Outsourcing can allow even the smallest company to go after big game. Just ask Jack Sands.
The chief executive officer of Intrep Auto Club Renewals, a Columbus, Ohio-based telemarketer, Sands has outsourced his firm's website design, logo design, software design, and phone system design. His 75 employees, all of whom work from home, are paid through an outsourced payroll system. Even the company's telemarketing software is outsourced.
Piece by piece, Sands has outsourced to technology service providers in India, China, Turkey, Russia, and the U.S. In seven years, his business has grown to the $5 million to $10 million range.
'It's allowed me to portray an image of being a very large company when I wasn't one, and at a very low cost,' Sands says. Sands then landed the American Automobile Association (AAA) as a client. "Most small firms couldn't get a client this big,' he notes.
Reasons technology outsourcing is on the rise
A growing trend among larger firms for decades, even the smallest businesses are now turning to technology outsourcing as a way to improve efficiency and boost their bottom line. According to Yankee Group, 61 percent of firms with 20-99 employees use a contractor or business partner for IT services alone.
In addition to IT, firms are outsourcing marketing, Web design, human resources, accounting, and administrative functions like data entry or customer service. And firms are just as likely to find their needs met by a North American firm found on Craig's List as by a call center in Southeast Asia, industry watchers note.
For many small firms, outsourcing just makes sense, explains Gary Chen, senior analyst and specialist in small business IT issues at Yankee Group. Many small and mid-size businesses "just don't have someone to do these jobs, or they only have enough of a certain type of work to justify a one-fourth-time position,' says Chen. 'You can't hire someone to a one-fourth-time position.'
Outsourcing can also give a company more flexibility. Intrep's Sands outsourced his payroll operations to Rochester, N.Y.-based Paychex because his work-from-home employees are spread out across the country. 'I couldn't keep track of the different workers comp laws and tax rules,' he says. Outsourcing this allows him to hire the best telemarketers he could regardless of their location.
Challenges of outsourcing
One of the biggest challenges to outsourcing is losing local control over technology functions. If something isn't working, you have to learn to rely on your outsourcer to fix it. Business leaders need to determine whether they are comfortable with leaving something to a company in India, Russia, or even in another part of the United States. There's something to be said about being able to walk down the hall to the IT department and asking someone to fix a problem.
When outsourcing, businesses also need to appoint someone to oversee the outsourcing relationship. Problems often arise and you need to make sure that your contract with the service provider allows the flexibility to make adjustments in your service, if need be.
Lastly, leaving certain vital business services in the hands of another company can mean you are at their mercy if their service goes offline for any amount of time. You may need to have contingency plans. You may also need to read the fine print in your contract to make sure that you don't have to pay for services that you don't receive. Few outsource providers offer to compensate you for the business you lose when their service goes down.
How to decide whether to outsource IT
So, what should companies consider before they take the outsourcing plunge? Here is a checklist to help your business through the decision-making process:
Outsourcing technology functions must be made after a review of your business. Some businesses, such as Sands' company, have found that they are able to better focus on what they do best and leave the technical matters involving telecommunications and software to someone else. 'We didn't have anyone to do this stuff for us,' says Sands. 'This way, we were able to find the best in breed for every task.'
SIDEBAR: Improving Your Odds for Success
If you've decided to look into outsourcing, where do you look? And how can you ensure success?