By:style='mso-tab-count:2'> Anne Bryer

Considering outsourcing some functions of your company to a

vendor? Before you sign on the dotted line and turn over parts of your company,

make sure you fully understand what type of arrangement you'll face.

It's possible that outsourcing is

not the way to go at all -- that maybe your company needs some internal help

with a certain process instead of completely turning over that function to an

outside vendor. It's also entirely possible, however, that your company needs

extra help that just won't come from your existing internal organization.

First, outsourcing is not the same

thing as simply contracting a service to another company. In a simple contract

agreement, you and the vendor agree on a specific service at a specific time

using specific materials. In outsourcing, you are hiring the vendor to perform

a business process. The vendor takes over a regular business function that

normally would be handled by internal staff.

Unless you're a very large company,

you're probably outsourcing many functions already. When you hire a company to

clean your office or an accountant to do your taxes, you're outsourcing. You

may outsource certain jobs until you hire staff to perform them. Or, you may

plan to outsource that function for the life of your company.

normal'>Do You Really Need it?

Hiring a window washer probably

won't be an agonizing decision. Hiring out an entire business function or a department,

however, may present a more difficult choice. There are companies that can

manage your marketing, plan your finances, keep track of your paperwork and

find potential employees, among other tasks. Hiring a vendor company to perform

one of these tasks could present a substantial investment.

Take a careful look at your

existing staff and internal organization. Will hiring an outside company really

be more effective than using your existing employees? How much, on an annual

basis, will you save in eliminating a department and hiring an outside vendor

to perform that function?

Quantify the task itself -- how big

of a job is it, how frequently is it necessary, and what internal resources

does it require for the return it offers? "If the job that you are

outsourcing brings very little return to your company, then you should get rid

of it -- turn it over to a professional company," advises Rick Kraska,

owner of Employee Professionals, a Naples-based outsourcing company that takes

on payroll, human resources and benefits planning.

Below are some of the biggest

reasons to outsource, along with considerations you'll be wise to make:

normal'>Saving Money Through Economy of Scale

One of the biggest reasons for

outsourcing is the economy of scale that an outside vendor can provide. When a

vendor specializes in a particular area, it can take on projects for several

clients at once, saving money through mass buying power.

Such is the case for Employee

Professionals. The company is part of the growing trend of professional employer

organizations, or PEOs -- an industry growing about 30-35 percent a year.

Kraska says his company is able to provide a client company better employee

benefits, such as insurance and 401(k) plans, because it has increased buying

power from numerous clients.

Krasksa says his clients, which

range in size from 10 to 200 employees, could not be able to provide the breath

of benefits and insurance plan options offered by his company. "They can't

come anywhere close to the service we provide them for the price," he

says.

In his guide normal'>Outsourcing -- How to Make Vendors Work for Your Shareholders

(1999, NDMA Publishing), organizational consultant Dean Myer agrees that some

outsourcing companies can provide such advantages. "Economies of scale

save money when units costs go down as volumes increase," he writes.

"Outsourcers can achieve economies of scale unavailable to individual

firms when they combine the volumes of multiple corporations."

Myer observes three points to

watch for:

1. Economies of

scale must exist. That is, there must be some economic advantage to larger size

or greater numbers before outsourcing and pay off; i.e., unit costs must drop

as volumes increase.

2. The economies

must be accessible across corporate boundaries. That is, savings occur if

outsourcers can combine the volumes of multiple corporations. ...

3. The savings

must be sufficient to outweigh the additional cost of paying other shareholders

[the vendors] a profit.

normal'>Replacing Costly Employees or Lightening Manger Workload

In Southwest Florida's extremely

tight labor market, it's easy to be concerned about finding the right employee

for a particular job. Outsourcing presents a very convincing argument that it

might be easier to hire a company to do the task rather than look for an

employee with the degree of specialized skill needed. Or, taking the task off

your or your manager' shoulders may justify the added expense for an

outsourcing vendor.

Think about

the resources freed after the task is outsourced -- is it worth the cost to

hire a vendor? As Myer points out, hiring an outsourcing company still involves

work -- perhaps more than anticipated -- to arrange the vendor contract and

make sure the function is being performed to specifications.

Another option, Myer suggests, is to

practice "extended staffing," described as "the use of vendors

and contractors to extend the resources of the internal group that offers the

same skills and products." This could include the use of product vendors,

temporary employees, project employees and long-term contract employees.

Lastly, Myer says that outsourcing

should not be used as a quick fix to internal organizational problems.

"Outsourcing is not an alternative

to investing in healthy internal organizations," he writes. "In fact,

the opposite is true. Making the best use of vendors requires healthy internal

service providers.

"If an

internal service provider is not working well, it's not appropriate to give up

and turn to its external competitors. The right response is to fix the

organization."

For more information

about N. Dean Myer's book, Outsourcing -- How to Make Vendors Work for Your

Shareholders, call 203-431-0029.