The ROI Of HR Outsourcing For Small Businesses
Small businesses are discovering the ROI HR outsourcing can bring
Russ Simatic, regional sales manager of G&A Partners’ Minneapolis office, shared his thoughts on the ROI HR outsourcing can bring small businesses in the following guest contributor article for Upsize Minnesota.
Why the “Fortune 500 model” might be thinking too small for small business
It’s a source of pride for many Minnesotans to live in a state home to nearly 20 of the nation’s Fortune 500 companies (UnitedHealth Group, Target, Best Buy and 3M, to name a few). For others, those big companies aren’t just a source of pride — they’re a source of income.
As these large and successful companies have either been founded in or moved to Minnesota, they have sustained the growth of a large support industry — everything from your standard professional services suppliers like law firms and accountants to PR agencies, construction companies, manufacturing plants and more.
In fact, several of the smaller businesses that now support these large companies were started by former employees of those giants, who have used the experience and valuable lessons from those jobs to strike out on their own.
But not every lesson learned from the big guys translates well for a smaller business.
The lure of the “all in-house” business model
When working for a Fortune 500 or other large business, it’s easy to become accustomed to the more insular organizational structure. Virtually everything anyone could possibly need — legal, finance, marketing, PR, HR, IT — is all available within the organization itself. Only rarely do these companies need to look outside the business to get something done.
Business owners, executives and entrepreneurs who come from these environments are similarly used to the “all in-house” model, and often attempt to emulate it when they join smaller companies. It makes sense — why wouldn’t you want to model your business after one of the most successful companies in the state?
But trying to operate a small business with the same “all in-house” model as a Fortune 500 company can often be a big mistake, leaving business owners stretched too thin trying to manage too many things on their own or stuck with subpar solutions that handicap their business.
How “fractional ownership” helps small businesses realize Fortune 500-level expectations
Think of it this way: If you wanted to buy a boat but only had a modest budget, you’d traditionally have three options: buy a small boat, or one needing repairs, that fits within your budget; splurge on a great boat you can’t really afford and risk falling behind on the payments; or don’t buy a boat at all.
Increasingly, however, budget-savvy Minnesotans are choosing to enjoy the best of all worlds by taking advantage of fractional ownership arrangements. Like a traditional time-share arrangement, fractional ownership allows multiple, often unrelated, parties to share in the ownership of something (in this case, a boat), to mitigate both the cost and risk of owning the item outright.
This same concept applies to business.
Small business owners often find themselves having to choose between settling for lower-cost, lower-quality services, stretching their budgets to the breaking point to access premier services or products, or simply trying to go without some services to minimize costs.
The most successful small-business owners are the ones who recognize these limitations early on and decide to start hiring outside vendors to handle some of the non-essential functions of their business, or those functions they lack the expertise to manage on their own — like advertising, website development, legal, accounting, etc. Outsourcing these functions allows business owners to enjoy the same flexibility and freedom fractional ownership offers individuals: all the benefits of high-quality services, without the expense or risk associated with hiring an in-house team.
For all the popularity outsourcing business processes has gained among small and medium-sized Minnesota business owners over the years, there is one area that still meets a lot of resistance: human resources (HR) outsourcing.
The ROI HR outsourcing delivers
Most business owners generally agree that their employees are one of their company’s most vital resources but, at the same time, don’t always see a lot of value in the department in charge of managing those employees: the HR department.
It’s easy to understand how owners and executives fall into this way of thinking. The human resources department is rarely a revenue-generating part of a business and is more likely responsible for some of the biggest line items in the company’s budget: payroll, employee benefit contributions, workers’ compensation costs, etc.
While there are endless possibilities for how human resources functions can add value to a company — strategic recruiting, employee retention, employer branding, succession planning, employee development — most in-house HR professionals are so busy with administrative tasks — processing payroll, administering benefits plans, filling out employment paperwork — that they don’t have time for much else.
This is especially true for HR professionals working in small businesses, where the “HR department” may only consist of just one or two people. Partnering with an outside vendor that specializes in human resources to outsource some (or all) of these HR and administrative services gives employers access to a full-scale team of HR, benefits and payroll experts that even a Fortune 500 company might be jealous of, all for a fraction of the cost building a comparable team internally would require.
Outsourcing HR to a national provider also can create “economies of scale” — lower costs on health insurance, workers’ compensation, HR technology platforms and more that HR providers are able to negotiate by leveraging the large number of worksite employees they service. While there’s nothing wrong with “thinking big,” Minnesota small-business owners trying to emulate the “all in-house” approach popular among some of their Fortune 500 clients might find that they’re not thinking big enough for their business.