Outside the Box

Looking for someplace to unload such arduous tasks as personnel and technology management? Chances are, there's a Web site out there with your name on it

Allegiance Telecom Inc. is growing like a tower of gymnasts at the circus, and at times human-resources director Eileen Quilici feels like the person at the bottom supporting the entire load. The more-than-$4-million competitive local-exchange carrier, which launched in Dallas in 1997, is now 750 employees strong. Recently, it has been adding as many as 100 people a month to its sales offices across the country.

Explaining Allegiance's policies and benefits to all those newcomers and signing them up for everything from dental insurance to 401(k) plans is the overwhelming responsibility of Quilici and her six-person staff. "We're opening a new office almost every month," Quilici says. "We can't have an HR person in each city."

Then, last April, Allegiance's benefits consultant came to Quilici's rescue. He suggested that she check out Online Benefits, a two-year-old business that creates electronic versions of its customers' HR functions and runs them on the Internet. Today all of Allegiance's brochures about disability insurance, profit sharing, and the like are living the digital life on a password-protected portion of Online Benefits' Web site, alongside a compilation of frequently asked questions. Allegiance employees click on an icon on their desktops to jump directly to the site, where they can calculate, for example, the impact of a particular health plan on their paycheck or the cost of life insurance based on their age. Soon those freshly on board will be treated to a five-minute multimedia slide show explaining all of Allegiance's benefits options.

The service costs Allegiance $7,000 to $8,000 a year, a quarter of what Quilici would have had to spend for a dedicated benefits administrator. Allegiance's site is getting around 300 visits a month--which translates into 300 telephone calls, E-mails, and knocks on the door that Quilici isn't getting. She likes that and so, she contends, does the staff. "Our employees would rather find that information for themselves than call us to get it," she says. "The time savings on explaining benefits and distributing materials has been considerable."

Allegiance's benefits-management policy, like a proper wedding ceremony, incorporates both something old and something new. The something old is outsourcing, a strategy by which companies hand over to outside vendors those functions that they lack the time, interest, finances, or skills to manage themselves. The something new is the fact that the outsourcer company works almost entirely through a Web site.

In some ways, outsourcing to the Internet is the logical extension of customer-service Web sites. But companies that offer customer-service sites are simply moving a portion of their own transactions to the Net: a bank that lets customers check their own accounts, for example, or a manufacturer with an on-line help desk. Web-based outsourcers, by contrast, run whole chunks of their customers' operations from an Internet perch. They are helping transform the most public of public networks from a place where information is exchanged to a place where actual work is done.

For small companies, outsourcing to a Web site has several advantages. Accessibility is one: browser-armed employees can use the outsourced functions at any time as easily as if those functions were, in fact, running in-house. "By using the Web, you can be constantly in sync with the outsourcer," says Chunka Mui, a partner at Diamond Technology Partners, based in Chicago. "That's tremendous power and leverage" for the customer, Mui adds. In addition, Web-based outsourcers by definition assume most of the technology burden, freeing their customers from fretting over things like compatibility and software upgrades.

But perhaps the most compelling argument for this new type of outsourcing is economic. In their book Unleashing the Killer App: Digital Strategies for Market Dominance (Harvard Business Press, 1998), Mui and coauthor Larry Downes urge companies to perform internally only those activities that can't be performed more cheaply in the open marketplace. When the marketplace in question is the Internet, where vendors with only a "dot com" over their heads can operate at very low cost, the savings from pushing out business tasks is considerable. "Because the Internet is a public mechanism, in essence everybody is sharing in the cost of the network," Mui says.

Web-based outsourcers also manage to keep prices low by building once and using often. "I have a new client with 35 employees and another, Bridge Information Systems, with 4,500," says Online Benefits president Alan Cohen. "Employees of the two companies see a product that's pretty similar in design and usability. By leveraging the technology, we can custom-design something for much less than it would cost in another medium."

"Selling to small business has always created a problem for large service providers, because there was never a good, cost-effective channel," says Craig Terrill, president of DigitalWork, a collection of Web-based services that target small companies. (See "All Things to All Companies," below.) "This type of gateway lowers the cost of sales and service."

Web-based outsourcers are springing up all over, and many of them target the small-business market. Although these start-ups specialize in everything from travel management to debt collection, human-resources functions are among the most popular (not surprising when you consider that HR is also first among usual suspects on intranets, which provide many of the same self-service benefits as Web-based vendors). Using a variety of outsourcers like Online Benefits, a company can piece together a virtual HR department offering everything from recruitment to benefits administration to reference checking, without hiring a single new employee.

Another vibrant area is that outsourcing perennial, information technology. Increasingly, small companies are farming out basics like data backup and document storage to sites with lots of space and powerful retrieval features.

For example, Lawrence Rayman looked to the Web when he decided to abandon the paper chase in favor of electronic document storage. Rayman is the founder and president of Aviation Systems Inc. (ASI), which disassembles old airplanes and resells the parts to repair facilities. "We generate a lot of paper," Rayman says. "Anything that's not created on our computer system gets scanned, and it's thousands of documents a month." Rayman thought he'd have to pay upwards of $100,000 for an in-house document-storage system. But then he heard about CyLex Systems, a company whose Boca Raton, Fla., headquarters was practically in his backyard. Now all the stuff that used to fill folders in ASI's offices has found a home on CyLex's Web site, where it lives for less than a dime a page.

Andy Sage, on the other hand, had always relied on electronic documents in his business. But the president of Sage Capital Corp., which buys, fixes, and sells off ailing manufacturing companies, also knew that to be electronic is to be vulnerable to everything from system crashes to damaged disks.

Unfortunately, Sage's nomadic lifestyle was not conducive to regular backups. For 10 years he tried to maintain identical computer setups in his three offices in Wyoming, New York, and Florida, hauling disks and drives around with him and backing up his work only when he remembered to do so. Sage recently consolidated his three computers into one: a dockable laptop that accompanies him everywhere. And he has found a safety net in Atrieva, a service that automatically backs up his files over the Internet every night. The files live in encrypted form on one of Atrieva's secure storage facilities on the Internet, where they are protected from all the vicissitudes that data are heir to. Sage, meanwhile, can search for and retrieve them using any PC with a browser.

Web-based outsourcers generally tackle less ambitious projects than their brick-and-mortar counterparts: no one is offering to run an entire information-systems division off a Web site. Still, many of the rules that govern traditional outsourcing relationships apply here as well, such as the need to draw up commonsense contract provisions over things like ownership of a customer's information and to perform due diligence on the vendor's background. "There's a lot of vendor hype around these services," says Stan Lepeak, vice-president of the Meta Group, a Stamford, Conn., consulting firm. "A lot of them look great on paper, but the technologies are new and immature and so are many of the companies in this space. It's definitely still in the 'buyer beware' phase."

There are also concerns unique to the Web. What happens if a stampede of traffic to the vendor's site prevents a customer from getting through? What protection is there against hackers? "The parameters and the language are different with a virtual service, but you're trying to protect the same thing," says Online Benefits' Cohen. For that reason, Cohen recommends that contracts stipulate things like server uptime and acceptable turnarounds for updating customer information. As for security, he says, it should be commensurate with the sensitivity of the information being transmitted. Password protection for basic information and SSL encryption for the most sensitive information are a must, but Cohen asks clients "not to hold this medium to a higher standard" than the one they apply to the paper-based documents that are distributed to employees.

As Web-based outsourcing grows, so does the probability that brick-and-mortar companies will begin to shrink. Companies pushing more and more functions out into the ether will become increasingly virtual, to the point where they are simply bits and pieces cobbled together across the Internet. The Internet, meanwhile, will have to improve in speed, reliability, and technical prowess or risk stumbling under the weight.

David Raths is a freelance writer based in Kailua, Hawaii.

Click Here For Service

Travel Management
Vendor: TheTrip.com, Denver
Web site: www.thetrip.com
What it does: TheTrip.com helps companies create travel policies and then makes sure employees adhere to them. Employees make all travel arrangements through the site, where their choices are both guided and monitored by the vendor. TheTrip.com also sends customers monthly reports on where their travel dollars were spent and by whom.
What it costs: A company making 20 reservations a month through TheTrip.com would pay $450 or more for the initial setup and then an additional $100 or more per month for maintenance. (Actual prices depend on usage.)

Company Directories
Vendor: Atlantic Media, Boston
Web site: www.aboutface.com
What it does: Aboutface.com takes the big-company concept of "knowledge mapping" and puts it in reach of smaller fry. The vendor creates electronic company directories that include contact information, biographies, skill listings, and even photographs of all staff members. Employees go to a protected portion of aboutface.com to find out information about their colleagues--for example, which of their coworkers is an expert in patent law.
What it costs: A company with 50 employees would pay $29.95 a month. The service is free for directories with 20 or fewer listings.

Benefits Management
Vendor: Online Benefits Inc., Babylon, N.Y.
Web site: www.online-benefits.com
What it does: Online Benefits creates electronic benefits-information centers that range in complexity from simple postings of policies on sick leave, vacation, and health plans to multimedia presentations of benefits plans and cost-modeling programs that employees can use to calculate retirement planning and flexible-spending accounts. The company is currently working with benefits providers to enable sign-up for various plans directly over the site.
What it costs: A 100-employee company would pay approximately $6,000 for the first year for the basic service and an annual maintenance fee of $4,000 thereafter.

Document Storage
Vendor: CyLex Systems Inc., Boca Raton, Fla.
Web site: www.cylexsys.com
What it does: CyLex Express acts like a giant vault for electronic documents. Using software supplied by the vendor, customers scan and encrypt documents, then upload them to CyLex's document-storage "vault" on the Internet. They can retrieve their documents using a search engine and then read them, copy them, or print them out.
What it costs: Approximately 10¢ per page stored per year.

Payroll Management
Vendor: PayMaxx Inc., Franklin, Tenn.
Web site: www.powerpayroll.com
What it does: PayMaxx's PowerPayroll handles the entire payroll process for companies with fewer than 50 employees. Business owners transmit employee data over the Internet to PayMaxx's Web site; the next day they get back checks and reports. PowerPayroll also takes care of tax filing, new-hire processing, and direct deposit. Customers have 24-hour secure access to their company's data, which they can view and modify on-line.
What it costs: A company with five employees would pay $35 per pay period (a $30 fee, plus $1 per check)

File Backup
Vendor: Atrieva Corp., Seattle
Web site: www.atrieva.com
What it does: Atrieva provides automatic file backup over the Internet every night. Customers download the company's software, which, at a scheduled time, scans any files created or modified that day for viruses, compresses the files for space, encrypts them for security, and then sends them over the Internet to one of Atrieva's secure storage facilities. The whole process typically takes about five minutes.
What it costs: A customer backing up 100MB of text (about 1,000 files) would pay $9.99 a month.

All Things to All Companies
DigitalWork offers to sweat the small stuff for you

Think about all the day-to-day tasks involved in running a business. Now think about all the tasks you consider core competencies for your business. Not a lot of overlap, is there?

That's where DigitalWork steps in. Based in Rolling Meadows, Ill., the company is a kind of compendium of on-line services for small companies--anything from writing press releases to collecting bad debts to recruiting employees. "You can't afford to pay for a vice-president in certain business areas, but you can get some of the function in self-service mode," explains CEO Rob Schultz. "You're not going to outsource it, really. You're going to learn how to do it and execute it yourself."

Some of the things DigitalWork helps company owners execute are--

Press releases: Users construct releases with on-line templates, and the service then sends them to desirable publications.

Salary research: Users view salary data on more than 10,000 different job titles and industries and then structure compensation packages and job offers using the site's benchmarking data.

Debt collection: Users type in information about bad debts, and the site generates and sends dunning letters to the laggards.

None of these services are DigitalWork creations; rather, the company provides a common, simplified interface for two dozen Web-based "provider partners." "We understand that the small-business owner is in a time crunch," Schultz says. "We felt we had to create something that takes 30 minutes or less to do. It can't have a substantial learning curve or people won't use it." Customers pay DigitalWork for each service ($20 for each bad-debt collection, for example, or $65 for the regional mailing of a press release). DigitalWork pockets a transaction fee and passes the rest to the actual providers.

Schultz hopes small-company owners will come to the site whenever they have a hole to patch in their organizations. Christopher Henry is already doing that. A partner in Mirisis, a Denver-based group of graphic artists specializing in 3-D animation and design, Henry turned to DigitalWork when he needed to create press releases and post job notices. And he may try some of the site's other offerings, as long as they further his goal of not getting distracted. "We want to focus on what we do best--3-D," says Henry. "Everything else we want to outsource."

Inside Out
HotOffice looks, walks, and quacks like an intranet, but with one important difference

It's not easy keeping up with Jade Bourelle. The president of two-year-old Teleskill Human Resource Solutions Inc. travels constantly among his offices in Toronto, Vancouver, and Calgary, where he recruits people and then trains them for jobs in telecommunications.

But Bourelle has had no trouble keeping up with what's going on in the rest of his company since he signed up for HotOffice, an Internet-based intranet-subscription service. Although an intranet on the Internet may sound like an oxymoron, such features as directories, bulletin boards, and calendars work just as well outside the firewall as they do behind it. And running them on the Internet costs a lot less: HotOffice charges $12.95 a month per user (or $11.95 per user for 21 or more users). For Bourelle's 15-employee company, that works out to about $200.

When Bourelle logs on to Teleskill's HotOffice, he sees "My Desk," a series of icons representing his personal workhorses: E-mail, a group calendar, the company's employee directory, and the like. There's also an icon leading to the "Document Center," where Teleskill's files sit waiting to be searched by keyword, and a "Communications Center" icon, which lets him join in threaded-bulletin-board discussions, send timed reminders to his staff, and hold virtual meetings using Microsoft's NetMeeting software.

"We're a small company, and building that technical infrastructure ourselves would be expensive," Bourelle says. "We sometimes use contract staff in remote cities to do training. Using our bulletin-board system, we can get them the pile of documents they need in five minutes. That's a huge advantage."

"Besides not having to buy additional hardware and software, you eliminate what we call the guy with the ponytail," says HotOffice president Stephen Rattner, referring to the much-maligned position of systems administrator. "And if you think of sending just two fewer FedEx packages a month, the $12.95 becomes easy to justify."