Outsourcing for financial impact

A response to cash savings from outsourcing IT

On a plane to San Diego, I had the good fortune of my laptop battery dying after its standard 30 minutes of life and opened the May issue of Inc magazine. Three of the first six articles were directly related to managing small companies in a downturn—cash management, hiring freezes, outsourcing your IT. Lovely times. The article on IT outsourcing touted the cash savings of using outsourced email and IT support vendors, as well as hosted software and phone systems. In reading the article, two things jumped out at me—1) is this stuff really news to the people running small businesses?, and 2) the cost savings were unimpressive.

Outsourcing is not just for big companies.

Because of the nature of our business, I am keenly aware of any opportunity to unload our own non-core functions on an outside vendor. We outsource our phone system management, IT support, email, payroll/benefits and HR administration and most of our technology development. If we can leverage someone else’s resources in a way that allows us to stay focused on our core areas of expertise, count me in. Not surprisingly, this is what we pitch to our clients. What I realized in reading the article is that small companies are aware of outsourcing and its benefits, but they may not be aware of the delivery models that make it cost-effective for the SME market. The evolution of VOIP technology and cheaper broadband costs make phone solutions like hosted PBX a great option for small companies. Software platforms and hosted exchange businesses developed over the last few years allow small IT outsourcing companies to support small growth companies like ours. One of the common objections we face in our prospect meetings is a concern of our ability to deliver recruiting services if we are not on site every day, and it takes some education to explain that our delivery model and technology are new and enable a delivery platform that wasn’t available 5 years ago. Most of the RPO providers are focused on volume hiring deals with the Fortune 500, so we are somewhat unique in that we focus on small and mid-sized companies.

Outsourcing recruiting will make a more significant financial impact.

As I read the article, it highlighted an 80-employee company that saved $30,000 by outsourcing its IT function. It’s a sizable number, but a fraction of what a company can save by outsourcing other functions. An 80 person company that is hiring 20 people per year (new and replacement) will spend about 14.9% of the compensation hired, according to Staffing.org’s 2007 survey. This $240,000 outlay consists of recruiter salaries, contractors, job postings, recruiting technologies, occasional agency use, etc—the full costs to deliver the hired candidates. Based on the costs our clients typically see (7-9% of compensation hired), Accolo could save them $100,000+ per year—3x the savings of IT outsourcing. While either number is significant, the hard dollar costs only explain a portion of the total cost. The distraction from your core business is a soft savings of any outsourcing initiative, IT, recruiting or other. There’s also a cost of doing it yourself and doing it poorly. We all know the business impact when your laptop melts down and takes 3 days to fix (always the night before the Board meeting). But what is the cost to your company of a sales seat or key engineering position being open?

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