Let the Net Do It

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.