Outsourcing and the Lean and Nimble Small Business-#kaizenblog recap
People talk about lean and nimble as if it’s the surefire way to business success. And certainly some of it is commonsensical. But what does it look like? What would help my business or your business be lean and nimble?
I invited Richard Winter of Comprehensive Consulting Services to talk about outsourcing in general and specifically those that focus on back office operations. Here is his framing post that started the conversation. Would it make more sense for your small business to have a professional or even an agency provide you with legal, IT, human resources, or financial services? What kind of savings would this create for your business if you didn’t hire a full-time employee? What growth could your business create if you wanted these types of people but couldn’t afford to hire them?
These were the questions we explored in the Twitter chat, #kaizenblog with Richard Winter as our guest host. To read the conversation in its entirety, here is the transcript. Transcript for #kaizenblog -OutsourcingandLeanNimbleSmBiz
To make sure that we were all working with the same definition of “lean and nimble”, we started with a basic first question. What does it mean for an organization to be lean and nimble?
- Stephen Denny “Q1 Lean + nimble suggests spending more time focused on customers/competitors than on internal processes/admin.”
- Joe Sanchez “A Responsive to customer needs & market changes”
- Amber Cleveland “A1 – To be operating at maximum effeciency w/ ability to change gears quickly”
- Caroline Di Diego “A1: Staying small & efficient, / getting best value 4 all services / no superfluous organization/mgmt”
- Patrick Prothe “Lean/nimble means having sound strategy 4 long term, agile enough to react to mkt. changes. But not reactive like hamster wheel”
As Richard pointed out, there are times when you want to change or grow your business without hiring someone for every stage, for maintaining market competitiveness, and “its about focus too. If you are waiting weeks to close books by the time you analyze you are mired in past.”
So any business can be lean and nimble but what about small business and outsourcing? With a lot of small businesses working with various types of virtual assistants, book keepers, accountants and other types of professionals to keep costs manageable, it seems that outsourcing could be part of this. How does small business use outsourcing in general? This brought up differing points of view based on experrience.Jo
- Stephen Denny “A2 Small biz uses outsourcing for admin, creative, non-”sales/acct mgmt” side of things”
- Heidi Cool “Small biz can outsource things that are outside their own skillset for things that don’t require an FTE”
- Ken Rosen “A2 For us: finance, creative, bandwith. Experiments outsourcing with those we don’t know largely unsuccessful.”
- Joe Sanchez “General rule of thumb: Don’t outsource core competencies. This means knowing what those core competencies are.”
Richard echoed Joe’s comment about knowing one’s core competencies. When outsourcing, make sure you are doing what you are expert in and let the other professionals you’ve hired to do the things you don’t have time for or don’t have the necessary skills. Ken Rosen added a final question that seemed to sum up this concept, “impt soul searching question: when is it about saving money & when about raising svc quality?”
Richard coined an acronym to differentiate between outsourcing in general and his concept of how certain types of outsourcing agencies or firms are more beneficial to the company’s overall growth. This is how he described it in his framing post:
Established Service Center Alliances or ESA’s go beyond transaction processing and administration. They add executive leadership as well as vision and partnerships between businesses that produce a better result at a more economical price than internal hires who offer no leverage.
With this idea in mind, we discussed the next question. What are ESA’s must-haves for the small business owner? There was some discussion about how and when to outsource HR. Richard shared a story about this “HR point on wanting to spend then owner finds out lawsuit won costs $250k” Going back to Ken’s question about thinking long and hard about saving money or serving your customers better was the underpinning during this part of the conversation. Richard also described, “ESA’s are an arrangement that not only delivers the administrative work but also provides analysis and suggetive insights.” Debra Ellis tweeted, “The key to successful outsourcing is in-house management. Have liasion person responsible for communicators/monitoring”.
What are the pitfalls to outsourced back office operations? It seems that having someone else know the legal and administrative aspects of your business could be a boon, particularly if they are advising how your business could be better. On the other hand, what could go wrong? Since costs could really get out of hand, Richard recommended that “ESA’s have a flat rate agreement! A defined interal person to manage the relationship between business and ESA and best to use a clearly defined service level agreement with a fixed cost to govern the arrangement.” This seemed to answer Ken’s question, “As relationship gets more consultative, harder to scope/price? In sr retainers, makes sense. But support?”
Other concerns that werer voiced were:
- Amber Cleveland “Lack of communication and understanding of internal happenings.”
- Caroline Di Diego “~losing control, not know what is going on, getting inferior work, costing 2 much”
- Stephen Denny “Pitfall to outsourcing sales (indie reps) is that yr brand becomes attached to their style/personality (lack of urgency?)”
- Debra Ellis “Loss of control and insight. Hands-on can make big difference”
- Joe Sanchez “Risks 2 outsourcing back office operations can b mitigated via strong service level agreements (SLAs) w/ the provider”
These are genuine concerns. You hear of tension between the creative and innovative professionals and the back office professionals who already work for the same company. It would be interesting to see how an ESA engages in this tension and how it is managed. Would it be more objective since it’s not the ESA’s business or would it be just as subjective? How would the relationship with the ESA be affected if a business owner and his/her team decided to go a different route than what the ESA recommended?
For the last question, we decided to see what kinds of potential these ESA’s might have. How will the trend of outsourcing /contrating/ESA’s go once economy turns for the better? Richard stated, “Fiercely competitive small businesses will drive the back office expense down lower so more can be poured into marketing & sales.”
- Ken Rosen “On practical basis, when fewer quality ppl looking 4 work, quality outsourcers win”
- Debra Ellis “Outsourcing is a good way to leverage resources if managed well. It works in any economy”
It seems that careful thought and discussion must occur if you decide to outsource. For back office operations, you want to believe in and trust the ESA you are working with. With more small businesses working virtually, expanding globally or simply not wanting to get caught by the next economic downturn, outsourcing (especially to ESA’s) could become the norm. It would allow the business owner to spend more time doing what he/she does best and developing the business to a more sophisticated level.
What’s your take on ESA’s?