Wednesday, March 21, 2012

The Missing Edge of Business

   In recent years, the idea of "outsourcing" has taken on a very bad connotation -we tend to associate it with unemployment, joblessness, and the destruction of our economy. However, we miss the entire side of the coin of "onshore outsourcing" or better known as "domestic outsourcing".

   "Domestic outsourcing" is the act of outsourcing a department but keeping it within the same country. In missing this idea, a lot of small businesses are experience additional growing pains, technological obsolesces, tighter cash flows, and inability to take advantage of opportunities due to all of these issues. Furthering the issue for business owners, is the mentality of "self-sufficiency is self-security".

   While this mentality had held true for some businesses and have worked well for the past twenty years, it does not address the fact that technology has allowed for domestic outsourcing to a level never seen before. Thus, resulting in higher saving, better efficiency, more accurate decision making just to list a few of the benefits. This is also not to mention that failure to adapt to technology causes more businesses to close than any other factors currently on the market - a sad, yet true realization.

   So where is the good news in all of this? Well, it comes in the form of technology and its evolution. A few years ago, we can still remember iPod breaking on a drop of a hat - now we see them going for jogs and being banged against sidewalks, yet works fine. The point here is, technology has evolved to the point that it is reliable, safe, and secured to the point that it allows for dependable virtualization.

   Being that I am an accountant, let us examine a small business that decides the traditional route of in-housing a bookkeeper at thirty hours a week at $10.00 an hour. That equates to $300 a week, $1,200 a month, $14,400 a year. This, of course, is if the bookkeeper is working every minute of every day that he or she is being paid for.

   The stark reality is, the employee we hire seldom work the hours we pay them. There are time when systems might be down. Other moments where they are lost in a harmless conversation that goes for too long. Then there are time when they are good enough at their work that they finish early and are sitting around doing nothing - if that is hard to believe, check the browser history for how many time they access facebooks, youtube, or craigslist. So while the business is paying for $14,400 worth of yearly work, they really are only getting half of that if they're lucky. To add to this situation, the company also has to provide their own accounting software, IT department to manage their systems, provide the computer systems to operate their software, and the yearly upkeep, maintenance, and upgrades that just adds to the overhead costs.

   In the same situation, we can examine what happens if the company decides to domestically outsource their department. The first cost saving comes in the form of vested interest - a firm that takes on the outsourced department will want to keep you happy and will ensure their workers do everything they can to keep you happy. The second cost savings come into play of not having lost opportunity costs. A firm will likely have multiple clients to visit on a given day. They will come in, accurately manage your books, and then leave to visit their next client. While this seems "touch-and-go" it is actually beneficial because it works both ways. If a firm has to stay later to manage a situation on your books, those additional hours are already factored into their fees. There are no additional hourly charges that comes into play.

   The third benefit is that the overhead is reduced drastically - without in-housing the department, there is no need for IT, upgraded computer systems, yearly maintenance/upgrade/upkeep, or any support infrastructures that goes with keep that department afloat. Thus, the cost savings would be astronomical.

   The final benefit is of course, the yearly payout. Because a firm can arrive, work, and leave to see other clients they can keep their cost lows due to their far reaching client based. Where it might cost a bookkeeper whose sole income is the $1,200 a month, a firm's income might come from ten clients a month. Essentially, a firm can charge you the same as a bookkeeper, but by reducing all of your overhead, it will be putting money back into your pocket on a scale that is unprecedented to date.

   In conclusion, domestic outsourcing is a very useful tool when applied properly. It can save a company thousands - even millions - in overhead which makes them more competitive. It is more efficient in that firms that can manage it have the technology and skills to do it better. Finally, it alleviates the additional growing pain of "keeping up with the Jones" in the idea of technology. A firm that has these technology, will keep it up to date on such a scale that it would be cheap for them, but expensive for anybody else.