Far Beyond Technology.

Yes, information technology remains the most popular outsourced function. But like the tools on a Swiss Army knife, specialists in other areas are proving useful, too.

Statistics for 2001 are hard to come by, but the business outsourcing market clearly isn't growing as quickly as it was a year ago. After all, the biggest noise in the economy in recent months has been the sound of companies slamming on the spending brakes as revenues have plunged.

Outsourcing isn't going away, however; the logic behind it is too compelling. So-called business process outsourcing (BPO), in particular, has surged in the past few years as companies conclude they are better off letting specialists handle the increasingly complex and mundane functions of running a business, allowing the companies to concentrate on their core competencies. The BPO field has drawn everything from startups to huge consulting firms like the Big Five.

"More companies are planning to outsource for strategic -- rather than tactical -- reasons than ever before" noted the Outsourcing Institute in its latest annual Outsourcing Index. With that the institute says, there's been a shift from outsourcing's past focus on technology to BPO, which is the fastest-growing segment of the industry. BPO's push into real estate management, for instance, was profiled in a September article, "What BPO Can Do." Still, technology remains the most popular outsourced function, representing more than 20 percent of all outsourcing expenses, the Institute says.

Research from the Outsourcing Institute suggests that 30 percent of companies now engaged in BPO are "actively searching for additional outsourcing opportunities in other functional and more business process-oriented areas." And there's plenty to choose from, judging from the growing list of functional areas being outsourced. What follows is a sampling of those, and some of the companies active in those segments.

Professional Employer Organizations

So-called PEOs have been around too long to be a fad. Aimed chiefly at small to mid-sized companies, they offer a broad range of administrative services around the human resources function: payroll processing, HR administration, health benefits administration, worker's compensation and monitoring of government regulatory issues.

What's particularly noteworthy about PEOs is the notion that they form "co-employer" relationships with the employees of client companies working at specific sites, as well as contractually assuming certain risks and responsibilities. Typically, the PEO also assumes responsibility for federal and state payroll taxes, and establishes employment policies.

Statistics show that the annual growth rate of PEOs in recent years has been 30 percent, yet penetration of the overall corporate marketplace is less than 3 percent. That leaves a potential market of more than $1 trillion, according to some estimates, and industry advocates claim that PEOs will be the nation's largest employers within 20 years as more and more businesses offload what are often tedious and time-consuming activities to focus on key skills.

But for PEOs to reach those growth targets, they may need to build a bigger audience with larger corporations. That's still somewhat elusive. Carlos Rodriguez, president of ADP TotalSource -- a PEO subsidiary of ADP, the payroll giant -- says that larger companies are generally good at managing employee liability, a key service of PEOs, and are more likely to look for a broader BPO approach.

TotalSource serves 3,300 companies with 70,000 employees from 14 offices around the country, Rodriguez says. Its small to mid-sized companies are looking for a risk-sharing arrangement, including insurance such as workers' compensation or employee liability coverage -- something PEOs frequently offer.

Rodriguez says his firm draws on the resources of ADP to find new clients, and claims to offer a rich Web-based experience. A portal product for local intranets is now offered, giving companies the ability to fill out and file paperwork online.

Technology Maintenance

The service maintenance industry's recent mergers and acquisitions -- and layoffs -- have spawned significant on-hold times and lengthy waits for service. Many information technology and telecom managers are unsure where and who to call when they need service, yet, as a rule, the cost of maintenance equipment contracts has not come down.

That's presented an opportunity for a few companies that assemble a group of providers to create a network of maintenance specialists. The idea is that the client company need only make one phone call to get troubleshooters dispatched to the site of a problem.

Naperville, Ill.-based United Asset Coverage Inc., for instance, has created what it calls its Client Service Center (CSC) to provide around-the-clock, one-call access to a network of preferred service vendors. Client specialists coordinate the entire repair experience, from dispatching the vendor chosen by the client to monitoring post-service client satisfaction. The CSC, which is a free service, allows clients to exercise choice over vendors and better control over the repair process; the company claims its clients typically save 15 percent over the cost of previous maintenance contracts.

The CSC is part of a larger, multimillion-dollar enterprise resource planning/customer relationship management (ERP/CRM) systems integration that UAC is undertaking with Oracle Corp. As one of Oracle's 300 worldwide ELeader strategic partners, UAC can give its client specialists at the CSC access to every aspect of the client's relationship, including past invoices, payment schedules and vendor preference history. UAC also plans to introduce online service dispatch through Oracle's self-service Web tools.

UAC says its clients include American Red Cross, Conseco Services, FTD Inc., Kobler Co., Reuters America and Verizon Wireless.

Facilities Cost Management

Spiraling electricity costs, especially in states like California, have companies scrambling for relief. More broadly, cost containment is a particular challenge for companies with far-flung operations, like retail chains with stores in several or many states, which have multiple jurisdictions and pricing programs to sort through.

Avista Advantage, an affiliate of Avista Corp. in Spokane, Wash., has brought out Facility IQ, a "product portfolio" that helps companies save time and money in paying and managing utilities. Facility IQ offers utility management, bill payment services, open/close services and waste management; it also offers consulting services to help facility managers use site data to forecast future expenses. Facility IQ claims to be used by 160 chains nationwide, including Home Depot Inc., Starbucks Corp., Krispy Kreme Doughnuts Inc., Ann Taylor Retail Inc., and Ponderosa Steakhouses.

"Managing facility-related costs has always been a concern for large companies with multiple sites, but there is now a heightened sense of urgency due to the national focus on energy-related issues," says Gerry Crooks, president and CEO of Avista Advantage.

Another firm on the opposite coast, Boston-based VFA, LLC, sells an Internet-based enterprise solution for managing facility costs. VFA hosts the data, which the client can access through standard browser technology. Its target clients are large complexes of at least 2 million square feet, including government and educational entities looking for help with capital allocation, utilization and replacement issues.

Then there's Pricewaterhouse Coopers, which last year won an assignment from the government of Australia to lead a consortium for global property management for all non-defense and overseas properties -- a portfolio valued at more than $1.4 billion. Included were embassies, consulates and residences in more than 50 countries.

Accounts Receivable Outsourcing

Accounts receivable and "order-to-cash" functions are nuts-and-bolts areas that easily lend themselves to outsourcing. Companies in the computer industry have become big clients for these businesses, which tackle such back-office minutiae as order-entry, credit analysis and dispute management and resolution. Outsourcing firms in this field say they can establish meaningful improvements in working capital ratios, improve customer satisfaction and lower overall finance and administrative costs.

French & Associates, a Dublin, Ireland-based company specializing in this area, has some of the biggest names in the business as customers, including Microsoft Corp. and Hewlett-Packard Inc. Not coincidently, perhaps, the company this summer hired David Gai as its CEO; Gai had been general manager of H-P's billion-dollar North American outsourcing business.

Actually, a form of outsourcing in this area has existed for many years ---- factoring. Factors essentially take title to a company's accounts receivable, then act as the principals in terms of collecting. The receivables are sold without recourse, meaning that the factor cannot turn to the seller if the accounts prove to be uncollectible. Scores of factoring firms, from small to very large, vie for business, mostly in the small to mid-sized company market.

Sun Lets Go of Payroll

Whatever the state of the economy, payroll remains a key target for companies considering outsourcing -- even a computer giant like Sun Microsystems, the major workstation manufacturing firm in Palo Alto, Calif.

When Sun projected headcount for the next five years, it realized that the U.S. payroll department would have to double in size and add 20 to 40 more payroll headcount to support planned growth. "Our function is mission-critical, but it's not a core competency for Sun," says Margaret Eng, Sun's U.S. payroll manager. So, Sun turned to ProBusiness Services Inc. in nearby Pleasanton, Calif., which it had earlier hired for back-office payroll in the U.S. "We decided the best strategy was for Sun to leverage the experience, expertise and infrastructure ProBusiness offered to achieve additional economies of scale," Eng adds.

Sun expects to leverage ProBusiness' bestpractice-based service to achieve greater efficiencies while improving service levels to employees. Sun's domestic employees are expected to benefit from ProBusiness' Employee Service Centers, where staffers are focused on handling specific front-office payroll inquiries.

Eng also gives ProBusiness high marks for its payroll application hosting model, which allows client companies to benefit from its services without the burden of procuring, installing and administering hardware or software. "The hosting model was an important factor in our decision," Eng says. "We didn't want to add in-house IT staff to support this function on-site, and we didn't want the burden of training our staff in database administration to support an application that is not a core competency for Sun."

Companies like ProBusiness can handle a wide range of payroll services tasks: back-office functions like payroll production and distribution, and front-office functions such as customer service and time and attendance. In the tax area, ProBusiness covers filings, amendments, tracers and wire transfers. Benefits services include flexible benefits administration, open enrollment, flexible spending accounts (FSA) and COBRA/retiree. In the HR segment, it covers employee inquiries, service request management, HR data management and employee record-keeping.

Top 10 Reasons For Outsourcing

1 Reduce and control operating costs

2 Improve company focus

3 Access to world-class capabilities

4 Free resources for other purposes

5 Resources not available internally

6 Accelerate reengineering benefits

7 Function difficult to manage

8 Share risks

9 Make capital funds available

10 Cash infusion

Source: Outsourcing Institute