subject: In-House or Outsource? [print this page] In-House or Outsource? In-House or Outsource?
Business in the beginning, as a matter of security and control, formed all the units and departments it needed to do business. If a business were into the manufacture of a product, it built factories, set up the departments that would do the tracking of workers' activities and the selling of the manufactured product. It was the dream of every business to become big, not just as a means of enjoying more profit, but to realize savings in the economies of scale that would consequently result in more profits. That was the model that was followed since the beginning of commerce, the model followed in the industrial era.
But in the late 70s a new paradigm emerged. For a business to become big, for a business to grow, it didn't have to have everything in-house. The idea in this new business paradigm was timing. Industry at the time had this inkling of an idea that businesses didn't need facilities where to stock raw materials. All that was needed was to utilize the facilities of the supplier. This idea radically improved the earnings of manufacturers then, who eventually extended the idea to the other units of their companies.
It then developed from this idea of timing', that a cost for a company could be shifted. In the hands of good executives, a company could evaluate its strengths and concentrate on them and leave its other activities to other companies that are better equipped and staffed to do the job. Some of the first units to go for outsourcing were advertising and promotions. Product testing was a department commonly outsourced in manufacturing.
Outsourcing payroll was a matter that took a little time. It was a painful decision to outsource this activity as companies still view payroll as something of a security issue.
The deciding factor for outsourcing payroll was the increasing amount of regulation that surrounded salaries. The increased recognition of workers' rights meant that the payroll department had to hire specialists well versed in the law to avoid exposure.
By outsourcing payroll, companies are able to reduce the size of their administrative and legal staff, as well as take advantage of the economies of scale being enjoyed by the contracting firm for the payroll.
