The
definition of outsourcing is using another company to perform tasks
that a company can do themselves. Here is a summary of outsourcing
observations I’ve made in the roofing industry today and some questions:
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Phase 1:
Start-ups and companies under $1 million in revenue. They’re typically
short on cash and are trying to do everything themselves, often with the
help of friends or family members. For example, are these hopeful
entrepreneurs leaving for work at 5:30 a.m. having enjoyed only a few
hours’ sleep? Will they then arrive home late that night absolutely
exhausted because of a day trying to sell their services, order
materials, get projects installed, collect money, and pay bills before
getting to kiss the children goodnight? And will you find them trying to
figure out how to build a website, utilize social media, and expand
their digital footprint while figuring out accounting software during
the early morning hours? -
Phase 2: Companies that
cleared the $1 million threshold are growing. Now, there are other
people to support. What gets outsourced first? Website. Accounting.
Social media and payroll. Why? They’re time-consuming processes, do not
need full-time people yet, a specialty expertise, and doing it
themselves has become much too painful, creating huge hassles and
frustrations. -
Phase 3: Now generating over $5 million
annually and becoming remarkably successful. Surprisingly, many
organizations have started phasing out outsourcing, believing that
dedicated talent inside the organization will be less expensive and
promote efficiency. This often includes a full-time team for marketing,
sales leadership, accounting, and more.
Looking overall, does this view of outsourcing make sense?
In my opinion, no. Outsourcing often makes profound sense, whether you’re in phase 1, 2 or 3 as a company!
What
can we learn from the Fortune 500 about outsourcing? These
sophisticated companies and their leadership avoid the attitude of “we
can do everything in-house.” Ninety percent of them outsource primary
company functions and processes.
The question then is not, can we
do the function, but does it make sense to outsource rather than
perform the activities internally? With often hundreds of millions of
dollars in resources, Fortune 500 companies certainly could decide to do
everything in-house, but they don’t.
When is Outsourcing ‘Better?’
Examples that are best outsourced regardless, of the size of the company include: legal and financial reports and analysis beyond bookkeeping; human resources; payroll and benefits; and information technology. Do I often see companies bring these functions inside? Yes. Does it often result in regrets? Yes.
Outsourcing
becomes a better option to consider as generalized criteria when
companies compartmentalize and focus on functions and processes that are
not critical to the most crucial strategic value their company provides
to clients.
Consider outsourcing functions that require
specialty expertise, which is rapidly changing and, therefore,
challenging to stay current on. Remember that understanding the issues
and the time and cost of staying informed with compliance can be
overwhelming.
Examples that are best outsourced, regardless of
the size of the company, include: legal and financial reports and
analysis beyond bookkeeping; human resources; payroll and benefits; and
information technology. Do I often see companies bring these functions
inside? Yes. Does it often result in regrets? Yes.
For example,
outsourcing labor to crews in roofing often makes sense but can be a bad
idea. Simultaneously outsourcing the estimating, coordination, project
and client management process can lead to communication and performance
problems. These internal functions are critical to differentiating your
company value from a client’s alternative options. Another example is
the human resources function. Many entrepreneurs do not realize that
through outsourcing these services with a company representing hundreds
of organizations, they can offer benefits at costs far below what they
can negotiate for themselves. The more complex your compensation systems
are, the more benefit there is to using outsourced HR services.
I
recently spoke with Nancy Gomez, president of Expert HR in Sebastian,
Fla., who collaborates with small businesses nationally and connects
outsourced options to client-specific human resource needs.
Nancy
shared that, surprisingly, even a roofing company with excellent safety
management can be combined with other companies and obtain health care
insurance, workers’ compensation, payroll services and other benefits
far below their current expenses. Even companies with only a few
employees can take advantage of these extraordinary benefits.
She
said that most of her clients engaged her after a reality check on their
visible and hidden compliance costs, their limitations in providing
competitive benefits, and the time and effort needed to ensure timely
administration.
In summary, strategically utilizing outsourcing
can help even the smallest organizations grow faster and more
profitably. You can’t be an expert in everything. Align yourself with
function experts who can do things cost-effectively, with superior
expertise and insight into rapid changes and their implications.