Outsourcing - BPO
Outsourcing NOT Just for Big Business
Outsourcing has become a controversial issue and a hot topic
among presidential candidates this year. But have you stopped
to think how your business can benefit from the efficiency, functionality
and cost savings of outsourcing? If you have, you might find that,
like many others, you are already outsourcing-and enjoying its
benefits.
What is Outsourcing?
Outsourcing simply means "contracting out" various
functions of your business. It doesn't necessarily mean that you
will be contracting out work to foreign countries because there
are many American companies that provide outsourcing services
i.e.. commercial printing services and cleaning services, among
others.) The vendors who supply outsourced services may be self-employed
contractors, consulting firms, temporary employee services or
professional service firms. One common example of outsourcing
is payroll processing. Other commonly outsourced functions that
can be provided by professional services firms include:
* Succession planning
* Accounting and tax preparation
* Information technology (IT)
* Consulting (i.e. due diligence, business planning)
* Distribution services
* Pension management
* Manufacturing
* Assembly
* Staffing
* Grounds Maintenance
* Estate and income tax planning
Why Outsourcing Can Work for Your Business
Fortune 500 corporations are under the microscope for outsourcing
thousands of jobs overseas to low wage workers, potentially leaving
American workers out of work. But according to Forrester Research
Inc., of the 2.7 million jobs lost over the past three years,
only 300,000 have been from outsourcing. With that in mind, outsourcing
means something different for family and privately owned businesses.
With fierce competition affecting the margins of many businesses,
companies are finding that they cannot afford layers of administrative
overhead dedicated to operating their core business. They are
realizing that outsourcing provides alternatives to doing everything
for themselves. For example, if your business is distribution,
there may not be a need to employ a large administrative overhead
dedicated to support functions like those listed above. Companies
that provide outsourcing services are able to invest more time
and resources into the specific functions that generate revenue.
Because of this, they can operate more efficiently and economically,
which can help you compete more effectively than companies that
do it themselves.
Information technology is a good example of this. The cost in
personnel, benefits and training to keep pace in the rapidly changing
world of information technology is prohibitive for most privately
owned businesses. By outsourcing this function, management is
free to focus its energies on the core aspects of the business-those
that provide revenue-generating products and services-and leave
the other areas to vendors who specialize in performing those
functions.
Benefits of Outsourcing
Proponents of outsourcing cite a variety of reasons for "letting
others do it." Here are some of the most important:
Cost savings - By outsourcing functions that were previously
performed in house, companies are often able to reduce their employee
levels and related costs, such as recruitment, supervision, salary
and benefits. By outsourcing a capital intensive function, you
can also reduce the costs of equipment obsolescence and depreciation.
A portion of your cost savings will go to the outsourcer, but
outsourcing vendors have a tighter control of fringe benefits
and run leaner overhead structures. They also know how to deal
with vendors serving the function they are providing and therefore,
are able to pass on to your company the benefits derived from
bulk purchasing and effective leasing.
Quality of service - Because your company is the outsourcer's
customer, you will likely experience a "can-do attitude,"
which may not always be exhibited by an in-house staff.
More capital funds - Outsourcing reduces the need to invest capital
in non-core business functions, thereby freeing capital to invest
in profit-making aspects of the business.
State-of-the-art technology - Outsourcers have to spend time
and money on the most current equipment and on employee training
to remain competitive. By outsourcing certain areas, you are assured
of receiving the most efficient services and the latest technological
advances within that particular function.
Price stability - By signing a contract to outsource, you will
likely be able to obtain stable pricing, eliminating the future
need to shop around. Stable pricing allows the company to budget
operating expenses and capital purchases more accurately, while
potentially preventing the likelihood of surprise expenses.
New business partners - Outsourcers clearly wish to be viewed
as your business partner. And as a business partner, they share
in the desire to keep your company operating at its maximum potential.
Through this business partner arrangement, outsourcers are eager
to introduce you to other outsourcers to assist in that goal.
More time to focus on core business activities - You cannot overlook
this intangible benefit of outsourcing. If a company is to be
successful and profitable, management is needed to spend time
planning and directing the company's business strategies and not
wasting time worrying about managing certain administrative or
ancillary functions.
Potential Drawbacks
As with every new system and procedure, you have to take the
good with the bad. Critics argue that outsourcing creates too
much loss of control, less flexibility, questionable savings and
the risk of over dependence on too few vendors. Owners of family
and privately owned businesses should understand that initiating
an outsourcing arrangement takes considerable management time.
Finding and selecting the right outsourcing company can take many
months. And outsourcing companies need to be given overall directives
and guidelines for what the company wants done, and therefore,
some level of supervision by management will ultimately be needed.
Also, if an outsourcer is replacing a function that has been historically
done within the company, layoffs could very possibly affect employee
morale and may cause talented staff in other core areas to leave
for fear of job security. In addition, be cautious not to completely
eliminate the internal ability to provide the basic product or
service you offer. For example, if you are a manufacturer and
you have outsourced the assembly of your product, be sure you
can still provide a sample of a specialty order in-house if asked
to by a customer. A delay of a product sample could cost you the
customer's business.
One of the biggest complaints by companies that have outsourced
is that there has been a mismatch between expectations and reality.
When an outsourcer is marketing its services there is usually
much enthusiasm and talent dedicated to solving the problems that
were defined at the outset. However, once the contract is signed,
the outsourcer brings in its implementation team, which often
lacks the same level of enthusiasm that the sales and marketing
team had. Due diligence is necessary when beginning any new business
relationships. It is best to get recommendations from current
customers of the outsourcer or other reliable sources in your
industry.
Careful Selection Is Key
By being aware of these drawbacks at the start of the outsourcing
process, you can mitigate many of these and build outsourcing
relationships that benefit your business. The key to successful
outsourcing is careful selection of both the functions you outsource
and the vendors you choose to supply them.
--
Paul Rich, Principal and Business Consultant
Siegel Rich Division of Rothstein Kass - Certified Public Accountants
About The Author
Paul Rich is a business consultant and specializes in assisting
closely-held and family owned businesses in structuring and negotiating
mergers and acquisitions, securing financing, rendering IPOs and
private placement advisory services, assisting with succession
planning and providing profit-enhancement business planning and
executive coaching, among other hot button areas for small business
owners.
http://rkco.com
prich@rkco.com
Article Source: http://EzineArticles.com/
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