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Outsourcing... outsourcing... outsourcing - Nov 25, 2009

Posted by: Stu Lipkin in Articles

Business as usual? That cliché is no longer an option in today’s economic climate. Companies of all sizes (private and public) have had to rethink the way that they do business in order to compete profitably or at least be able to survive. The economic recession of 2001 forced many CEO’s to re-examine their markets and what it takes to retain a competitive edge. Through the globalization of the marketplace, countries like India and China became a viable resource, and companies could not remain profitable when focused strictly on employees and suppliers in the domestic U.S. Subsequently, the current recession struck and panic spread worldwide. Every company struggled to find ways to reduce costs and continue to maintain market share. Those companies demanded reduced pricing from their suppliers which brought deflated gross margins to those vendors and added more pressure to operating results. The domino effect was a swift reduction in employees which sent the unemployment rates skyrocketing.

So what’s the future?

The future will require many businesses to utilize outside consultants in a more proactive way. It will be a number of months (if not years) before consumer confidence responds and CEO’s will be motivated to add employees (if ever). They will need the services of individuals and firms to perform necessary functions on an outsourced basis, also known as business process outsourcing. Outsourcing will embrace everything from sales professionals (either directly selling or managing the sales force), financial professionals assisting the Company to strategically navigate through difficult times, HR, IT services, Marketing, Operations and more. In fact, it has been widely published that many of the unemployed executives today will be unable to obtain suitable employment and will begin their own businesses, most likely consulting in their field of expertise. The day of having a staff of full-time employees responsible for each of the company’s functions is in the past.

Some of the benefits of outsourcing are:

Reduction in payroll costs and related employee benefits and payroll taxes.
Reduction in R&D costs.
Increased efficiency through specialized resources that will meet the immediate needs of the business.
Ability to implement projects quickly.
Reduced capital costs (cash investments) by renting/leasing equipment of outsourced firms.
Allows strategic growth of the business even with limited internal resources.

Steps to take!

The proactive CEO will recognize this shift in the way business is transacted and will begin to build his/her own “power team” of outsourced professionals. This selection process is as important as if they were hiring full-time employees. It needs to address the technical skills, related costs and fees of such services versus a full-time employee, ensure a level of trust and confidence and be aligned with corporate strategic goals and initiatives, etc.

The initiatives that need to be implemented are:

Identify which facets of your business will require strategic assistance from outsourcing.
For each of these areas, develop a detailed checklist of your requirements, which should include but are not limited to technical expertise, industry background, term and scope of services and budgeted cost of services versus hiring a full-time employee.
Begin to interview several individuals/firms that you feel will be a good compliment to your business needs. Be sure to not only address the items from your checklist, but to evaluate your ability to comfortably interact with this person/firm and your initial level of trust and comfort.
Once you’ve made your selection(s), work with the professional to define and refine your business strategies along with specific timelines for completion. In very few instances, would you need to sign any long-term contract with the consultant. You should always have the flexibility to utilize the consultant to support the ebbs and flows of your business. That is a significant benefit in using outsourcing versus full-time employees. The ability to control your manpower utilization and thus your costs of operations.
Develop a formalized work plan to monitor progress and performance. As with any full-time employee, you must be able to evaluate, manage and measure the value of the consultant to your business.

Prior to the recent string of economic recessions, business owners and CEO’s only had to understand their business and industry in order to be successful. In today’s new world, that alone is not enough. They will need the ability to tap into the expertise of other professionals, in a way that rewards them with cost effective solutions and the ability to be competitive in an aggressive marketplace. Properly utilizing the skill sets and specialized resources of consultants to match the business strategies is the new focus.