by: SBC Staff
Outsourcing was once the
domain only of large corporations. Companies like EDS, Accenture and
IBM regularly inked multi-billion dollar outsourcing deals with Fortune 500
companies and that became the face of outsourcing for most people.
But today, even the smallest of businesses, home businesses included, can
find outsourcing alternatives for operations that could only be done
internally in years past.
Consider your email list, or the one you are in the process of building, as
an example. You no longer have to maintain your lists in-house and deal with
subscriptions, remove requests and bounces on your own. There are many
companies that will handle these chores for you, on their servers, for a
monthly fee. They will also handle mailings to your list which saves you
both time and bandwidth. For those who are just starting to build their
lists, there are also free services available.
Industry giants like Oracle are now offering accounting and office
application products on an outsourcing basis. So are Microsoft and a host of
others. Payroll functions have long been outsourced to companies like ADP.
Companies are offering customer relationship management (CRM) products via
the Internet that give each of your salespeople access to the latest sales
tools from wherever they might be in the world.
The laundry list of services available on an outsourcing basis could
continue for several pages and will continue to grow as time goes on. But
the real question is . . . should you be interested in any of them? How can
such programs be helpful to you and what are the risks?
The primary draw of outsourcing deals of any type is the ability to preserve
your resources for building your business by turning over entire business
functions to companies that are ideally suited to handle them. For any
business, the largest cost of any operating function is usually
employment-related costs. Presumably, outsourcing companies can operate more
cost effectively than you can because they specialize in one area almost
exclusively and attract and hire the best minds available within their
discipline. They develop economies of scale by providing the same business
functions for many businesses.
The concept is sound. Many of the companies providing these services are
Most of the companies providing these services to small businesses are known
as Application Service Providers (ASPs). They are Internet-based
organizations and have been cropping up regularly for several years now.
Before you consider using one of them, you need to ask yourself several
questions and make sure you have solid answers before you proceed.
1. Are they going to be around tomorrow? ASP services are difficult
to price and, thus far, pricing variances are wide from one customer to
another and many of their business plans have proven suspect. As a result,
many of them fail. If you turn over a critical business function to an ASP
and it fails, you will sustain severe damage with little likelihood of
recovery of damages.
2. Is your information private? If you are transferring critical
business data to your ASP, that data is now out of your control. The ASP is
responsible for security and data backups. Even the largest and most
sophisticated of organizations is not immune to hacking or natural disaster.
3. How do you access your data? Will your connections to your data be
fast enough to keep your employees operating efficiently? What happens if
your Internet connection goes down?
4. What kind of service level does the ASP guarantee? You need to
know your data is available when needed. You should negotiate monetary
penalties if agreed-on service levels are not met.
5. Will you save money by using an ASP? You're giving up a lot of
control over your business functions. Unless you save a lot of money and
work more efficiently by entering into an ASP agreement you should not be
We would generally recommend you do not outsource your accounting functions
to an offsite, ASP-type organization. Accounting functions are too
critical to risk. To know the full value of accounting data you only need to
lose it and find yourself subjected to an IRS audit. The cost to recreate
the data can be enormous. The cost of not being able to recreate it can be
even more expensive. Be safe and keep your accounting data under your
control. The same is true of any other mission critical data. Additionally,
your accounting system should be
integrated with your operational systems, such as inventory, purchasing and
sales. It will be difficult to integrate if you move the accounting piece
Other functions, such as outsourcing your mailing list functions, are more
easily outsourced. But be careful. Don't enter into any agreement without
understanding exactly what the relationship will be. We are aware of
companies that outsourced their mail lists and found out later when they
attempted to switch vendors that the outsourcing company had acquired
ownership of the mail list under the contract. They stood to lose thousands
of subscribers if they switched vendors.
If you are going to outsource any function at all, make sure you understand
the contract and negotiate it to meet your needs. If you have
questions after reading the agreement, either get someone knowledgeable to
help you with it or walk away.
If outsourcing appeals to you from a cost-saving perspective, find a company
that will provide the service on your site. As an example, companies like
our own Peak Small Business Center will set you up with servers, computers,
printers, remote capabilities, internet access for your office, accounting
software, office productivity software and anything else your internal IT or
accounting functions might require for a fixed monthly fee that includes all
maintenance, consumables and even the people to run it all. You save the
excess costs of purchasing equipment and hiring additional employees and
everything is done on your site. This is small business outsourcing in the
more traditional, big-company sense.
But even with a traditional outsourcing agreement you need to pay special
attention to your service level agreement. Make sure all responsibilities
are spelled out clearly and that you receive rebates on costs if service
levels fall below acceptable minimums.
Copyright (c) 2002