Reduce Overhead, Increase Efficiency by Outsourcing

A friend recently recounted the story of his leaky toilet. "Don't worry," said his father-in-law. "I can isolate the leak and fix the toilet in a matter of minutes." With only a slight bit of hesitation, my friend agreed to let his father-in-law give the annoying leak a whirl, rather than call a plumber. " All done," he said with a smile.

A week later, the ceiling above his living room collapsed with a loud thud. It must have sounded as though an exceptionally large bucket of water had just been released overhead. As it turns out, the toilet was still leaking, though for the past week the water had been collecting beneath the floor boards.

The moral of the story: Stick to what you do best and outsource the rest.

It wasn't long ago that outsourcing was practiced primarily by the GMs, 3Ms and IBMs of the world. These days, as companies of all shapes and sizes seek to reduce costs, smaller firms are increasingly embracing outsourcing as a cost-effective way to remain competitive. Today, companies worldwide spend more than $1 trillion a year on outsourcing - a figure which is growing by 20 percent annually.

Outsourcing allows its practitioners to reduce overhead expenditures, increase speed, flexibility and response times, and improve organizational efficiencies.

Reduced overhead
Most companies' biggest expense is labor. By the time you factor in taxes, paid vacations, bonuses, insurance, office space, support personnel, a computer, software licenses, a mobile phone, Internet access, and free gourmet coffee, a $50,000 a year salaried employee can easily cost a company upwards of $100,000. Don't forget to tack on the expenses involved with recruiting, training and retaining employees, and it's no wonder companies are increasingly choosing to outsource rather than add to their headcount.

Through outsourcing tasks such as accounting and finance, marketing and public relations, and IT management, companies can reduce financial risks by utilizing internal resources more efficiently. Why have an accountant on staff when a bookkeeper will do. Similarly, why spend you resources on an in-house marketing and PR department when all you require is a few press releases a quarter and someone to periodically update your brochures and Web site?

Increased speed and flexibility
Within 10 days of the Xbox's launch, Microsoft had sold 556,000 of the popular video-game consoles, despite the fact that the company had never operated a single factory or manufacturing facility. How did they accomplish such a feat?

Turns out, Microsoft is in the sales and marketing business, not the manufacturing business. Rather than invest in factories, Microsoft outsourced the manufacturing of the Xbox to Flextronis, a company which specializes in bringing new products and technologies to market.

Decreased turnaround time and greater flexibility are two primary motivators behind companies' decisions to outsource. By working with a contract manufacturer, companies can more easily ramp up for a successful product launch and minimize their loses when a product doesn't meet expectations. Rather than be constrained by a major capital investment, companies are only limited by the terms and conditions of their contracts.

Improved structural efficiencies
If you've ever launched a business after leaving the corporate world, you know how overwhelming it can be. Suddenly, Julie in HR is no longer there to answer questions about the company 401(k) plan. Joe, the genius in tech support you've always relied on to solve your computer problems, is solving other people's problems. And Janet, with her ability to execute the ideas in your head, now works for your replacement.

The smaller the company, the more hats you'll wear. As CEO, you may be called upon to assume the roles of vice president of sales, director of marketing, HR manager, and even chief carrot-peeler.

Try to accomplish everything and you'll accomplish very little. Instead, focus on what it
is you do best and select qualified partners to handle the rest.

As for my friend with the leaky toilet, he learned his lesson. Not long after the living room
was put back together, he and his wife hired a contractor to remodel their kitchen in preparation
for the sale of the house. The couple kept their distance from the kitchen and, remarkably, the
house sold the same day it was put on the market.

Eric P. Strauss is a public relations and business strategy consultant. He recently launched
EntrepreneursForHire as a virtual marketplace for Twin Cities' independent professionals and the
growing companies that depend on their services. Eric can be reached at
or through his Web sit at
From an article published in CityBusiness, January 25, 2002.

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