By Peter Lyle DeHaan , PhD
As I contemplated my publishing business, I was struck with the realization that I had structured it as a virtual company. This wasn’t intentional; it just worked out that way. Not only am I the only one working in the “corporate office,” there are no local vendors either. Indeed everyone who takes part in the production of our magazine is from out of state – different states!
Dave, our layout genius and designer extraordinaire is in Pennsylvania. His work gets sent over the Internet to our printer in Ohio. There they work up the proofs and put them on an FTP site for Dave and me to review and then approve. The mailing list is maintained by myself in Michigan. For each issue, I output the file and email it to our list processor. They massage the data and sort the list, in turn forwarding it to our printer. The printer merges the mailing list with the magazines and delivers them to the post office. An army of postal carriers deliver the finished package to your home or office.
The newest member of the team is Valerie, our media rep., in New York; she handles the display advertising sales. As editor, I plan, solicit, collect, and edit the articles and press releases. Finally, our websites are hosted by a in Arizona, but I update the content remotely from Michigan.
I have never met any of these fine people in person. We conduct business via telephone and make frequent use of email. Each issue is produced without any face-to-face interaction. For our first issue, this was somewhat disarming and disconcerting, but I am convinced that the result is better than if we all worked together in the same office. True, we miss out on some synergy, incidental communication, and camaraderie, but we are also each free to do what he or she does best and to do so with minimal outside distraction and interruption. As Bill Murray said in the movie “Stripes,” “We’re a lean, mean, fighting machine!”
I theorize that most organizations could similarly be configured as a virtual operation. Over the years I have run into more and more situations where aspects of a business are outsourced, including billing, accounts payable, and general ledger. They hire a computer support firm to maintain equipment, an ad agency to do marketing, and an independent sales agent (in the spirit of a “manufacturers” rep) to generate sales. Not that any single company outsources all of these functions, but many companies outsource some.
It is important to note that “outsource” does not necessarily imply another country. Indeed, despite media attention to the contrary, the majority of outsourcing occurs to business within the same country.
Conventional wisdom says that you don’t outsource your “core competencies.” However, there are those who advocate that you can indeed, farm out your core competencies as well. What if someone else can do it even better – or cheaper? What if your labor market has near zero percent unemployment or if you’re just plain tired of the HR aspect of the business? All of these are prime reasons to consider outsourcing your operations. In fact, I am aware of several companies which have done or are doing so. Outsourcing the operations aspect for a start-up can solve many problems and conserve cash flow while a base of clients is being amassed; then it is all moved in-house. Others have opted to form permanent outsourcing arrangements either out of necessity or preference. The end result is that there are no staff working in their office!
There are essentially six areas of focus and effort for most organizations: operations, customer service, sales and marketing, technical, accounting, and management. I have yet to see one company do all six with aplomb and excellence, yet any viable concern excels in at least one area. Even the strong players master only two or three. In fact, some of the most profitable companies are, at best, average at five of the six, but because of a strong, visionary, and capable management, they consistently generate outstanding profits.
Since no one can master everything, it is pragmatic and even wise to consider outsourcing the weak areas of your company. Then you can focus on what you do best and your company will be better as a result. After that you can consider taking it to the next level and outsource the rest. Ultimately, you too, could become a virtual company; a company of one!
As you begin looking for outsourcing partners, you must be careful in your selection. A bad choice can be costly or even crippling, but it can also be quickly corrected by merely finding a new firm to handle that aspect of your business. (Those who have outsourced their operations did not put “all of their eggs in one basket,” but have divided the work between multiple vendors. No more than 50% of your business should go to any one place; this gives you greater flexibility and minimizes risk.)
You should scrutinize an outsourcing partner just like you would any other vendor. “Look before you leap.” Referrals are valuable; check references. When outsourcing operations, unless they come highly recommended, visit them in person. What does their facility look like? Are they big enough to handle your work? Are they small enough to care about your account? Do you have a good rapport with and respect for the key people in their company? Is there the potential for a long-term business relationship? Lastly, find out who will be your primary contact on a day-to-day basis. How well do you mesh with that individual? What is their anticipated future tenure with the company? Should this contact leave, will your satisfaction with the outsourcer’s service disappear as well, or will someone else be capable and able to take over without impacting your organization?
Certainly, no outsourcing agreement should be entered into lightly or without due diligence, but when it is properly executed and for the right reasons, the results can be both liberating and profitable.
This is not to advocate that everyone needs to look into outsourcing, but it does offer some intriguing opportunities and is certainly another option to consider as you look to the future and consider how to make your company better – and more profitable.