If Done Right, Outsourcing Can Help Staffing Firms Become More Efficient

March 25, 2010

Staffing companies exist because their customers decide to outsource part of their business. Yet, when it comes to their own businesses, some staffing companies have been hesitant to outsource, preferring to keep all their work in-house.

That resistance may be fading, however.

“It’s changing pretty rapidly,” says Gary Halleen, president and CEO of API Outsourcing, a finance and accounting outsourcing firm in St. Paul, Minnesota, that has staffing companies among its clients.

The staffing industry has traditionally been “a homegrown kind of business,” he said. Owners and staff members at smaller companies may have designed all their processes and systems themselves, something they are proud of and reluctant to change.

But Halleen said he sees attitudes toward outsourcing changing: “People are much more amenable to that nowadays. They’re looking for ways to cut costs.”

The goal of outsourcing is to save money by hiring another company to do some of the work of your business without compromising quality. To see if outsourcing is the right solution for you, first consider whether the function is a core part of your business.

“If the role can’t lead to a senior management role in the company,” then it’s a good candidate for outsourcing, Aaron Green says. Green is CEO of Professional Staffing Group, a Boston staffing company, and a principal of PSG Global Solutions, which provides outsourced recruiting solutions to the staffing industry from the Philippines. Information technology and human resources are two common examples.

Even if some roles in an area can lead to senior management, parts of the function could still be outsourced successfully. Recruiting, for example, would seem to be a core function of a staffing firm. But it can be split into parts--some that are core functions and some that could be outsourced.

One part of recruiting is “the legwork that goes into identifying candidates and getting them interested in working with your company,” Green says. That is not a core function. “The core function is the final screen and the evaluation of that candidate and the matching of that candidate with a client,” he says.

If you don’t have enough work in a certain area to keep employees occupied all the time, that is another signal to consider outsourcing.

“Look at what your total cost is right now,” Halleen says. “Do you have enough volume to really keep everybody fully engaged, and do you have justification for all the support equipment that’s required to handle that?”

Perhaps, for example, you need more help in recruiting at some times of the year than at others.

“There are seasons in certain kinds of staffing,” says Scott Wintrip, founder and president of StaffingU. In this case, bringing on regular employees, only to let them go shortly thereafter, doesn’t make sense. If you outsource a function, you can either get by with fewer staff members or have your staff focus on tasks that are critical to your business.

Some administrative functions can be filled with a virtual assistant, says Wintrip. “What’s nice about a virtual assistant is that you only pay for the time you use them. Many of them charge by the minute,” he says.

Or, perhaps you have an employee who spends an hour a day scanning documents and then does other tasks the rest of the time. “If you went out and bought your own scanner and used it an hour a day, paying an employee who could be doing something else, that’s really a very poor use of resources,” Halleen says.

His company, on the other hand, has scanners that are used 24 hours a day, scanning documents for different clients.

Halleen also suggests looking at the turnover rate for these noncore jobs. Employees may be less motivated to stay with the company in a noncore function, since the opportunities for promotion may be limited and they may not have a real interest in staffing. Hiring and training—and then doing it all over again when an employee leaves—is expensive.

This is the kind of analysis Sandra Floyd, president and CEO of Outsource Consulting Services, a staffing company in Oakland, California, has been doing over the past two years. “What do we really need in the corporate office? What is going to make us much more nimble, more competitive?” she says.

The answer for her company has been to outsource several functions, including the hosting of the accounting system and all IT services.

When Floyd had to decide whether to fill her IT position more than a year ago, she decided to outsource the work to a company that is responsible for maintaining the network, providing desktop support and maintaining the telecom system.

The reason was primarily financial, but there are other benefits. The firm she hired makes sure its staff members are certified, and they stay on top of the latest updates to network security. Floyd also feels better about her company’s ability to recover after a disaster, since her systems are hosted and backed up remotely.

The arrangement is working well, she says, though it has been an adjustment for her internal staff. Instead of having a colleague sitting nearby who solves computer problems, almost everything is handled remotely.

“Some things we learned to do ourselves,” Floyd says.

But it has freed her staff to focus on more important things.

“We wanted to focus more on our core competencies: hiring, interviewing and selecting candidates,” she says.

Overseas vs. domestic
Outsourcing can mean hiring a company down the street to take over some of your noncore functions. But you don’t have to visit the outsourcing firm regularly. Some people outsource successfully to companies based in other states or even overseas.

“There have been concerns, and even criticism, of jobs going overseas,” Wintrip says. Still, he says, “I hear and see people taking things overseas and having success.”

Green says one advantage to overseas outsourcing is that workers in India and the Philippines, for example, may stay on the job longer since they provide a middle-class income in those countries. In the U.S., by contrast, there is often high turnover in these entry-level positions.

Green says he got interested in offshore outsourcing after seeing his clients do it. “I thought it was an important trend in the marketplace,” he says. His company hired and trained some workers through an organization in the Philippines, which they chose because of the workers’ English skills.

“Our goal was that candidates who we were recruiting shouldn’t know that we were outsourcing it,” Green says. “There can’t be a drop-off in quality just because you outsource it. It shouldn’t be any different than having a person two miles down the road in a remote location.”

Green decided to offer the service to other staffing companies once they had worked out how best to handle it. They focus on small to midmarket staffing companies—those that want to hire a handful of people for outsourced work.

“Once we got this program in place, we said, ‘This wasn’t the easiest thing in the world to do,’ ” Green says. He and other members of his team had spent a lot of time and traveled to the Philippines on several occasions making sure that the workers there understood and could follow their process. “We felt like it was a valuable solution for other recruiting companies and decided to build a business around it.”

Scott Witkin’s company is one of the staffing firms using Green’s service. He is managing director of Taylor Grey, a full-service recruiting firm that focuses on IT, accounting and administrative functions and has offices in Stamford, Connecticut, and New York.

Taylor Grey outsourced the refreshing of candidates in its database—“calling them up, double-checking their status, getting updated résumés, finding out when their assignments are ending,” Witkin says. “We had people doing it, but their time was better spent garnering new business, checking references and working deeply with candidates.”

For all the advantages to outsourcing, though, it’s not the best solution in every case. Witkin says his company considered outsourcing the receptionist’s job of checking in candidates who come to the office and calling the recruiter to meet them.

“We were going to have monitors with videos set up,” he says. The candidates would check in by speaking with someone overseas via video who would then send the counselor an e-mail announcing the candidate’s arrival.

But Witkin’s company decided not to go this route. “There’s a lot of cost savings to it, but there are some things you just cannot cut costs on,” he says. “This is a people business.”

It also takes a thorough knowledge of your own business to make sure outsourcing will work. Floyd is very happy with her outsourced IT vendor, but she says she is not sure it would have worked as well if she had tried outsourcing when her business was newer.

Having had the IT function in-house, she understood it thoroughly and knew what functions were critical. This kept her from being talked into paying for outsourced services she didn’t need as she was evaluating bids from various vendors.

“I could see a lot of fat” in some of the proposed contracts, she says.

Making it work
Outsourcing, like any business relationship, doesn’t just work automatically. It takes effort, from both the outsourcing firm and the customer. Experts offer these tips for making sure outsourcing goes smoothly:

Do your homework. Make sure you check the references of potential outsourcing partners—and not just the references they give you.

“Smart providers are going to give good references,” Wintrip says. “I’m going to ask for a reference where it didn’t go well. When problems happened, what did the provider do to make it right?”

Wintrip also recommends asking people in your network if they have worked with the company, so you can get a perspective beyond the customers who have offered to serve as references. “I’m not going to just rely on what the provider gives me,” Wintrip says. “People aren’t going to give bad references.”

Spell out expectations. You need to make sure that both you and the provider agree on who will do the work for your firm, what they will do, when it will be done and how they will do it.

“Expectation setting and holding people to expectations is a tremendous weakness. This area is not immune,” Wintrip says. “All of those questions need to be dealt with upfront.”

Halleen recommends that staffing firms insist on a service level agreement that spells out exactly what the expectations are and how fast services are needed. “Our customers generally want a 24-hour turnaround on documents,” he says, though one customer has a two-hour turnaround written into the agreement.

The communication can’t end when the agreement is signed, either. You need to keep talking to the outsourcing provider, making clear what is working and what isn’t, and “being flexible enough to make modifications” if necessary, Halleen says.

Be specific. If you don’t tell the provider exactly how you want the work done, be prepared for a surprise. For example, Wintrip says, you may say you need names, phone numbers and e-mail addresses for your database. But if you don’t specify the format, you may get data that you can’t import into your database.

“If you’re not specific on how you want the work done and what you want the deliverable to look like, then you’re leaving it to the discretion of the provider,” Wintrip says.

If you’re having people answer the phones, be sure to train them on how to answer callers’ questions—and what to say if they don’t know the answer. Wintrip heard of one case where someone had not been given enough information before answering the phones and, when pressed for information, replied, “I don’t know; I just answer the phones.”

Be patient. Just as a new employee has a learning curve and might need a bit of help at first, so an outsourcing firm may take a bit of time to get up to speed.

“Just because it’s outsourced doesn’t mean that the normal human issues don’t come into play,” Green says. “If I hire an employee to work at my company in Boston and they make a little mistake on Day 3, I’m probably not going to terminate the relationship.”

When similar issues crop up early in an outsourcing relationship, be prepared to work them out.

The bottom line on outsourcing is that it can save money if done well and with the right functions. But it’s not a panacea. The key question, Wintrip says, is: “At the end of the day, will this help the firm make money?”

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