Consider the Source

By Tim Clark | May 01, 2007

When it comes to hot button topics, nothing elicits a passionate debate faster than the topic of outsourcing. Unfortunately, amidst all of the controversy and politics, the true benefits of outsourcing often get lost, thus making the decision on whether or not to outsource non-core business functions needlessly complicated.

If you're a hospitality company committed to long-term growth, chances are good that you've at least considered handing over administrative, back office and perhaps other functions to a third party. And why not? By eliminating the overhead and stress of these functions, executives are able to make more informed business decisions aimed at driving profits.

Accounting functions
These types of benefits were the main reason why El Paso Bar-B-Que Company, a regional, upscale restaurant chain with seven locations in Arizona, chose to outsource its accounting functions to Core3 (core3inc.com). A full-service back office accounting solution allowed El Paso executives to focus strategically on restaurant operations through timely and accurate financial reporting. Sales reports and sales trending analysis provided insight into restaurant operations. Labor analysis tools allowed insight into comparative labor expenses. In essence, El Paso executives now have greater visibility into their business, allowing them to better plan for expansion and other growth initiatives.

Vendors are becoming privy to the fact that the aforementioned outsourcing scenarios are becoming more commonplace and in response, are beefing up their offerings. Infosys (infosys.com), for instance, recently announced that it has formed an alliance with HVS International, a New York-based consultancy offering valuation and other services to the hotel, restaurant, gaming, and leisure industries, to offer a range of outsourced offerings to the hospitality industry. This powerhouse alliance aims to develop business-process outsourcing and IT-based outsourcing services for the global hospitality industry.

The marketeers
What about areas like reservations or even marketing? With customer service acting as a main differentiator for numerous companies that play in the hospitality sector, logic dictates that it would make sense to in-source these areas of operations in order to keep a vigilant watch over quality control. But keeping these areas of operations in-house comes with a price, especially as it relates to online marketing efforts. While it's no surprise that the Internet is the fastest growing source of hotel reservations, it is surprising how much work goes into maintaining this area.

Website content, search engine position and link affiliations are just a few areas that will affect the reservation outcome of potential and future customers. Keeping marketing in-house also means a staff needs to be created to manage traditional marketing programs in addition to other Internet strategies. In-house marketing might mean complete control over your destiny, but at the same time, overhead, mistakes, delays and other day-to-day operational issues can lead to lost profits over a period of time. Outsourcing online marketing to a third party is a viable option, however, expectations and a defined set of benchmarks must be at the forefront of the agreement.

Without question, the decision to outsource non-core functions of your business is a tricky proposition. Communication difficulties are often created by distance, culture and time zones. Federal regulations like Sarbanes-Oxley also complicate outsourcing strategies. Executives and IT managers can better manage and prepare for these risks by working together to plan an outsourcing purchase with specific metrics set in stone to be managed on an ongoing basis.

Why Outsource?

  1. Reallocate resources. Outsourcing affords the opportunity to convert fixed costs (such as labor, software, training, etc.) into variable costs. This releases capital for investment elsewhere in the business, and helps avoid large expenditures in early stages.
  2. Reduce overhead and stress. The expense associated with hiring and training staff to perform administrative, marketing or other outsourceable operations can be significant, and takes the focus away from your core business.
  3. Level the playing field. For smaller companies, outsourcing affords the opportunity to compete with larger organizations that have substantial in-house support. This can help small firms act "big" by giving them access to the same economies of scale, efficiency, and expertise that large companies enjoy.

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