Understanding Outsourcing as a Building Block for Businesses

Legal Marketing Maven is an outsourcing company for law firms. The company helps law firms focus on their core work. The organization was started by Laura Lee Sparks, an entrepreneur who quit her lucrative job as a manager at a law firm to start the business.

As an owner of an outsourcing company, she practices her own philosophy. From the beginning of the business, she outsourced her book-keeping work so that she could focus on her core tasks. Her focus soon lead to six figure enviable revenues.

Sparks said, “Most entrepreneurs have great talents but many times they think they can do it all. That can really stall the growth of the business. By outsourcing the day to day back-office tasks, the business owner has more time to focus on generating income.”

Outsourcing for small businesses

The business model has long been accepted as a stepping stone into the big league. The current wave of technology has made the model available to even the small business owners. The impact on productivity, bottom lines and growth however is just as magnificent for both strata.

Sparks went on to say, “More small businesses are outsourcing tasks these days because technology has advanced to the point of professionals being able to work from anywhere in the world, coupled with the availability and accessibility of extremely qualified professionals who have decided or been forced to leave the corporate world, [such as] virtual executive assistants, marketing directors, graphic designers, transcriptionists, paralegals, web designers, HR consultants, bookkeepers, PR directors, IT specialists and the list goes on. These freelancers come on board as subcontractors and save the small business owner the burden of paying overhead associated with payroll taxes and expenses such as health insurance and worker’s compensation, as well as the space constrictions that growing a company in-house can present.”

Setting off on the path to outsourcing haven

The first step often is the hardest and the most time consuming. The business model offers help from experienced professionals who specialize in specific areas, the association can potentially increase economies and efficiencies of scale.

David Walsh, author of Source Control, an e-book about effective outsourcing for small businesses and entrepreneur, looks at entrepreneurs who embrace the idea of off-shoring business processes as being progressive. They look toward off-shoring for taking care of essential parts of business that they themselves do not have the time to fulfill. The model is a way to tap into the global pool of impressive human talent and bolster small businesses to stand against large corporations.

The right time to off-shore business processes

Every company presents a unique situation, and the right time to outsource cannot be pinpointed. It is most often a case by case analysis. For small businesses, the time when the in-house employees are unable to process all the work effectively and meet deadlines is a good time to find a service provider for those tasks. New projects that do not warrant hiring full time staff is also a good indicator of the right time to outsource.

Some back office tasks that are routine and non-critical can overtake critical core, business building strategies. For example, The Small Office Assistant’s President Tonya Thomas turned to outsourcing when she found that although she wanted to expand her business, she did not have the time in her day.

As an entrepreneur, she wanted to control everything and she felt like she was the only one fully equipped to handle everything in her business. Delegating tasks to office staff and service providers meant that she had more time to focus on furthering the reach of her business. The first year of using contractors to complete a part of her business workload doubled her yearly revenue.

Delegating tasks to service providers’ right from the beginning for very small businesses might be the smartest move according to Sparks. A virtual assistant and a bookkeeper is usually a good starting point on the outsourcing path for most small businesses. Sparks has ongoing contracts with a project manager, a virtual bookkeeper, a ghost writer, a web designer, a graphic designer and an executive assistant.

The right material to send to off-shore locations

In the current situation of global connections, there is really no task that cannot be suited to service providers. A large number of qualified professionals are leaving the confining corporate world to become freelancers. The global pool of human talent is only on the increase. This does not mean that all businesses should send all their processes to the talent pool via service providers.

Processes that are crucial to businesses are often not suitable or relevant to the business model of off-shoring. Determining the strengths and values of a company and identifying the core competencies is a good starting point to recognizing the tasks that are suited to being farmed out.

Marc Resnick, Ph.D., director of the Institute for Technology Innovation and small business consultant at Florida International University said, “So a small business that focuses on product design should not outsource anything related to developing its internal design talent or their design activities. But they should investigate all opportunities for outsourcing tangential processes like payroll services, IT and so on.”

CBIZ MHM, a prestigious accounting and business services provider’s director of growth management, Gregg Landers categorized business tasks best suited to outsourcing into three general categories. The categories are,

  • Highly repetitive – Tasks like accounts payable inventory, shipping inventory and data entry fall into this category.
  • Highly skilled – Tasks like providing financial analysis should be carried out by professionals. This does not however mean that one should employ a CFO, a person who comes in regularly to provide the analysis at a fraction of a full time employees cost is just as effective.
  • Highly specialized – Landers was quoted as saying, “An example might be the IT support for your accounting system or your network. You may not be able to afford or need a full-time IT person, and it is easier to change to an outsourced provider with the right skill set as your IT needs change.”

These tasks are best suited to part-time employment or off-shoring to service providers who specialize in the particular fields.

Finding the right partner

Technology has made finding partners much easier than it was, but the selection process is just as vital as it was. Word of mouth publicity, as in all other fields, is the best starting point. Online networks like LinkedIn, Facebook and Twitter also provide a good platform to find partners.

Other avenues, in the absence of personal recommendations, to finding the right partners include the work-from-home websites of which there are innumerable. Some examples are the oDesk, eLance and BidModo. Chambers of commerce, trade groups and professional associations also have local contacts that may be the right fit for businesses on the lookout for partners.

The CEO of BidModo, Zack Fuentes believes that having access to complete information is tantamount to finding the right partner or prospective contractor. Ratings given by previous clients and detailed profiles of vendors allows prospective clients to filter their search accordingly.

Knowing exactly what one needs to look for is very important in the search for the apt partner. Resnick spoke about the importance of this knowledge when he said, “First identify exactly what performance metrics are important for each task [you] want to outsource. Some outsourcing providers focus on speed at the expense of quality or vice versa. This is fine as long as there is a good match between what the small business wants and what the [provider] specializes in. But many small businesses don’t realize that there are large differences among outsourcing providers and select the wrong ones. An open and clear conversation with potential contractors regarding these key performance metrics is essential.”

Molding a working relationship

A contract that outlines the client’s exact needs is a precursor to the relationship between the provider and the client working on any level. Using incentives to keep the service provider working along the lines that the client sets out is a clever way.

No instructions and guidelines should be assumed, everything is best laid out in black and white in a clear contract between the two parties. However, sometimes, despite clear instructions regarding every aspect of the work, there will be a learning curve that the client will just have to wait out.

Clients are often entrepreneurs who love micromanaging. In order for the service providers to complete the job they were hired to do, the client has to relinquish a certain measure of control. Micromanaging displaces the whole point of outsourcing.

Assessing the cost

The wide range of freelancers willing to work for an even wider range of salary often leaves entrepreneurs scratching their head’s wondering which one to pick. The old adage of you get what you pay for works in some scenarios. The cost is often dependent on solely the type of work, the location of the provider and the skill level required for execution of the tasks.

Task based agreements to begin with and then transitioning to a fixed-cost retainer is the best way to price any contract with new service providers according to many leading industry experts.

Overcoming the challenges of off-shoring

The whole business model can be advantageous but it does come with its own set of unique challenges. The time zone and language barriers can prove quite as difficult as distance between operations. Walsh, chooses to look at these barriers as being productive. He is of the opinion that language barriers can easily be overcome when communication is clear within the client’s office. He also says, “Time zones create more opportunity than inconvenience, as you can extend your productive hours by handing tasks over to someone during their workday. Assign a task at night, and awake to find it complete and waiting for you.”

The risks associated with outsourcing are equivalent to the risk associated with hiring a new employee. Data security is a major concern especially with the rising global incidences of data theft. Compliance certificates and statements such as the ISO 27002 and HIPAA statements are proof of their secure transaction methods. Stealing clients is also common occurrence when the clients are not careful with the amount of information they transfer. A simple checklist and sending information on an absolute need-to-know basis is the key to overcoming this issue.

Despite all the range of risks, there are many rewards associated with outsourcing. The ability to tap into a whole team of skilled professionals without the cost and expense of hiring the team is one of the rewards of the process. It is a sure fire way to expand the business while still effectively managing it. Walsh is of the opinion that, “Handing off work forces you to objectively, ruthlessly and systematically consider your activities and the steps taken to perform them. Defining a process flushes out inefficiency.”

Latest Columns

Know emerging BPM destination: Dominican Republic (DR)

Dominican Republic (DR), an emerging destination for business process management (BPM), is expected to record heavy growth in the next four years. DR’s close proximity to the United States often prompts BPM investors to build business relations with the country. Advanced telecommunication infrastructure and availability of call centers, make Dominican Republic a fertile ground for […]

Insurance: Emerging Opportunity in Outsourcing

Insurance: Emerging Opportunity in Outsourcing Lets say a health insurance company in Texas sells a insurance policy, it is likely that the back office paper work is processed in Pune or Hyderabad.  India BPO has emerged as the leading companies for back office tasks required by the US insurance companies. They are able to cater […]

Speak Your Mind