Options for Outsourcing Buinsess

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Dear M&M:

I am considering outsourcing some of my business what are some of the considerations?

– Jeff

Dear Jeff:

Some considerations to determine if outsourcing would be for you include the following; lower operating costs, offer greater flexibility, better responsiveness to stakeholders, increased quality and of course one of the first considerations is saving money! For example, outsourcing parts of a human resources department and hiring a company that specializes in online administrative services could be a consideration for your organization.  Doing so could possibly save the company a significant amount of money, allowing it to devote those funds to making itself a stronger competitor, for example, by investing in product research. Farming out non-critical tasks allows a company to focus more heavily on its core competencies. For example, a marketing company might opt to outsource its website programming tasks rather than pay for a full-time programmer. Freeing itself of mundane programming tasks allows the company to concentrate efforts on higher-level website design issues, such as crafting effective online campaigns for clients. As an increasing number of companies adopt similar outsourcing practices, the beneficiaries of the demand are the providers of outsourced services. These providers seize the opportunity by expanding their services to secure more contracts and by optimizing their operations to improve their competitiveness with the other providers in their industry. As a result, the outsourcing industry as a whole improves. This only increases the attractiveness of outsourcing, causing more companies to outsource jobs. Outsourcing has some disadvantages that limit the snowball effect. Some companies will decide it’s better to maintain close control of all organizational operations. Hiring a foreign call center to handle customer service, for example, might anger any customers who have difficulty communicating their needs. In addition, when a company outsources vital operations, it is always taking a serious risk. If the providers don’t do the job as well as an in-house department could, the company could lose more money than it saves. Companies that outsource work also might be perceived as disloyal to their communities, and poor public perception could hurt business.

According to Kay Miranda, in a recent article written about HR outsourcing trends; Outsourcing human resources (HR) responsibilities is not something new, it has become grown into a major component of many HR departments. The focus on outsources is a result of organizations trying to focus manpower and financial resources. With global talent able to fulfill many of the requirements of an HR department, employee costs and management are reduced often with an increase in performance. Recent trends continue to have more outsourcing in more HR areas. Incentive plans, such as retirement savings plans and defined benefits plans, are frequently outsourced. The amount of legal and tax reporting and recording is immense when it comes to these plans. By outsourcing it to brokerage firms or plan administrators that strictly do employee benefits plans, the company can reduce the amount of time spent on recording. The fee paid to the administrator is less than what it would cost to staff the position. This also limits the liability exposure of the company, now further removed from fiduciary responsibility of incentive plan assets. Once upon a time, payroll was merely writing a check to cover the wages a person earned in a given pay period. Today, payroll requires state and federal taxes along with health and life insurance premiums to be withheld from pay. Assets must also move over from payroll budgets into employee salary-reduced benefits plans, matching programs and other incentive plans offered by employers. Payroll services do the accounting for companies and work with incentive plan administrators to make sure the right amount of money is being directed to the correct employee account. Payroll companies specialize in taking the funds and distributing them accordingly and then providing HR with the required report for accounting purposes. Like any other business decision, a decision to outsource should be based on numerous factors. A thorough inventory of existing, internal processes and an understanding of the benefits and pitfalls of outsourcing need to be taken into account.

 – M&M

To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email schmittm@cochise.edu or contact the Sierra Vista Economic Development Foundation(EDF) at 520-458-6948 or email  hollism@svedf.org

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