A Small Business Guide to Successful Outsourcing

A Small Business Guide to Successful Outsourcing

By: Michael F. Corbett & Associates, Ltd.

Over the past decade, outsourcing has become routinely and widely accepted at Fortune 500 companies. These largest of corporations don抰 think twice about asking specialized service providers to take on activities they once performed for themselves. As a result, they抳e lowered costs, improved organizational focus, and increased their speed and flexibility. As Herb Kelleher of Southwest Airlines simply puts it, 揚eople who are in the business full-time can do it better and cheaper.?Essentially, outsourcing has helped corporate America become more efficient, flexible and nimble.

For small businesses, the picture is quite different. Compared to large organizations, small businesses are inherently flexible and nimble; they are specialists in what they do and they do it with great passion. What they often lack, however, is access to the types of know-how, technologies, capital, economies of scale and other resources that the bigger boys enjoy. Owners of small companies also face another very real challenge ? making sure that they don抰 get so bogged down in running the company that they are unable to focus on building the business.

Because of these unique small business considerations, the power of outsourcing for them is not so much in redefining and reorganizing operations for speed and efficiency as it is in enabling them to gain increased leverage for what they are already good at.

Getting Started

Large and small businesses are alike with regard to one point: Getting started down the road to outsourcing is often the most difficult part. As the box (揟op Four Inhibitors to Small Business Outsourcing? illustrates, for small businesses the No. 1 inhibitor to outsourcing is the fear of losing control. Small business owners are so accustomed to directly managing the people, processes and technologies that make up their operations that the notion of moving some of this to an outsider is a difficult concept to embrace. The rewards of overcoming this fear, however, can be well worth the effort.

Essentially, outsourcing enables the small business owner to access the best resources in the world, but to pay not only for just the slice they抮e using, but also just for when they use it. And, once the owner begins to look outside, he or she is often amazed to find the solutions already out there for some of the most seemingly intractable problems they face. As James Brian Quinn of Dartmouth says, 揘o organization acting on its own can possibly out-innovate the world.?

In today抯 complex, sophisticated universe the best solutions ?in all but a company抯 deepest area of specialization ?are increasingly going to come from outside the company. If the small business is going to stay abreast of its competition, let alone get ahead of it, these outside resources will simply have to increasingly be tapped. By breaking down the barrier between the company抯 internal operations and what抯 outside, the creativity of others permeates the business抯 thinking and drives it forward.

But to really see what this can mean for your company, begin by objectively comparing the capabilities of outside specialists to existing internal operations. An honest evaluation of the costs, quality, speed and innovation that抯 available from others is likely to reveal inefficiencies that simply can抰 be justified by maintaining the control that comes from doing it all yourself. How much business value is being sacrificed because of the perceived need to do everything inside? You may find the answer quite surprising.

Five Steps to Small Business Outsourcing Success

Taking these five steps will go a long way toward helping any small business to objectively evaluate the potential of outsourcing and to capture its benefits.

Step 1. It抯 important for any small business to make sure it really understands what it hopes to gain from outsourcing before making a move.

Start by drawing up a list of the most difficult problems your company faces. For each problem, write down the things that would have to be done to fix them. Then, ask, 揥hy aren抰 these things being done today??If the answer is lack of management time, lack of organizational expertise, lack of investment dollars or the potential ongoing operational cost, then outsourcing is definitely a possible solution.

Step 2. Start discussing the problems and the potential solutions with outside ?outsourcing ?providers.

Where do you go to find such providers? They抮e actually all around. If the problems are in the finance area, talk to your company抯 accountant; his or her firm may well offer more comprehensive outsourcing services. Many will take on direct management of the entire financial system. If they can抰 do all that, ask them for recommendations of firms that can.

If the issues are in technology, have the same conversation with consultants the company has worked with successfully in the past. If the problems are in document creation and management, talk to printers, designers and equipment suppliers your company currently uses. The same applies to human resources. Firms that are providing payroll services might offer much more comprehensive benefits administration and related employee services ?typically from well-staffed service centers using the latest employee self-service solutions over the Web.

Small business owners are often amazed to find how many firms now offer complete, Web-enabled business solutions right over the Internet. In fact, the Internet is itself a great way to find potential outsourcers for just about every aspect of a small business.

Step 3. Once?outside options begin to come into focus and the list of potential providers begins to solidify, start actually to craft the relationship. Often, the provider抯 services will be available on a fixed-fee or per-transaction-fee basis. Take the time to work out a business relationship that both companies will be comfortable with ?one in which both can succeed. But also be sure to make provisions for a relatively quick and well-defined exit process if things change.

The most desirable goal is a long-term relationship supported by a continually renewable short-term contract. This gives both parties the ability to adjust things as business conditions change. Obviously, consulting an attorney should be part of any contract-signing.

Step 4. The transition from inside operations to an outsourcer must be managed carefully. As a business owner, you are not abdicating responsibility for the results, you are simply achieving the same or improved results in a new, more effective way. Work with the people both inside and outside your company to help ensure a smooth transition. Think about how the change will affect all your employees ?especially those who are doing the soon-to-be-outsourced work ?and help them make the transition. Also don抰 forget the end customer. Where appropriate, be sure to explain what the business is doing, why and how the change will enable it to provide even better service in the future.

Step 5. As the relationship between the companies moves forward, there are three things atop the to-do list: communicate, communicate and communicate. It is not possible to over-communicate between the companies. But, at the same time, be careful not to try to manage the provider抯 business for them. Do insist on open communications both ways on what抯 happening and why. Talk continuously about what抯 working and what isn抰. Talk about what the business might be going to need three months from now that may be different from what it needs today. Also, remain open to the constant flow of innovation and new ideas ?outside providers should become a constant source of innovation.

In summary, the power of outsourcing to enhance business operations is well-understood and -documented. The challenge, as always, is one of leadership. Small business owners need to add outsourcing to their list of business tools. In the end, it will be their ability to create the right relationships, with the right outside providers, for the right reasons and to then successfully manage those relationships that will create the optimum value for themselves, their employees and their customers.