From the September 2001 issue of Entrepreneur

Struggling to find ways to redistribute tasks once held by laid-off full-timers, business owners are taking a renewed interest in outsourcing. Even those in less dire straits are considering it as a way to focus their businesses on core competencies. According to Input, an Internet market research firm, the business process outsourcing market will reach $34 billion by 2004.

"The reason you outsource is you get [services] better and faster and cheaper," says Peter Bendor-Samuel, founder and CEO of the Outsourcing Center, an online resource for businesses, and author of Turning Lead Into Gold: The Demystification of Outsourcing (Executive Excellence).

Not sure where to begin? Check out these popular outsourcing candidates:

Payroll: Payroll, with its complex tax implications, is the most commonly outsourced business process. Input estimates some 47 percent of businesses will outsource payroll services by 2002.

In addition to calculating wages, payroll companies adhere to current tax obligations, print and deliver checks, and provide management reports. They also save you from having to continually update your payroll software to meet current laws.

Human resources: Typical HR services include benefits, recruiting, wage reviews, compliance and risk management (workers' compensation, dispute resolution and office policy-making). Costs, which vary depending on the number of employees and options you choose, shouldn't be the only concern. Because HR services often play a big role in hiring, look for a company that understands your company culture.

Finance and accounting: You can outsource tasks as basic as bookkeeping or as complex as auditing services and tax planning. Outsourcing accounting also affords you state-of-the-art software and often faster response time than an internal accounting department can provide.

Information technology: If you just need someone to troubleshoot periodically, outsourcing is a good solution. Of course, suppliers can do more. In addition to overseeing networking, backups, redundant hardware and hack prevention, some suppliers even provide entire hardware and software systems. Just make sure your contract guarantees security, confidentiality and high availability.

Outsourcing Challenges

In 1994, three years after he started his public relations agency, Steven Blinn, principal of New York City-based BlinnPR, decided to outsource his accounting and billing to free up time for building business contacts. The strategy worked. Blinn has expanded his agency into a 12-person firm that draws $1.2 million a year.

Blinn, 35, admits that staying in touch with his service supplier presented a big challenge. "You just can't tell someone 'Here's your function; go do it,'" Blinn says. "I don't like surprises." He now communicates constantly with his supplier, establishing specific checkpoints to gauge progress toward their goals.

Bendor-Samuel, however, advises entrepreneurs against micromanaging service providers. "The mistake people make when they get into outsourcing relationships is they start changing how the supplier does things," he says. "When you change how the process works, you're destroying all the leverage outsourcing gives."

Your contract should set down logistics, costs and service requirements. Also, clearly state the level of service you expect, including rewards and penalties for above- or below-average performance.

Outsourcing partners often rework the way a process is completed, allowing you both to focus on what you know best. And in these days of streamlining, that means a lot.


Mie-Yun Lee is the editorial director of BuyerZone.com. Kaukab Jhumra contributed to this article.

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