefits of outsourcing can be tricky. Not only do you have to factor in the cost of hiring an employee or employees to do the job, you also have to look at how much time it would take for new employees to gain the expertise to do the job. Other factors include overhead costs such as
desk space and computers, supervision for the new hires, and the time that it takes to screen, hire, and replace them. If you're thinking about outsourcing, take some time to come up with a good estimate of what it would cost you to do the job in-house and then get some bids on outsourcing.
- Is this a full-time job? Going hand-in-hand with determining whether it would be cost-effective to outsource a job is deciding whether the job is full-time. But even full-time jobs can sometimes be more cost-effective performed by contractors.
Saving time and money are the two biggest reasons for outsourcing, according to Byer. Her customers have told her they use her company for "one of two reasons. Either they are just too busy to get everything done themselves, or they or their staff aren't trained or experienced in the software that is needed to get a certain project done."
Advantages of Outsourcing
To recap, here are some specific advantages of outsourcing:
- Reduced overhead: You won't have to pay for equipment and office space that might not be used 100 percent of the time.
- Reduced employment costs: You'll save money on salary deductions, benefits, vacation pay, and lost time wages. In addition, you won't be spending time and energy on interviewing and training new employees.
- Reduced employment needs: If you have fluctuating amounts of work, you won't find yourself either paying employees to sit around because there's no work to be done or rushing to hire new employees for rush jobs. Outsourcing allows you to shift the burden of fluctuating work schedules to an outside contractor who either utilizes temporary employees on an on-call basis or has other
projects for employees to work on.
- Reduced "housekeeping": If you outsource tedious administrative tasks, you'll be free to work on generating revenue and doing what your company does best.
What Should You Watch Out For?
Even proponents of outsourcing agree that a primary disadvantage of the practice is that it reduces the number of employees with an emotional or financial stake in the company. Of course, outsourcing partners often become invested in your success.
You should also weigh in these factors:
- Control: Before you outsource, ensure that you have set stringent guidelines, requirements, or specifications for the work process and product to be performed. And if you don't have time to do this thoroughly, outsource the development of these guidelines, but take the time to review each one thoroughly and consider it from all possible aspects.
Otherwise, you will be likely to find that your finished product isn't quite what you envisioned. Also consider building performance bonuses into your contracts.
- Costs: You may see costs appear to increase in the long- or short-term as you transition to outsourcing. These costs can be controlled by choosing your outsourcing partners carefully and asking them about the cost-control and quality-control measures that they have in place. Run a small-scale or prototype evaluation and review the cost and quality delivered -- and don't hesitate to
renegotiate if the first product run doesn't meet your expectations.
- Security: As nonemployees gain access to your sensitive data, you will need to ensure the security and stability of the company with whom you are working. Screen carefully, ask for references, and ALWAYS request a nondisclosure statement.
- Failsafe measures: Undoing or redoing work can be crippling, second only to the problems that can arise if you don't act promptly to correct a problem. Establish regular quality/cost checks at routine intervals and build these into the delivery process. Maintain strict delivery schedules and spend a little bit of extra money, if necessary, on planning, so that you don't end up with
everything on a particular project being delivered at the last minute.
- Discretion: Don't go overboard: outsource only what makes sense. Even supporters of outsourcing agree that employers must retain some control of their employees. Richard Tradewell, a proponent of outsourcing in hospitals, says, "I feel that retaining a core of loyal permanent employees is a business' number one priority." Tradewell is a former hospital administrator and the
author of Privatizing Public Hospitals, a study by the Reason Public Policy Institute.
How Do You Begin?
Finding Partners: Reputation is everything in the business world; so before you enter into a partnership with an outsourcing company, take the time to talk to current and former clients and find out as much as you can about the company. Other good places to investigate the reputation of a company are the Better Business Bureau and the Chamber of Commerce in your prospective
partner's community.
Remember also that your best business partner might be found across the country and not in your local phone book. There are many reputable companies with Web sites that may provide just the services you're looking for.
A good way to test out a potential partner, according to Byer, is to do "test runs." She recommends contracting with a company for a smaller and less important project and, if the results are to your liking, you can be more confident that the more important projects will be handled with the same professionalism.
Pricing: Everything comes with a price tag and outsourcing is no exception. Prices for simple typing services can range from $10 to $25 or more per hour. What you will pay for a particular service is going to depend upon the volume, how soon you need it, how much work is involved, length of contract, and countless other factors. The best way to determine the fairness of a price is
to determine how much it would cost you to do in-house, and then get several quotes.
Byer cautions against always going with the lowest bidder. She says, "Don't go with a company just because it is cheaper than another. Cheaper isn't always better and sometimes can be disastrous. You may have to pay out more to fix exactly what you paid for in the first place."
A Final Tip
It's important to remember that your outsourcing relationship is a two-way street and that you have to communicate your needs and expectations to your outsourcing partner. After all, such partners may be able to work miracles but they probably can’t read minds. Keep lines of communication open, and you’ll find that outsourcing can be a wonderful means of growing your business. |
