Thanks to Dave Mullan at Vistage, for sending us this article written by another Vistage member, Barbara Bry.
As a business leader, you have to delegate certain tasks in order to keep your perspective and generate ideas to grow the business — even if you run a small business. But when you don’t have the talent in house, should you hire or outsource? Many Vistage companies are finding great benefits to outsourcing. Outsourcing isn’t always about sending work to India and the Philippines. Many small and mid-sized businesses in the U.S. outsource functions such as human resources and telemarketing to companies in their own city. But what are the benefits of sticking close to home? And what should you outsource, and what should you keep in-house? I interviewed five Vistage members to find out.
“Many businesses don’t realize how much they’re already outsourcing,” says Victoria Braden, President and CEO of Braden Benefit Strategies Inc. Her five-employee company, a group health insurance agency and consultant, contracts accounting, human resources, telemarketing and information technology management.
Why Outsource?
Outsourcing provides small businesses access to quality professional services at a more affordable price and allows them to focus on their core competency. “If we hadn’t outsourced our accounting, it would probably have fallen to me to do the job, and then I couldn’t do what’s important to grow the business,” says Braden. “We aren’t big enough to have a full-time quality human resources professional,” says Remmie Butchko, CEO of Georgetown Insurance Services. “We were concerned about keeping current with the rules and the liabilities associated with HR.”
“In today’s world, you can’t possibly be an expert at everything you need to know to build a company,” contends Jeffrey Pennington, President, LeSaint Logistics, a supply chain company. For example, one of LeSaint’s customers is a manufacturer that sells to big box retailers such as Wal-Mart and Target. LeSaint picks up the product, transports it to their warehouse, stores it, and then ships the product while providing complete visibility into the supply chain. Most significantly, LeSaint has invested over $1 million in the electronic technology required to support today’s supply chain and those of the major retailers.
Until recently, LeSaint outsourced its human resources function, and it currently contracts out about 50% of its transportation—so here is a company that functions both as an outsourcer and an outsourcee.
Outsourcing is not always a less expensive solution, overall, but it can allow you to achieve your company goals. “Sometimes you have to spend more money to focus on your core business,” says Butchko. “And in both telemarketing and human resources, it’s been worth it. With human resources, we’ve found that sometimes our own employees were more comfortable reporting an issue to an outside rep.”
Outsourcing Tips & Benefits
- Outsource tasks that free up your time to focus on your core competency and grow the business.
- Outsource for the professional skills and knowledge you don’t have or can’t afford in-house.
- Outsource to stay current on laws and taxes.
- Outsource a percentage of a certain function as a backup system.
- Be sure your outsource provider has a backup system.
- Check for hidden fees, and when comparing services, get a complete breakdown.
- Be sure HR services have errors and omissions insurance.
- Keep in touch with your outsource provider regularly.
Tips to Choosing an Outsourcer
Selecting local companies can help improve communication and build longer lasting relationships through face-to-face-contact. When you do meet with potential outsourcers and compare services, keep the following real-world advice in mind.
“Ask the outsourcing company to walk you through how they will perform the function,” recommends Bruce Davis, President and CEO, Onesource Building Technologies, Inc. Davis suggests that when you solicit bids, make sure that the costs are broken down so that you’re comparing apples with apples. Companies often fail to ask what sort of backup systems are in place in case something goes wrong—and inevitably something does.
You should not only know how the job will be done, but also who is going to do it. “Make sure you know whether the person performing the function will be an employee or an independent contractor,” advises Lori Kleiman, founder and CEO of HR Partners. “Find out who is really responsible for the end product, and check out that person’s background and experience.
When you’re shopping for an outsourcer, also ask about hidden fees and insurance. “If you have a monthly retainer,” Kleiman says, “inquire about when you might be charged above and beyond that. And in the human resources area, make sure they have errors and omissions insurance.”
How to Manage the Outsourcer
Regular communication, clear expectations, assigning the management responsibility clearly within your company, and service level agreements are essential to a successful relationship with your outsourcer, according to several Vistage members.
“It’s not a complete hand-off,” says Butchko. “You have to provide continual oversight and management.”
Braden finds that face-to-face contact with the outside organization is essential in ensuring that everyone stays up-to-date. “We treat our outsourcers like a part of the team,” says Braden. “We bring them in, talk to them about their families, and thank them for what they do for our organization.”
Communication is a key component to an effective relationship with your outsourcer. “Your internal team needs to be know what’s available from your outsourcing vendor and when to utilize the service, says Butchko. “For example, with human resources, our department managers need to be aware that a complaint from an employee needs to be dealt with and the HR company needs to be involved.”
Next time you are wading through daily tasks and worry about missing the bigger picture, take a step back. Think about how you and your key employees are spending most of your time. Are your principal talents swamped by little things that could be delegated to someone more focused on that type of project? Are there companies in your own town that might be able to take those tasks on more efficiently than a single employee? It may cost you in the beginning, but you might find the benefits to your business in the long-run make up the difference exponentially — not to mention the benefits to your own piece of mind.
Barbara Bry is COO of Blackbird Ventures, an early stage venture capital firm, and is also the producer and co-host of a weekly radio show and podcast on entrepreneurship, I’m There for You Baby: The Entrepreneur’s Guide to the Galaxy.
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