The fortune 500 model doesn’t work for small businesses. It doesn’t give a small business owner a high return on investments (ROI) when he has to do everything himself.
Small businesses are uncovering the advantages of outsourcing their Human Resources and how it can increase their profits.
Russ Simatic, the regional sales manager of G&A Partners Minneapolis office, discloses his opinions on HR outsourcing and the ROI for small businesses.
Why the “Fortune 500 model” Isn’t for Small Businesses
For Russ and many other Minnesota residents, housing a handful of Fortune 500 companies such as UnitedHealth Group, Best Buy, and 3M, creates a sense of pride for them.
Since these Fortune 500 companies have either been established in or moved to Minnesota, they have maintained the progress of different industries. This includes industries ranging from professional services such as accounts and financial planners to engineering and trade companies.
What’s more, many small businesses which support these Fortune 500 companies were founded by former employees of them. These former Fortune 500 employees use their understanding and valuable takeaways for their own businesses.
Unfortunately, not every big business practice and lesson carries over to smaller businesses.
The Appeal of the “All-in-One” Business Structure
When you’re employed with one of the Fortune 500 companies, you get used to an inclusive administrative business structure. Anything you need for a company-lawyers, financial advisors, marketers, HR representatives, and IT support- is readily available within the company itself. On the rare occasion does the company need to look for outside help to accomplish a task.
Business owners and executives, who were once employed with a big company, are accustomed to the “all-in-one” business model. When these businessmen become employed at a smaller company or start their own business, they try to mimic the business structures they were taught.
After all, it makes sense to work with what you’re comfortable with.
In theory, this seems to be successful; however, in practice using a big business model on a small business doesn’t work well. When a small company uses an “all-in-one” business model, an owner’s finances become hard to manage and it becomes hard to juggle every department with a small staff.
How “Partial Ownership” Pushes Small Businesses to Fortune 500 Business Qualities
Think of “partial ownership” like this parenting analogy:
When you’re raising a kid, you can only take partial credit for how your kid turns out. You can’t teach your kid everything; just what you have the most strength or knowledge in. Your partner might have a different expertise they can pass on to your kid.
After that, you depend on teachers and mentors to foster your child’s interest and guide them in the right direction. Neighbors become a second family to your child and friends become siblings. When you try to do everything for your kid yourself, it doesn’t always work out. Sometimes, you personally don’t have the right resources so you need to reach out to others.
Now, more often than not, more financially frugal business owners are reaping the benefits of a partial ownership. Just like raising a kid, partial ownership gives multiple people and parties a segment of ownership in an entity (in the analogy, raising a kid) to lessen the expense and danger of owning the entity alone.
This same concept of “it takes a village to raise a child” applies to businesses.
As a small business owner, you might find yourself deciding between a low-cost and low-quality product or service, thinning your budget to attain the highest quality product or service, or going without a product or service to lessen your expenses.
Small business owners, who realize in the early stages of their business that they cannot manage an “all-in-one” business structure, are the most successful.
Instead, they decide to outsource talent to manage low-priority tasks or ones they don’t specialize in. More small business owners are outsourcing talent for departments such as legal, marketing and advertising, and finance.
This business practice gives small business owners just what they need: the advantages of superior-quality services for their business without the price and chance of hiring teams themselves.
Instead of the stress and financial strain, these small business owners get the elasticity and autonomy associated with partial ownership.
For any small business owner, it’s increasingly more common to outsource talent for other business tasks in almost all departments.
However, outsourcing Human Resources (HR) is still one department that hasn’t been fully accepted yet.
The Benefits of Outsourcing HR for ROI
As a business owner, wouldn’t you agree that your company’s most critical means are your employees?
They help run the business and you use their expertise to create captivating projects and products for the company.
The HR Department, which helps manage and hire employees, is one department you might not value as much.
It’s understandable why you don’t recognize the HR Department’s value. It’s not one that brings profit to your business. HR manages things such as the hiring process, payroll, employee benefits, and retirement plans.
There are an infinite number of HR duties- employee recruitment and preservation, employee development and, branding-that help add worth to the company.
However, most of the HR Department’s time is occupied with administrative tasks such as managing payroll forms, overseeing employee benefit packages, and completing forms for the business or employees. Since their time is spent with so much paperwork, they often don’t have time to do other things for the company.
This becomes highlighted in small businesses whose HR Department might comprise of one or two people. Outsourcing or uniting with third-party entities that specialize in human resources could help alleviate some of the stress for a small HR Department. When you outsource some of these administrative tasks, you and your employees now have all the benefits of a Fortune 500 company, at a small cost to you.
Outsourcing gives you the feeling of having an “all-in-one” HR department without building one yourself and handling the cost as a small business owner.
When you break it down even further, outsourcing is an economy of scale concept. When you’re not trying to do everything within your business, it becomes more efficient.
Applying this concept to HR outsourcing can lower expenses for health insurance and employee benefits. HR outsourcers can decrease your costs since they can bargain using the number of workplace workers they represent.
There’s no reason why small business owners shouldn’t aim just as big as Fortune 500 companies. Outsourcing gives them the feeling of a Fortune 500 CEO at the fraction of the cost.