Management Outsourcing Contracting out some pieces  of your business may make sense -- if you do your homework Learn More: Should you outsource marketing?

By outsourcing Alston & Bird's photocopying tasks, Chad Warpula (left) and George Taulbee save their Charlotte law firm time and money

By Heidi Russell Rafferty

With recent signs of growth in the national and state economies, many business people have begun carefully calculating the financial risks of hiring more workers in order to increase output. And as business owners and managers ponder the math of a higher payroll versus higher sales and profits, they may find it useful to consider how a couple of Charlotte attorneys solved a printer problem at their law firm.

George Taulbee and Chad Warpula are attorneys in the Charlotte law office of Alston & Bird who specialize in advising companies on outsourcing, the increasingly popular practice of fielding work to an outside vendor. They are the most credible of sources because they can speak from experience on the topic.

The two were with the firm in 1997 when it was known as Bell, Seltzer, Park & Gibson. After the firm merged with nationally known Alston & Bird, its in-house administrative staff was overwhelmed by the sudden need to reproduce reams of court documents and trial exhibits daily.

Rather than hire more staff, Alston & Bird contracted with a niche company to maintain and service copy, fax and binder machines, as well as to produce exhibits for trial. In the Charlotte office, nine employees from the outsource vendor now handle the photocopying tasks for 73 lawyers and 93 administrative staff members.

The firm has saved both time and money by farming out the work, Taulbee says. “We have savings on the human resources expenses — medical and other expenses for those people hired by the vendor,” he says. “We have savings on physical equipment, because the purchase or leasing of the machines, plus the maintenance, is done by the vendor.

“Management administration saves a great deal of time in the recruitment and training of those staff members. In addition, our staff does not deal with last-minute projects, those that happen on weekends, holidays. We call one person and say, ‘Take care of it.’ That overhead of time is placed on the shoulders of the vendor.”

Not surprisingly, those words flow easily from Taulbee. Last September, Alston & Bird organized and sponsored a seminar in Charlotte called, “The Ins and Outs of Outsourcing — Strategies and Best Practices for Profitable Results.” Both he and Warpula were presenters.

“A lot of times, people think of outsourcing as hiring someone to handle their back office accounting system,” Taulbee says. “But it can be as much as outsourcing the manufacturing of raw materials or portions of the components that go into your product.”

It also encompasses anything ranging from clinical trials for pharmaceutical research, to human resources, to IT or special needs, like the photocopying dilemma at Alston & Bird. Within the right parameters, outsourcing can save a company time and money.


 Is Outsourcing Right for You?

Jeff Stocks, president and CEO of Manpower Inc. for Eastern North Carolina and Research Triangle Park, says that many companies aren’t back to their full-time hiring levels and thus are more likely to consider outsourcing. Manpower, a worldwide leader in the outsourcing staffing industry, has been offering these businesses a range of services that include human resources, information technology, biotechnology, engineering, finance and high-end senior-level executives.

“The trend is that after every economic downturn, usually the percentage of the contract workforce has increased as industry continues to grow,” Stocks says. “We’re doing more in the contract temporary staffing area. As the economy is firming up, we’re also seeing more in the area of direct hires for permanent placement.”

Darleen Johns, president and CEO of Alphanumeric Systems Inc. in Raleigh, also has seen an increase in companies looking for contract temporary workers. Her 25-year-old company specializes in technology solutions for businesses. She recently held a job fair for 50 open positions to meet the growing demands. “There are more companies out there now that are looking,” she says. “They’re putting it on their drawing board this year to invest more in technology, so they’re budgeting for it now, and 2004 will be a better year for the technology business. People are being more optimistic.”

David Zoffer is a Chapel Hill attorney and former director of Craig Ltd., a business process outsourcing company for the insurance industry. He says that while outsourcing has become more common, it’s not just because of the current market. “It’s a strategic direction — a greater path to greater profitability,” Zoffer says. “If you are able to deliver a core service with quality and get to market sooner, you distinguish yourself in the marketplace.”

Zoffer, Taulbee and Warpula all warn, however, that the practice doesn’t make sense for everyone and should only be exercised for well-thought-out strategic reasons. An outsource provider also should not replace your core competencies — what you or your company does best. “It’s like the saying, ‘Keep to your knitting.’ Companies have to focus on what constitutes their ‘knitting,’” Zoffer says.

How do you know when outsourcing is right for your company? Here are four reasons to do it and some examples of companies that have taken the outsourcing plunge successfully.


Does It Make Economic Sense?

Here’s the first rule of thumb: Outsourcing should make the best economic sense for your company. In 1999, Cone Mills Corp. in Greensboro contracted with Parkdale Mills in Gastonia to outsource some of its yarn manufacturing for denim products through 2007, says Mike Whisenant, executive vice president of operations for denim manufacturing.

“Basically, the bottom line reason is that the capital cost to stay modern is extremely high,” Whisenant says. Outsourcing also allowed the company to get its products to market faster. “Cost efficiency is the key. We have an excellent flexibility working with Parkdale.” Cone Mills does not outsource its core business — dyeing, weaving and product finishing, he adds.

Yarn is a key raw material in denim, so Cone Mills also does some of its own yarn manufacturing “to ensure that we stay out front in the development process of new products,” Whisenant says. “As innovation and new product development has evolved, there are also values added to our product from yarn, and Parkdale has been cooperative and capable at meeting that requirement.”

Warpula notes that companies should assess the costs of their internal functions, like Cone Mills did with its yarn manufacturing, to know whether outsourcing makes economic sense. Choose the jobs that are the biggest draw on your bottom line, he believes. “Maybe you’re spending too much time updating your IT infrastructure and you should be spending it on marketing,” Warpula says. “Companies should see where their energy is going, identify the No. 2 draws on their resources and redevote their resources.”


Will It Improve Your Efficiency?

Something else to remember: Outsourcing allows experts to improve certain components of your products or services. “Business process outsourcing” (BPO) involves giving a third party responsibility of running what would otherwise be an internal system or service, says Zoffer, the Chapel Hill attorney. He cautions, “the thing you outsource has to be non-critical.”

“If there are things that are not core to my business, is there someone else who can do it better, cheaper, faster than I can do it?” Zoffer says. “You rely on specialized expertise, economies of scale, lower cost and higher quality and value. An outsourcing partner can be more efficient for you.”

Zoffer points to the insurance industry. Rather than have their own staff unit to detect prospective fraudulent claims, for example, insurance companies might outsource that specific duty.

Another example is IBM, which in 2002 launched a new outsourcing business — IBM Engineering & Technology Services (E&TS). Its engineers design electronic components or systems for other companies’ products. The division, with 1,000 employees worldwide, has 25 workers in RTP and another 22 in Charlotte.

Cary B. Ziter, manager of communications for E&TS, says IBM chose to launch the division during a down market. IBM interviewed 76 clients and found that design services were at the forefront of their needs. Many of IBM’s customers had lost some of their engineering talent. “Our hope was that we were spreading seeds at a time that took advantage of that market situation – that people who were short on skills would come to our door looking for help,” Ziter says.

The teams in Raleigh and Charlotte have been heavily involved with a system that receives data on the New York Stock Exchange floor. It’s faster and burns less energy. “It’s quite an old floor with limited space. It had to be a particular size with decreased power, yet the performance had to be higher,” Ziter says.

He notes that E&TS meets a specific outsourcing need in a competitive industry. “You might not have enough engineers to accommodate the innovation on demand. Maybe your time to get to market matters to you more than anything, and you have a big product on your hands and want top talent with a lot of expertise in engineering,” Ziter says.

Some companies may just need something as simple as warehouse space. Peter N. Glass and Associates of Concord, which provides lighting and related products to the construction industry, met such a need of Progress Energy Carolina, says President Peter Glass.

“When you drive through subdivisions, you might see plastic acorn lights,” he says. “We told (Progress Energy) we’d give them space in the warehouse (for the plastic for the acorn lights) and that we would supply and maintain inventory in Concord. We said, ‘You send us a blanket order and releases, and we’ll have what you need the next day.’ We do that kind of thing when someone has a problem.”


Will It Sharpen Your Focus?

Implemented successfully, outsourcing frees you to focus on your core mission as your business grows. Allen Tate Realtors of Charlotte had successfully outsourced its payroll functions for three years but needed to add human resources as more employees came on board, says President and CEO Pat Riley. With 26 branches, 268 employees and 1,000 independent contractors, the real estate company was looking for an outsourcing partner that could handle both duties to help manage its growing staff.

“We’re a ‘tweener,’” Riley says. “When we do need help, we were calling the legal profession probably more often than we needed to and paying higher legal bills than we had to than if we had a knowledgeable HR function.”

His payroll outsourcer didn’t have HR expertise, so he recently hired HR XCEL, a leading provider of HR outsourcing services headquartered in Charlotte. “Like any other company, we now have 22-year veterans answering HR questions rather than novices. To get a 22-year veteran on our staff — what that would cost us? And half the time they would be bored,” Riley says.

Barbara Sheridan, founder and president of HR XCEL, says that HR departments are usually underfunded and, “it’s all overhead. They get cut before anyone else does,” she says. Calling on an outsourcer to fill those needs for you gives you experts on an as-needed basis while you concentrate on the central issues for your company, she says.

 Lynn Daniel, owner of The Daniel Group, a business consulting firm in Charlotte, advises about 25 companies on business strategy and market research. His company is considering turning over its IT department to an outsourcer. “In our own little company, I’ve always believed I should have all the software in-house, and last week I outsourced some of what we do in that regard,” Daniel says. “I found out maintaining the system, keeping it up and running with viruses and spam was not a good use of my time. It goes back to focusing on what you need to be doing.”


Will It Make You Smarter?

Lastly, outsourcing provides strategy for beating your competition. Clay Presley, president and CEO of CPP International in Charlotte (formerly Carolina Pad & Paper) decided about four years ago to target his school paper supply business to the pre-teen girl market. Designers were in place, and the company had done “a tremendous amount of research,” says Presley, who is one of Daniel’s clients.

But, “the products we were looking for, we were not able to manufacture effectively in the U.S.,” he adds. “The pre-teen market is such that they’re fairly fluid and fickle. Trends don’t stay around long. We had to be flexible to find a product to bring to market at a relatively inexpensive investment.”

The company started outsourcing small amounts of its needs overseas. Today, everything is outsourced, Presley says. CPP International has a showroom in Hong Kong, four factories in Shanghai and four factories in the Guangdong Province of China. “We add value to the product, and retailers are able to get it out at a price,” he says.

Attorneys Warpula and Taulbee caution that if you decide to outsource your product overseas, do your homework on each country. “Certain countries that are known for IT outsourcing are India and Ireland. They were huge targets for customers that needed help on the Y2K solutions, and that has carried over into other aspects,” Taulbee says. “There are certain countries that are good places to go for the manufacturing of certain materials or products. You need to talk about the political climate, too.”

Another big consideration is intellectual property rights, Taulbee adds. “China is a big source of manufacturing, and a lot of people view its products as cheap knockoffs or inexpensive items, but there are international efforts to have China tighten its domestic policies to protect intellectual property rights,” he says.

Warpula says another risk for going offshore is that your partners are remotely located. “You would have less of a finger on the pulse on the provider to check up on them and look at their facility as you would in a neighboring city,” he says.


Finding the Right Partner

How do you locate the right outsourcing partner? Experts agree the decision must be handled carefully. “You want to see what their track record is,” Daniel says. “Ask who they have done business with and have those relationships been long-term. When you outsource, you have to pick a partner, not just a vendor, and that’s a very important distinction.”

For example, if you turned over an 800-number for customer service to an outsourced vendor, you should make sure your customers will feel good about interacting with that company, Daniel says.

Whisenant at Cone Mills notes that the relationship with Parkdale has been positive, because the two companies have matched culturally. “The values are, if not identical, very close for us to have continuous improvement and customer satisfaction,” he says. He adds that Cone Mills also has had a positive 25-year contract with Sunstates Maintenance Corp. of Greensboro for janitorial, outside maintenance and security services. “Cone Mills is extremely pleased with both companies — they’re great partners,” he says.

Pamela D. Medlin is president of Key Resources Inc., an outsourcing firm in Greensboro whose 1,200 weekly placements run the gamut: manufacturing, production, distribution, assembly, customer service, IT, banquet catering. The company serves about 200 businesses in the Triad per year and has offices in Greensboro, High Point and Winston-Salem.

Medlin says that when working with her clients, she views the relationships as “true partnerships.” She advises that when shopping around, businesses should make sure the outsourcer is reputable. “You should interview the company and not just look at the price,” Medlin says. “You want someone who will learn your business and train the employees coming to you and strategize with you getting the most for your money. Evaluate your vendor to make sure that they’re identifying your needs and handling your requirements.”

Once you locate the right partner, sealing the deal can be handled in a number of ways, Warpula notes. “Typically, you treat it as a third-party contractor, where you have agreements in place where they agree to provide services at a certain level,” he says. “When new things come up that you want them to perform, decide on the charges.”

Taulbee adds that one thing a contract should definitely include is the service level and a remedy if it’s not met. “Another issue would be the pricing structures, and if there are credits back. How you vary the pricing structures depends on the services. Also, how do you unwind the deal? What happens if the relationship goes south and the parties need to back out?”

The last piece of advice? Have attorneys involved in crafting the agreement. “Don’t bring them in after you decide that this is what you want,” Taulbee says. “Ideally, the lawyers get involved when it’s decided you want to try outsourcing.”



Should You Outsource Marketing?

Outsourcing isn’t limited to production needs. One frequently overlooked aspect of outsourcing is public relations and marketing — functions that a media savvy outside source often can provide at a lower cost than in-house staff.

“In the long run, it’s cheaper to bring in someone,” says Mike Davis, president of Mike Davis Public Relations Inc. in Raleigh. “We can do the job for a set fee, and (companies) don’t have to worry about the warm bodies after the project is done,”

“What we sell,” Davis adds, “is that you will have an objective third party look at things. We’re not embedded in the company. We bring in a fresh look at a problem.”

Sigmon Huitt, managing principal of Carolina Public Relations in Charlotte, works with a variety of manufacturing companies, engineering firms, attorneys and local governments.

“Our key effort is media training — working with people before they’re on television. We work with groups in public meetings, public presentations, too,” Huitt says. “Another area of service is helping organizations, mostly not-for-profits, work on their strategic mission as they develop mission statements.”

A PR firm offers expertise in working with the media as well as help writing printed materials such as press releases, annual reports and Web site content, Huitt says, adding that he has 30 years in the field.

“A lot of times, companies want another perspective,” Huitt adds. “Some questions we ask are reporter-like questions to develop the materials to begin with. Whether it’s materials for news media folks or to go to shareholders, we’ve got experience writing for all kinds of audiences, which one person in-house does not.” — Heidi Russell Rafferty


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