Altus Engineering Ltd. — established in 1989 in BC’s interior — decided to open a new office in Vancouver about a year ago and turn it into company headquarters.
Moving is never a straightforward process. For Altus it meant adding several new employees, purchasing office space and technology and dealing with a number of unexpected logistical difficulties — all of which come standard in these types of situations.
But Salah Eldeib, CEO of what was until recently an eight-employee company, says Altus hasn’t had to worry about two specific business processes. Altus uses Vancouver’s Best Books Inc. to handle its bookkeeping and payroll systems. “We’re going through a very large expansion and it’s very difficult to get everything in place at the same time. It can actually cause chaos, so it makes sense that we outsource some of our processes until we are fully in control,” says Eldeib.
In future, Eldeib may also consider outsourcing Altus’s accounting (beyond the bookkeeping level), legal, and a few other areas.
Additional options in the HR area include health care, pensions, hiring and training.
More and more businesses are outsourcing certain business functions today. In fact, Steve Fleming, executive vice-president and managing director, small business, at Ceridian Canada, says 71 per cent of Canadian respondents that were part of a recent Conference Board study said they are outsourcing some HR functions today. Of those, payroll is the most commonly outsourced.
Ceridian Canada, for its part, has 40,000 Canadian customers, 35,000 of which are SMBs, and it claims it is signing up about 400 new SMBs every month.
Fleming suggests there are five good reasons for the increase in outsourcing by SMBs.
- Cost reduction: SMBs are taking into account economies of scale and focusing trying to automate for process improvement, but cost reduction is also top of mind for many.
- Focus: Outsourcing allows them to concentrate on their core business and spend less time on time-wasting, secondary processes.
- Regulatory compliance: Keeping up with payroll rules is no picnic, says Fleming. “The government’s a nightmare, so outsourcing transfers the legal risks to us.”
- Access to the best technologies: A Tim Hortons donut shop does not want to have to purchase oodles of expensive technology to run it if it’s not necessary.
- No internal resources: SMBs don’t want to needlessly hire expensive, but part-time people, especially considering how little IT may be involved in their day-to-day operations.
There are numerous pitfalls related to outsourcing, but a lot of them can be avoided by simply planning ahead.
Unfortunately, says Eric Andrew, national leader of the Private Company Services Practice for PricewaterhouseCoopers in Vancouver, this doesn’t always happen. Instead, an outsourcer comes in, the SMB signs some standard form contract, and nobody really thinks about the interfaces, the management of the processes and the repercussions of a failed agreement.
“As the importance of what the outsourcer is doing increases, make sure you’re managing (what the third-party is doing) internally,” says Andrew. “And if you think about that up front, a lot of the fear factor can disappear, assuming you’re dealing with somebody reputable who has a relatively tried-and-true outsourcing service. If you don’t do that, that’s when you get into trouble.î
But it’s critical that you stick to outsourcing non-core business functions. Andrew has seen many small companies in various industries go to third parties to outsource their programming. This means they are buying a specialized program to perform a business function that is critical to their success, and they’re reliant on someone who could be a small, up-and-coming enterprise with its own (possibly unstable) financial position. Unfortunately, companies invest massive amounts of money in such systems, which can collapse on them quite easily.
Instead, ask the right questions up front: What are we going to outsource? How are we going to manage it? What do we need to know? How are we going to monitor it? How do we develop a good relationship with these people?
Asking such questions during your first ever outsourcing experience will get you comfortable with the concept. Later on, you will know how to handle the more sophisticated, larger outsourcing contracts that may end up being even more beneficial. But the knowledge of how to manage the outsourcing arrangement must reside in the enterprise itself. Don’t just wash your hands of the process and hope for the best.
Another common pitfall to avoid is negotiating the wrong contract length. There is a whole range of options in this area, but for payroll almost every SMB will enter into a year-long deal, or longer. After all, there’s effort required in setting up the technology and no outsourcer is going to risk a lot of time and effort only to get cancelled by a fly-by-night SMB within 30 days.
Ceridian Canadaís small business customer deals, for example, include a 90-day notice period, with a mutual termination clause. Fleming says a very large customer’s managed deal might include a one, two, or three-year contract, but for small business customers Ceridian wants to keep things simple and flexible. “They’re never backed into a corner,” he says.
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