How to decide whether and what to outsource

Daily Record and the Kansas City Daily News-Press, Feb 9, 2006 by Bernadette Starzee

Just about anything can be outsourced. Human resource functions, computer services, accounting, sales, even your entire staff. But why hand it off to someone else?

According to a survey by the Outsourcing Institute, the top five reasons that companies outsource are to reduce and control operating costs, improve company focus, gain access to world-class capabilities, free internal resources for other purposes, and because resources are not available internally.

Because of greater economy of scale, vendors that specialize in certain functions may be able to do them for less than you could do in-house. Some services require you to build an entire infrastructure, such as purchasing software programs and training employees to use them. If you do not utilize these services very often, it may make financial sense to leave them to an outside specialist.

In addition, outsourcing non-core functions can allow small and midsized companies to concentrate on their core business activity. For instance, in the world of human resources, laws are constantly changing. Partnering with a human resources firm that keeps current with changes in family medical leave, unemployment insurance and workers' compensation policies can allow you to efficiently and legally handle situations that arise, leaving you free to focus on your core business without the risk of being sued for handling a situation improperly. Similarly, outsourcing certain responsibilities can free up your employees to concentrate on higher order tasks. For instance, do you want your computer engineer to be fixing printers?

It's possible to outsource all of your employees to a human resources company; they essentially become the provider's employees. Because it is a specialist, the human resource company can provide better employee benefits than, as a small or midsized company, you would be able to give them on your own. Greater choices of medical plans, flexible spending or 401(k) plans can lead to happier workers and better employee retention.

Which tasks should you outsource? As a rule, they should be noncore, easily definable and extractable. These may include anything from data entry, mailroom services and payroll processes to computer maintenance and repair, training and disaster recovery services.

Companies may hesitate to outsource because they fear a loss of control. While interfering with the outsourcing firm's day-to-day activities might slow things down and cost more money, it is a good idea to re-evaluate the arrangement on a regular basis to see if it's still in the company's best interest and to determine where improvements can be made. Suggestions for improvement might come from the outsourcing vendor, which may learn more efficient or more effective ways to do things from its work with other clients.

Common factors that influence a company's choice of vendor are commitment to quality, price, references and reputation, flexible contract terms and scope of resources, according to the Outsourcing Institute's survey. Since ongoing communication with the outsourcing provider is important, it's best to choose someone with whom you can have a productive working relationship. It's vital that the provider has a clear understanding of your company's goals and objectives.

Ask friends at companies that have outsourced for recommendations, and ask the outsourcing firms you interview for references. When you speak to the firm's existing clients, ask if the firm is open to ongoing communication about its clients' needs. Does the firm regularly re-evaluate its systems to discover ways it can improve? Is the firm flexible when changes are required?

After all, as the Outsourcing Institute's survey found, selecting the right vendor is one of the most important factors behind a successful outsourcing experience.

This article was originally published in Long Island Business News, Ronkonkoma, N.Y., another Dolan Media publication.