Outsourcing your Back Office

In the last post, I introduced the fact that you will need to analyze your business to see what to outsource.  The reason is that business is all about margins, and core competencies.  If your core business is providing insurance services and processing claims that come in as a result, why would you have a large team in the office typing up the correspondence that goes with providing those services?  Your team should consist of people that are able to sell those services (sales), and people who are able to respond to claims coming in from current clients (customer service).  In some cases, insurance companies even go the next step and outsource the claims handling as well, such that they are essentially the sales arm for an underwriting organization.

The insurance company in this case has recognized that their core competency is doing sales.  So their biggest cost is their revenue producing sales staff.  Notice that I used the term “revenue producing”.  That’s your goal as a business owner, to make a profit beyond what you are paying your staff.  If your only fixed cost is your revenue producing staff, then you can effectively increase margins. 

How do you analyze your current resources to see what can be outsourced?  Follow the steps below to chart out your team’s activities.  It might seem like a tedious process but it’ll help you determine how your resources are being spent to perform your core business, and hopefully also to assist in cost cutting measures as a result.  I would recommend doing this in a spreadsheet program of some sort.  It’ll help make the math easier.

1. List all the individuals/ teams currently in your staff, and what you pay them.  Assign an hourly rate to each one of them.
2. Speak to them briefly and list what each of them do.  Assign a percentage to each task they do if they do multiple tasks. 
3. If they work over-time, list that as well, including any compensation that goes with the overtime.
4. Look at the task list and compare it against the person’s qualifications and abilities.  Is the person able to do higher value work compared to what they are currently doing? I have listed a couple of examples below:
   • Is your Legal Assistant and/ or Law Clerk typing up your dictations for you when she could assist you in running files instead?
   • Is your Claims Adjustor spending time typing up letters or hand writing letters instead of dictating them?
5. Highlight all of the tasks that are not directly revenue producing.  I have listed a couple of examples below:
   • When a Legal Assistant or Law Clerk is putting together a Motion document or Brief for a proceeding, it is directly translating to billable hours that the firm is able to collect on.  The time spent doing transcription of a Lawyer’s dictation isn’t directly recoverable as billable hours.  It is usually a part and parcel of the final hourly bill rate.
   • When a Claims Adjustor is typing up a letter, and as a result is only able to run one claim file instead of five or six claims during that same time period, it results in more claims adjustors required overall as a company to process the claim files.  And the process of typing up a letter instead of dictating it definitely isn’t a part of the core competency of that individual.
6. If none of the tasks under a certain individual/ team are revenue producting, highlight the entire individual/ team in that case.

In the next post, I will talk about how to use the above information to compare the cost and rationale of keeping certain things inhouse versus outsourcing them, and to increase the value add of your current staff to increase your profit margins.

In most cases you are so engrossed in your business and its day to day operations that you are unable to see the potential cost savings that outsourcing can provide.  Large businesses bring in process consultants to advise them on the advantages of outsourcing.  And it isn’t because the businesses themselves aren’t aware of the benefits that such cost cutting measures can provide.  It’s because a third party bird’s eye view provides the feedback that is often unattainable when you are sitting in the company and have set it up a certain way to meet the daily needs of your business. 

Such process consultants are often beyond the scope of most small and medium sized businesses.  But a few simple logical steps will allow you to quickly assess which portions of your business you can actually outsource, and which you need to keep inhouse.  Because a business can only grow in size and profits by making a margin off its processes, and if you are able to make a higher margin off certain business processes by outsourcing them without negatively affecting your business, why not?

Over the next few weeks, I will be writing about the different steps you can follow all the way from assessing your business for its outsourcing potential, all the way to ensuring that your business grows in margins while keeping fixed costs as low as possible by outsourcing efficiently.

For those of you who are unclear on the difference between outsourcing, offshoring, and other such jargon that I will be referring to, please refer to my post on the same.