How to spot hot companies quickly

Researchers say smart, fast-growth companies are good at outsourcing peripheral tasks
Written by Annette Hamilton, Contributor on

One quick way to spot an effective manager is to examine his or her ability to delegate tasks. Likewise, one fast way to spot a smart, fast-growth company is to look at how well it delegates -- or outsources -- peripheral tasks such as payroll, taxes and equipment maintenance.

Outsourcing, or delegating day-to-day management of a business function to an outside provider, is emerging as a key factor for success in today's fast-moving economy.

Farming out tasks that are not part of a company's core competency frees up resources that lets firms better concentrate on growth, competitors and profit.

Recent research indicates that eight out of 10 of America's fastest-growing companies outsource at least one peripheral business function, delegating its day-to-day management to outside providers (PricewaterhouseCoopers); seven out of 10 fast-growth companies that outsource report they save money as a result (PricewaterhouseCoopers); and fast-growth companies that outsource enjoy higher revenue growth than their counterparts that do not outsource; (American Electronics Association).

Primary reasons CEOs cite for outsourcing peripheral functions include cost savings (62 percent) and access to technical expertise (60 percent).

According to The Outsourcing Institute, the top reasons companies outsource are to lower costs, improve company focus, access world-class capabilities, free internal resources for other purposes and supply resources that are not available internally.

The most frequently outsourced business functions are financial or administrative in nature.

The top five outsourced tasks among fast-growth firms surveyed by PricewaterhouseCoopers include: payroll (55 percent); employee investment programs (30 percent); tax compliance (22 percent); benefits and claims administration (20 percent); and maintenance and equipment services (20 percent).

Outsourcing is not a panacea for lousy management, of course. Done poorly, it can end up costing a company more than it saves. PricewaterhouseCoopers finds 6 percent of firms that use outsourcing are losing money, while 24 percent just break even.

To lower your risk, consider the top five reasons outsourcing goes wrong, advises The Outsourcing Institute: failure to communicate company goals and objectives to the vendor, lack of strategic vision and plan, choosing the wrong vendor, lack of ongoing management of the relationships, and lack of a properly structured contract.

Smart managers train employees to take over jobs that prevent them from tackling critical, core tasks.

If you want to spot a smart, fast-growth firm, look for companies that do the same: train outside arms and legs to take over jobs that prevent them from focusing their limited resources on hitting a home run.

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