Where Outsourcing Works
Originally published: 04.01.07 by
Why hvacr companies are changing the way they grow their businesses.
For most hvacr companies, the practice of outsourcing takes on a slightly different meaning than it does for the very large corporations that popularized the practice, says Tim Cummins, CEO of the International Association of Contract & Commercial Managers (www.iaccm.com), a nonprofit that focuses on improving performance in corporate contracting and negotiation.
Outsourcing, he points out, is a term used by very large corporations who had “built a monolithic capability through a large embedded employee base,” to handle human resources, accounting, legal, and other business functions, and who are now dismantling the departments and buying the capability from business services firms. “For them it’s a dramatic decision. It’s not only the outsourcing of the task; it’s the outsourcing of the people.”
For small- to mid-size companies, though, outsourcing is something they do from the outset, Cummins says. As such, many companies might not distinguish traditional purchasing or sub-contracting from outsourcing. Indeed, for some companies, he says, “there probably is not any real distinction.” Generally, he adds, outsourcing is where you take a substantial and important business process activity and “place complete responsibility onto the outsourced provider to provide you
with a complete functional or process area.” (See “What’s in a Name?” below.)
Chris Cunningham, co-owner with his wife, Emily, of Service Plus Heating & Air Conditioning Inc., concurs. The realization that there had to be a better way hit him one evening while he was changing the oil in one of his vans. “One day I sat down, I’m here at night doing an oil change, and I thought, ‘I can’t hire someone to do what I do. But I can hire a person to change the oil in my vehicles or to answer my phones.’ I just realized, you’ve got to take a hard look at your skill set, and these are the things I need to do myself, and I should hire people to do the rest.”
He contracted with a local service provider to make sure his vehicles received the maintenance they needed, when they needed it. Now, the $1.2 million company, which serves the Indianapolis metropolitan area from its headquarters in Avon, Ind., outsources — among other things — vehicle maintenance, uniform laundering, phone service, and accounting.
Like the Cunninghams, many hvacr company owners, are finding that hiring outside service firms to handle so-called “non-core” functions — payroll, public relations, Web design, and the like — has its merits. Some don’t call the practice outsourcing, because, as smaller, growing companies, they’ve never employed people to complete the work. Rather, like Cunningham, they did the work themselves until the business grew to a point where they had to hire someone else to do it; only instead of hiring an employee full- or part-time, they contracted with an outside service firm to do the work.
“A lot of this is about business people needing to think differently as to how to undertake growth,” Cummins says. Historically, he notes, adding employees was a symbol of a company’s success, an outward sign of its growth. “That’s where the shift of thinking has to come.” With outsourcing, companies today realize that you can grow without adding employees to the payroll. “We can access a network of talent, rather than hiring it,” Cummins says.
That’s Cunningham’s thinking. You need to “work on your business, not in your business,” he says. “When [a task] takes you away from working on your business, then it’s time to start looking at outsourcing, so you can do something more valuable for the company.” It’s not that different, he says, from a doctor or accountant who can buy and replace a part in a furnace; they may be able to do it, but they’d be better off doing what they do best and hiring an hvacr contractor who has the expertise to fix the furnace —probably more quickly, less expensively, and with higher quality.
Cunningham also points out that outsourcing enables him to access and offer to customers special expertise that may be too expensive to maintain on staff. That’s why he outsources sheet-metal work — he and his employees all know how to do sheet metal, but the company he outsources to can do it better. “We call or fax over what we need, and they whip it out cheaper and faster than what my guys can do, because that’s what they do all day.” More importantly, it enables Cunningham and his service agents to do what they do best. He outsources payroll for the same reason: So he doesn’t have hire someone who could keep up with changes to the tax laws — or worse, keep up with the changes himself.
Joe and Dan Lacertosa, co-owners of Anchor Heating and Air Conditioning in Oakland Gardens, N.Y., take outsourcing a step further. At times, the company, which does high-end heating and cooling in the five boroughs of New York City and Long Island, find it profitable to outsource some of the work that they do well, such as hvacr installation and service. They feel the strategic use of such outsourcing helps them retain customers.
One reason Anchor outsources is when all five of the company’s vans are deployed and a key customer calls with an emergency. “Instead of losing the work, we’ll outsource it,” Dan says “It saves us. If we told them we’re too busy, they’d call someone else.”
Another benefit is that Anchor is able to keep its trucks within a primary service area, where they can be most profitable. If, for example, a call comes in from Long Island, and the only available Anchor truck is three boroughs away, Anchor would rather have another company handle the call. “It gives us longer tentacles,” Joe says. “We can get to more places.”
The outsourcing strategy, asserts Joe, has been a part of the company’s business plan since the company launched two years ago, and is not a stopgap arrangement put in place until they can hire more employees. He estimates that Anchor outsources six to 10 jobs per month, and a minimum of about one service call per day. “We’re still growing, we’re still adding more workers to the company and growing as far business is concerned,” Joe says. “And the outsourcing is still in our short and intermediate plans.”
An honor code among the network keeps the other company from trying to win over the client — usually the outsourced hvacr company doesn’t leave its business card.
To ensure the customers served by other companies receive excellent service, Anchor conducts follow-up calls. Joe says, the company will be sending out questionnaires, asking, “Were we on time? Were we professional? Did we answer all of your questions?” and about overall job performance.
Anchor also outsources jobs that require significant resources or several days to complete, such as recent contracts for Barnes & Noble book stores and the United Nations Mission of Serbia. “If we get a bigger job, we outsource it so our trucks will be ready to serve our other customers,” Dan says. “Instead of us being tied up on big jobs, we’re still ready to service our clients.” Anchor gets a cut of the work for overseeing the bigger jobs. “It’s not about making all the money on that job; it’s about retaining the customer.”
One of the biggest benefits of outsourcing, Cunningham and Lacertosa say, is that often using an outside service makes their company look bigger than they actually are, and more professional. Some potential clients, Lacertosa points out, wouldn’t consider a small company as young and small as Anchor, at 2-years-old and grossing $750,000 per year, even though they can get the job done. Outsourcing his phone service to GotVMail.com, a Weston, Mass.-based virtual telecommunications service for small business and mobile professionals, he adds, helps the company compete with bigger hvacr companies and “added a bit of personality to Anchor. It sounds more professional.”
For Service Plus, GotVMail.com provides professional quality phone services without the big investment. “I didn’t want to invest in a PBX, but I wanted to have a look of a bigger business, an 800-number, and a dial-by-name directory,” Cunningham says.
David Powers, GotVMail.com’s vice president of communications, points out: “We’ve made the investment of the data network system, and they can manage it through a few mouse clicks or a few punches on a telephone key pad. And we don’t ask them to buy new phones; just use what you have.”
Further, Cunningham was able to customize the service to help the company serve his company’s particular niche. “[Our clients] want the service of a big company, but they want the care of a mom-and-pop,” he says. “They want to be able to call up my wife and say, ‘Hey Emily, I need to schedule my service.’ ”
That type of flexibility is yet another benefit of outsourcing, says Andi Freeman, COO of Centratel, a Bend, Ore-based answering service that specializes in the hvacr sector. When outsourcing, a company can purchase only the type of service it needs, then can quickly and easily change it as needs change. “For smaller offices, we’ll provide an 800 number for free, which they may use just for emergency calls,” Freeman explains. “Others, we answer 24/7, because it’s just the owner and two other guys, and they don’t want to bother with the office. For larger clients, we almost serve as a dispatcher.”
While cutting costs is the benefit most people think of when they think about outsourcing, Cunningham and Lacertosa say they don’t deploy the strategy to cut costs. Cunningham acknowledges that it often is cheaper and more efficient to pay service firms to handle some types of work, but he asserts that he outsources so that he and his employees can focus on what they do best. “There’s a whole different mindset,” he says. “I’m just better off doing what I do well, and it’s been hard for me to learn that.”
What’s in a Name?
Clearing up the confusion of what outsourcing is, and what it can do for you.
While you can’t find definitive research that confirms that the number of hvacr companies that practice outsourcing is growing, “They’re all doing outsourcing, whether they know it or not,” says Ram Iyer , founder and CEO of Argea, a consultancy that provides outsourcing education, consulting, and implementation services to mid-market companies. “They’re doing it. They just don’t see it as such.” Often the companies call the practice purchasing or sub-contracting, he adds, but fundamentally, it is outsourcing.
“Purchasing is when you buy commodities,” he says. “Outsourcing is the process of adding value to the commodities or raw materials,” he says. “If you buy uniforms, that’s purchasing,” Iyer says. “But hire a company to provide X number of uniforms, to be delivered every Monday, laundered, no starch. You’ve just outsourced.”
Strategically outsourcing installation and service is often considered sub-contracting or simply buying another firm’s services to meet the need of your customer. But, says Iyer, you’re purchasing services strategically “because you don’t have the competency in house, or this guy that you outsourced to can do it for less than you can. That’s outsourcing.”
Ultimately, he says, it’s important that companies of all sizes understand and implement outsourcing, so they can achieve the benefits of the practice. Another company, he asserts, “may have the set of skills that you need to grow your business.”
Former Editor-in-Chief Patricia Panchak brought award-winning journalism, powerful public speaking and a wealth of experience about manufacturing management leadership, strategy and best practices to her leadership of IndustryWeek's national media franchise. During her tenure, she positioned IndustryWeek as the authority in manufacturing management.
Articles by Pat Panchak
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Where Outsourcing Works
It’s important that companies of all sizes understand and implement outsourcing, so they can achieve the benefits of the practice. Another company may have the set of skills that you need to grow your business.