But whether you’re leaning on outside resources to fulfill a temporary bump in orders, to handle tasks beyond your staff’s own expertise, or merely to keep overhead costs flexible, selecting the right vendor demands careful planning and ongoing vigilance.
In-House Versus Outsourced
Before shopping options, companies must decide whether their need is, in fact, best fulfilled by an outside vendor. When making such a decision, Derek Rodner, vice president of product strategy for Camden-based video auditing software developer Agilence, asks himself a few questions.
“I consider, ’Do we have the skill set to do what we want to do in house?’” he says. “Secondly, there’s the question of resources: ‘How long do we have to get this job done? What’s the trade-off of cost to time?’ We generally go with outsourcing when we don’t have the necessary level of expertise in house, [and] when it would take too long to acquire that expertise.”
Business experts agree that companies should channel their energy and resources into what they do best—which, ideally, are the services that generate revenue. Outsourcing, then, should be relegated to more peripheral support tasks, from administrative work to fulfillment, to specialized support services.
“If I was going to put in descending order the services I see companies outsource, No. 1 would be technology; No. 2, payroll; and No. 3, simple bookkeeping,” says Matthew McDermott, founder and managing director of South Jersey Consulting. Payroll, he notes, is best outsourced once a company reaches five or more employees.
“The payroll process is complicated for someone unfamiliar with it, and there are so many providers out there with the expertise,” he says. “Even QuickBooks offers a payroll service that charges only $30 per payroll run. It can save a business owner four or five hours a week.”
While bookkeeping, like payroll, can present a learning curve, McDermott notes that there are benefits to keeping bookkeeping in house, especially among start-ups. For one, it can give astute business owners a chance to revisit just where, when and how revenue is being generated.
“I had a client who was keen on outsourcing their internal bookkeeping process,” he says. “But I advised them against moving away from that hands-on knowledge of their own transactions. Transactional analysis, even if just by way of day-to-day, hands-on observation, is key in a business’ early stages.”
Selecting a Vendor
For larger, growing companies, the simplest solution can be the most streamlined one. “Business owners go into business because they’re passionate about what they do,” says Janis Sweeney, owner and president of National Employee Management Resources in Marlton. “That doesn’t necessarily translate into an understanding of every task required to sustain and grow the business.”
Sweeney’s firm essentially operates as an outsourced human resources department, offering one-stop shopping for everything from payroll to employee benefits administration, and even becoming the employer of record for tax and insurance purposes.
“Our relationship with our clients is a co-employment, which means we share some of the responsibility and liability of the business for their employees,” Sweeney explains. “Companies are looking toward people like us to help with non-revenue-generating things, so they can concentrate on things that make money. There are so many changes occurring within health care and other employee benefits that it’s almost a full-time job.”
When it comes to technical work, employers must decide between domestic outsourcing and offshoring, (that is, contracting with overseas vendors).
“Costs overseas for web design are generally about one-third of what they are here,” McDermott says. But, offshoring does have its drawbacks.
“The problem with going abroad is you not only have the time difference, but there’s a natural barrier in terms of language and understanding of what deliverables are: the project scope,” says Rodner, who recently hired developers overseas to replace Agilence’s underlying database structure. “When you hire offshore, you have to be very specific about what scope and timeframe look like. You spend an inordinate [amount of] time writing documentation for specs. Certainly the dollars per hour are much cheaper, but then there’s trade-off of true cost. I probably wouldn’t do it again.”
Shopping freelancers on Internet sites like Elance.com and Freelance.com, on which freelancers bid on work, also demands an investment of time.
“Agilence needed some graphics work done on our website, and outsourced it through Freelancer.com,” Rodner says. “I got a number of responses, but was dissatisfied with a lot of them: many were form letters that didn’t match the expertise I’d described in my [request for proposals]. There was a lot of noise, if you will, that I had to work through to find qualified applicants.”
Still, McDermott advises against giving up on such sites just yet. “I think the sites still have a way to go, but putting up with their growing pains is worth it,” he says. “They open you up to so many resources.”
Rodner prefers going directly to communities of specialists when looking for specified talent. For example, in searching for a web developer for a recent project, he posted the details of the gig on a web forum frequented by industry specialists. “I recommend this approach highly: going directly to where people with your need hang out,” he says.
Once you’ve selected a vendor, ensuring that you get the best possible terms can still be a challenge, says Scott Tanker, the Cherry Hill-based regional sales director of Benchmark Payment Networks, a merchant processing organization that helps businesses process credit and debit payments.
“People who are explaining and selling [such services] don’t always take the high road in explaining fees,” he notes. “They may give them a fee schedule that seems very reasonable but that doesn’t really include all the extra fees that may be involved.” That can lead to surprise bills in the end.
Tanker says it’s important to recognize your negotiating position and, when you do sign a contract, “get it in writing”—down to the last detail. Especially when it comes to complicated or highly technical services, comparison shopping may be difficult. But interviewing various potential vendors is essential, especially when a multi-year contract is at stake.
Tanker notes that he frequently sees companies trapped in contracts that cost more than necessary. By revisiting the Aldo Lamberti restaurants’ processing contracts, he says, he saved the company $25,000 a year on fees alone.
But for that kind of outcome, he says, clients must follow the cardinal rule of outsourcing: “Get educated.”
Published (and copyrighted) in South Jersey Biz, Volume 1, Issue 6 (June, 2011).
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