California Business - Volume 3, Issue 1 - Northern California - 19

BUSINESS
INSIDER

"If you're in engineering or manufacturing and you're starting a new development, such as a new product line, you'll
probably want to hire a full-time person,"
says Paul Schwada, director of the Chicagobased management consulting firm Locomotive Solutions. "But if you aren't certain
the new position makes sense full time and
long term, start by outsourcing. It usually
requires a higher variable cost, but doing
so allows you to better gauge the need or
opportunity. At some point, you can then
determine whether it's best to make it a
full-time role or keep it outsourced."
When a small or medium-sized company's staff is not 100 percent utilized and
there is excess capacity in house, your
in-house personnel may be able to handle
a project such as prototyping or a soft
launch. This is far less risky than adding
resources, and once the project is accomplished, management can determine how
fast it can grow revenue within that market
and whether growing the staff or outsourcing is the best way to maximize gross
margin on that product.
Where does outsourcing make sense?
For a small or medium-sized company,
outsourcing can be an option when it
needs an executive, but doesn't need one
full time.
"Many companies under $50 million in
annual revenue don't have a true CFO, yet
find themselves needing someone to do occasional budgeting and financial analysis at
the end of a month or quarter," says Gregg
Landers, managing director of Consulting and Internal Control Services at CBIZ
MHM. "An outsourced financial professional can also help a company get a grasp
on ratios and trends, and what they mean
to the health of the business."
Accounting work is sporadic, and
another area to consider for possible
outsourcing, because for many small and
middle-market companies, it makes more
sense to bring in a CPA as needed than to
have an accountant on staff.
IT is also ripe for outsourcing, although this is a complex issue and highly
dependent on a company's size and bud-

"When a company
gets into a hiring
and firing cycle,
it's hard on the
organization."
- Paul Schwada, director,
Locomotive Solutions

get. On the plus side, you eliminate the
time spent training, certifying and keeping staff up on the latest technologies,
but you may have to deal with language
barriers if outsourcing overseas, and when
issues arise, you still have to spend time
bringing off-site IT folks up to speed. To
avoid these issues, an outsourced firm
can handle your IT needs on an ongoing
basis via managed services, assisting with
routine tech issues. Outsourcing services
often allows you to scale IT resources up
or down as needed, eliminating costly
servers and installation fees.
Some small or medium-sized companies, especially those in the technology
sector, also benefit from outsourcing the
CTO position for help with security or
compliance issues.
Finally, public relations and marketing
are functions that often lend themselves to
outsourcing. With the exception of really
large companies, employing a full-time
person to write ad copy probably doesn't
make sense when you can hire a freelancer
on an as-needed basis.
The key for any outsourcing decision
is evaluating the workload over several
months. The workload might justify a fulltime person for several months, then drop
below that level after that. If you can't
wait to make a decision because of the
burden it places on existing employees,
outsource to start until you are confident
the workload will remain steady. When
you reach the point you are confident a
full-time person is justified, you can start
the hiring process by seeing if the person

you outsourced the work to is interested,
thus eliminating the amount of training
required.
The human factor
When determining whether to outsource
or hire, small and medium-sized companies often fail to consider how these
decisions will affect their staff. Bringing in
new workers can have both positive and
negative impacts on morale, Schwada says,
and it may be better to consider hiring a
contractor instead of adding someone to
the staff.
The scale and length of a project also
matter. Once a project is completed, will
you need the same level of staffing as when
you started it?
"If you're not sure, outsource," he says.
"When a company gets into a hiring and
firing cycle, it's hard on the organization.
Business may be going great, but too often,
management doesn't think about the long
term, about how morale will be affected.
And when morale goes down, so does
productivity, and usually, respect for the
leaders of the company."
Schwada says employees tend to make a
cultural distinction between full-time people
and contractors. "Even if a contractor is
there for many months, when that person
is gone, it's not considered a layoff, and
people don't see it as a painful event," he
says.
At the same time, however, staff can
be put off by the sudden appearance of a
contractor, even if that person's role is to
lighten the load of full-time employees. Be
sure you clearly explain the contractor's
role and responsibilities - and how long
he or she will be there - so that employees don't feel threatened.
No matter what your need or how desperate the situation, don't make panicked
decisions. Take the time to methodically
look at how much work needs to be done
and how long it is likely to last. If you
aren't sure, start by outsourcing first, then
hire later if the need is there. If the work
isn't steady, it's a lot easier on you and your
organization to stop outsourcing than it is
to have to fire an unneeded employee. *

California Business * 19

California Business - Volume 3, Issue 1 - Northern California

Table of Contents for the Digital Edition of California Business - Volume 3, Issue 1 - Northern California