Business Solutions Section

Demand for outsourcing to heat up

Outsourcing key to innovation, cost savings and flexibility in tough economic times

By Jennifer Dirks

Special to Vancouver Business Journal

As the economy tightens, business players are figuring out ways to manage company growth with less infrastructure, reports a new Dun & Bradstreet Barometer study.

The trend is playing out in boardrooms across the country. These executives are discussing options for outsourcing such processes as marketing and accounting -- processes that are necessary but aren't the company's core product.

            "Within the last few weeks, even months," says outsourcing expert Peter Bendor-Samuel in a recent article, "outsourcing has been at the turning of the tide. Companies are postponing decisions; they're not really sure if they want to cut back. This has been an inflection point between boom and bust -- or growth and recession."

Once the economy evens out, Clark County companies will benefit on two fronts. First, those companies looking to shave costs and still innovate will have a new flush of senior-level executives offering consulting services. Second, companies looking to do the outsourcing -- such as marketing consultants, contract CFOs and payroll processors -- will soon have a few more interested companies to add to their client base.

"It usually takes a couple weeks, maybe a month or so, before companies realize: 'In order to get out of this crunch, we need to bring more people,'" says Paul Madden, vice president for Madden Industrial Craftsmen, a Vancouver staffing outsourcer for industrial, manufacturing and construction companies. "It's slow right now but, typically, to get out of the crunch they turn to [someone like] us."

Marketing, consulting, human resources and public relations are easily recognized as functions that can be outsourced. But today's businesses also are outsourcing back-office functions, collections, warehousing, mailing, payroll, billing, taxes, telemarketing, legal, product support, even sales.

            "A tightening economy is good for free agents, freelancers and consultants, because they offer the types of economies that an in-house staff can't," says Veronika Noize, a Vancouver marketing consultant who's created marketing programs for "Star Wars" and "The X-Files."

Why? Outsourcing for one short-term project often is more affordable than bringing on a full-time staff, with needs for office equipment, desk space, and benefits. Also, "there is a sort of pay-for-play that businesses get from a consultant that you don't for an employee," Noize says. "For a person on staff, you pay for breaks and whether they're doing their work or not. But consultants are bound to turn in a job to your satisfaction."

Perhaps that's why Dun & Bradstreet's research suggests companies that outsource are more financially stable than other companies. An analysis of companies using outsourcing shows that 90 percent of companies that outsource are considered good credit risks, compared with 60 percent of all companies.

Anecdotal evidence backs that up. "The companies we're still doing business with are all doing really, really well," says Julie Saylor-Scheetz. She's essentially a human resource outsourcer at Boly/Welch's Vancouver administrative staffing agency.

Extra expertise

When Eric Wilson wanted to expand his Battle Ground construction business, Olympic Siding, he turned to outsourcing. After years doing the company's bookwork and cutting paychecks himself, Wilson handed over those functions to Vancouver's A&M Tax Services, owned by Marlene Russell. It's one of a dozen Clark County companies offering traditional back-office functions such as payroll, bookkeeping, accounting, and corporate audit reviews.

            "I don't have time to keep up on all the tax changes and tax laws coming there," Wilson says. "I feel its better to have someone who has that area of expertise."

            With the time he saved, he was able to focus on growing the business and spending off-hours with family. Plus, hiring his bookkeeping out gave him a level of security he didn't have before: "I used to do it myself, and you make a few errors and the government is very quick to slap a penalty and fines. And pretty soon it can add up to more than if you just would have had someone do it for you."

            That expertise is one reason many businesses turn to outsourcers. "You can generally afford a higher quality or better-trained person for the job," Noize says. "And you can generally afford someone on a more short-term basis when you might not be able to hire that person as a staffer."

            Businesses who outsource also have scalability on their side. Outsourcing allows companies to increase or decrease production or payroll according to market conditions.

Shaving costs

Outsourcing – once used mainly for downsizing and cost reductions at major corporations – is becoming a strategic tool for small business growth and financial strength.

            "The kind of outsourcing has been changing, and the reasons are changing," says Bendor-Samuel, also author of "Turning Lead Into Gold: The Demystification of Outsourcing" (2000, Executive Excellence).

Over the past decade, cost has lost its market share as the top reason to outsource. In Dun & Bradstreet's study, the top three reasons companies outsource are to maintain competitive edge, focus on core business, and improve service quality.

Other reasons include the need for flexibility, innovation, quality improvement and -- again -- access to personnel or skills that agencies don't have in-house.

But those factors may shift if the economy dives. "In a recession, reducing costs is the key driving basis," Bendor-Samuel says.

However, the Pacific Northwest's host of small outsourcers is somewhat shielded from this downturn: "Interestingly in the Pacific Northwest, you tend to have a bigger market for the smaller outsourcers," Bendor-Samuel says.

So as Clark County's outsourcing industry holds its breath, Bendor-Samuel says it's only a matter of time before outsourcing is booming again. "This is a historical precedent," Bendor-Samuel says. "Rather than hiring -- and then having to lay off -- people, you outsource."

"This way," he says, "you're cutting back, without cutting into the muscle."

Madden Industrial Craftsmen looks to franchising

Vancouver office could soon be part of national chain 

Madden Industrial Craftsmen, which supplies staffing services for heavy- and light-industrial trades, could expand nationally in 2002. It's moving forward with plans to take its concept -- of staffing for the industrial, manufacturing and construction trades -- into franchise offices nationwide.

Madden, a Beaverton-based company, brings in about $8 million in temp services revenue each year through three metro offices, including one in Vancouver. If Madden goes national, it will join Barrett Business Services as the only national placement agency based in the Vancouver/Portland area.

            "We've gotten some pretty good response off the Internet," says Vice President Paul Madden, who has posted a "Franchise Opportunities" listing at the company site, mici.com. "And we have some interest in the southern part of the county; it’s a little further than we wanted to go, but we just have to take it one step at a time."

But first, Madden hopes to set up a franchise in either the Salem or Seattle/Tacoma areas: "Close enough where we could do some hand-holding," Madden says, "but far enough where we're not stepping on each other's toes for clients."                                       -- Jennifer Meacham Dirks