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By Anthony Baldo
Like middle children, middle-market companies seem to think differently than their larger and smaller competitors...especially when it comes to outsourcing.
This is apparent from The Outsourcing Institute's Sixth Annual Index, a survey of 1,911 of its members.
At first blush, middle-market companies do what others do. Companies with more than 1,000 employees but fewer than 5,000 mostly outsource technology, administration and manufacturing, just like corporations with fewer than 1,000 workers and more than 5,000.
But there are differences in how companies of varied sizes think, and even within the middle tier itself. For example, while information technology is overall the most popular outsourcing choice, mid-market companies do less of it than firms with fewer than 1,000 workers (47%) and 5,000 to 9,999 (62%). Only 39% of the companies with between 2,500 and 4,999 workers outsource IT, and just 45% of those with 1,000 to 2,499 employees do.
Then look at administration. At least 30% of the companies in each of the four segments of companies with fewer than 10,000 workers outsource it, but it's especially popular with the 1,000- to 2,499-worker crowd (48%).
That the figures tumbled out this way isn't surprising. One director of IT says a company loses much intellectual capital when it outsources IT, perhaps explaining middle-market companies' reluctance to make a deeper plunge.
They don't, however, face as much of a risk with administration outsourcing. "Administration is perceived as one of the less strategic components, with little loss associated with intellectual capital," says Tandy Gold, who founded and still coordinates the Offshore Interest Group, an organization of outsourcing executives from Fortune 100 companies that meet monthly by phone. "So you get pure-play savings with little perceived negative impact." Thus, administration outsourcing pays much bigger dividends for middle-market companies than they do for larger ones, she adds.
"Larger firms can more than likely create shared service departments that are cost efficient within their own company," says John Ruther, director of outsourced services for CHEMCENTRAL, the world's largest independent chemical distributor. "In order to obtain the same economies of scale, the middle-market firms have to outsource." At least 14% of the respondents in the four sectors with fewer than 10,000 workers outsource manufacturing, but the small and big ones (both 19%) do so the most.
Real estate and facilities management outsourcing was common (22%) within the 2,500- to 4,999-employee group, but that still paled to what smaller- and larger-sized companies are doing in that area. Data capture (23%)
was more typical among the 1,000- to 2,499-worker types and really didn't show up as a current outsourcing choice in other size sectors.
Naturally, anecdotal evidence shows that some middle-market companies are being creative with their outsourcing choices.
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