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BY Richard H. Gamble
Small companies seemingly have the most aggressive plans to outsource, especially those with between 500 and 1,000 employees. However, it's not because they are looking to save money, which still heavily drives the outsourcing decision among the largest companies.
"Many fast-growing companies are now of that size where their processes need to be done on a larger, more automated scale, and they have to decide whether to tackle a major, expensive internal makeover or look for an outsource service provider," points out independent technology outsourcing consultant Art Prifti, principal of APC Technology.
But when outsourcing is done to eliminate distraction for senior management, to get access to state-of-the-art technology or to tap expertise that can't be added economically to current staff, the odds favor small companies. For this reason, the sweet spot for future outsourcing should be the small company.
Small companies realize that outsourcing "improves business processes and gives companies access to best-of-breed systems and people that they never could afford to have in-house," Prifti adds.
These sentiments are underscored in The Outsourcing Institute's Sixth Annual Index. (We divided the respondents into six groups, with the smallest two--under 500 employees and 500-1,000 employees--defined as small companies.)
While 66% of the largest companies (over 10,000 employees) cite lower costs as a primary reason for outsourcing, only 45% of the smallest companies (under 500 employees) do, and 54% of companies in the next tier (500-1,000 employees).
This is not to say that saving money is not important. "Outsourcing is critical to our business strategy," notes Ken Reiser, president of Dallas-based Meletio Lighting, which has 50 employees. "We've outsourced our IT, our payroll, part of our deliveries and our janitorial services. It has allowed us to regain control over our general and administrative costs."
Better use of scarce resources clearly whets outsourcers' appetites; 39% of companies with 500-1,000 employees cite freeing resources for other purposes as a primary reason for outsourcing, the highest for any of the company size segments. This group also is, far and away, most interested in outsourcing as a way to share risks--21%, compared to an overall average of 14%. And the two smallest company groups are the most motivated to accelerate reengineering benefits.
Tellingly, they also are the most driven to consider outsourcing as a way to reduce time to market. And predictably, they are less interested than larger companies in using it to take advantage of offshore opportunities, although the smallest companies are more interested (14%) than companies with 500-1,000 employees (8%).
The weak economy certainly is taking a toll on outsourcing projects. The median estimated sum that the smallest companies are currently spending is just $700,000, the same as last year and well below the $1.6 million median for all companies in the survey.
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