However, when respondents were asked how much money they are considering spending, the smallest companies estimated, on average, $1.9 million, well below last year's $3.6 million and the overall survey's $14.4 million. For companies with 500-1,000 employees, potential spending came in at a $6.5 million average, also well below last year's mean of $9.5 million for this group.

This is typical of small companies, which consistently show a pattern of low current penetration and high potential. Take human resources, for example, traditionally a popular activity to outsource. Among all companies responding to the survey, 20% are outsourcing some aspect of it, but just 9% of the companies with 500-1,000 employees. That 9% penetration is well below the 29% reported by companies in the 50,000-100,000 employee range.

Potential is another story. Among the whole survey sample, 17% are considering HR outsourcing, but 22% of the companies with 500-1,000 employees and 18% in the group with fewer than 500 employees.

That greater interest among companies with 500-1,000 employees holds up for most aspects of HR outsourcing.

It's no surprise, therefore, that HR service vendors who target small companies are smiling. "Business is good because small businesses are smarter with their money these days," reports Vic Tanon, president of StaffPay Inc., of Irvine, Ca. The boom in outsourcing among small companies has meant a boom for StaffPay: From 2001 to 2003, the HR outsourcing provider more than tripled its revenue, to $85 million, he reports.

"People use us to increase their productivity, improve their bottom line, increase retention, get access to state-of-the-art HR technology and to share risk because, as a professional employee organization, we assume quite a bit of the employer's liability," he explains.

The same strong interest emerges for outsourcing administrative functions: 37% of the companies under 500 employees and 31% of companies with 500-1,000 employees compared with 36% for the entire survey universe. However, when mulling future plans, the greatest interest again shows up among companies with 500-1,000 employees.

Manufacturing shows the same sweet spot: 24% of the firms with 500-1,000 employees are considering outsourcing manufacturing and 17% of the companies with fewer than 500 employees, beating the overall average of 15% but not the 30% interest level of companies with 5,000-10,000 employees. The 500-1,000-employee companies are particularly above average when it comes to design and development (9% compared to 4%) and testing (7% compared to 2%). Smaller companies are slightly more likely to have already outsourced elements of manufacturing, reporting 18% (under 500 employees) and 19% (500-1,000 employees), while the overall universe averages 16%.

In the area of distribution and logistics, current penetration favors the large companies--38% for companies of 5,000-10,000 employees, for example, well ahead of the group average (19%) and the numbers for the smallest companies (21%) and those the next size up (16% for those with 500-1,000 employees).

But again the level of those considering D&L outsourcing is strongest among the ranks of the businesses with 500-1,000 employees: 33% of them are considering it, well above the 17% average for all companies surveyed. That group (500-1,000 employees) consistently beats the whole group average:

• 13% compared to 6% for general distribution and logistics,
• 9% compared to 6% for operations;
• 9% compared to 6% for warehousing;
• 11% compared to 5% for D&L information systems;
• 9% compared to 4% for maintenance;