The expanding reach of the Internet and growth of online collaboration tools have all changed small business outsourcing dramatically in the past 3-4 years.

Let us take a look at 10 key trends for using independent contractors for projects and even ongoing staffing needs, and how they shape up in 2009:

1.  The “Outsourcing Life” is hip 

Popularized by the best seller The 4-Hour Workweek, more people are realizing that they can get their work done by someone else even if they are a solo entrepreneur.  According to statistics published by US Small Business Administration, 56% of US small businesses with 100 employees or less, have fewer than 5 employees. If your business is one with no employees or a very small number of employees, you may find yourself over-stretched for time, and in need of outsourcing in both your personal and professional life.  Driven by the economy and the need to watch expenses, more businesses will opt for contracting relationships and hold off hiring new employees as long as possible.

Small businesses are also continuing to push the envelope on what can be outsourced.  They are discovering elements that can be outsourced even in previously “core” activities. For example, an Australian small business we work with specializes in online marketing, but also uses multiple telemarketing providers to cross sell their product range to customers.

How to benefit from this trend:

• Re-examine what you consider to be activities only you or your employees can do.
• If not the entire activity, can some parts of this at least be outsourced?
• Be prepared to invest some time up front in training your outsourcing partner.

2.  Have we met? Not likely!

Trusting people you never meet face to face is gaining acceptance.  Use of Skype conversations and social networks like Facebook and Twitter exemplify how people who have never met strike up relationships with each other.  These media are increasingly becoming the means for small businesses to reach out and establish trust based relationships with their outsourcing partners.

A decade ago you may never have thought of outsourcing to someone outside of your local city or region.  Now it is commonplace to find vendors and independent contractors across the country or even across the world.

How to benefit from this trend:

• If you are a vendor, establish a presence on the networking sites of your choice – LinkedIn, Facebook, Twitter etc. to create an online brand presence.  Make it easy to be found and for customers to get to know you.
• Evaluate which mode of communication gives you the best results. Also take into consideration where your customers are located and how they prefer to be contacted. Sign up with Skype, or other email and Internet marketing tools.

3.  More power for the hour – new ways to price services

Payment schedules structured to incentivize success are gaining popularity.  Two common types of payment methods are “Fixed Price” (where the vendor takes much of the risk – this is often highly conflict prone) and “Time and Materials” (this gives the vendor flexibility in defining scope but is expensive and asks the buyer to micro”manage).

We’re seeing pricing structures that combine the best of both.  For example, web page design will be fixed at a price per page.  Subsequent changes requested by the buyer are paid for using an hourly rate for the effort.  The combination pricing can save the buyer as much as 30% of the total cost and avoid conflicts. It also aligns interests of the buyer and the vendor.

How to benefit from this trend:

Split your project into 2 parts:  the part that is well defined and unlikely to change, and the part that needs to change as you see results of each phase.
“Fix Price” the well defined part, while agreeing upon an hourly rate for the rest.

4.   “We need to talk”

In real estate the mantra is “Location. Location. Location.”  In outsourcing the mantra is “Communication. Communication. Communication.”

Operational structures that clearly define responsibilities and establishing ways of communicating play an ever more important role in successful outsourcing.  Small businesses are realizing the importance of such rigor in defining operational structures.

For instance, you might establish a regular review schedule to effectively manage a project and stay on top of progress.  This is preferred over putting a project out for hire and then going weeks without any status update.  Email, instant messaging and collaboration technologies make it easier to conduct frequent reviews.

How to benefit from this trend:

• When you outsource a project, establish a routine of daily or weekly status review calls based on project size.
• The duration of the calls again depends on the nature of your project, but typically 1 hour or less works best.
• This is important especially when you are working with a new provider.

5. Taking the relationship to the next level – outsourcing ongoing processes

Small businesses are opening up to outsourcing ongoing processes, in addition to projects.  Task (or project) outsourcing (e.g., file my taxes) is primarily a one-off activity while process outsourcing (e.g.,  manage my accounting) requires a relationship approach.  Process outsourcing also places greater responsibility on the vendor to become closely familiar with the client’s business and the client’s customers.

How to benefit from this trend:

• For the projects you are outsourcing, see if some of the activities you do before and after the project can also be done by your outsourcing partner.
• When outsourcing processes, evaluate providers for a strong understanding of the legal and regulatory issues associated with the process they would manage.

6.  Jigsaw Puzzle Outsourcing

Both clients and service providers are building the skills needed to successfully execute geographically distributed projects.  Small businesses are getting more comfortable with working remotely with the most skilled professionals, irrespective of where they are located.

The ability to break a process into components that can be done by different individuals, but designed to all fit together for the end result, is a complex skill that is increasingly valued.

How to benefit from this trend:

• When outsourcing a project focus more on who can get the job done best.
• If other factors like location, cultural affinity, time difference etc. are concerns for you, share them with your outsourcing partner.
• Discuss how the risks that come with these factors can be mitigated and find a solution that both parties feel is fair to them. 

7. Let’s collaborate!

Tools like Basecamp, Zoho and Google Docs enable collaboration across continents cheaply.  You no longer have to worry as much about whether the client or the service provider have the same software applications installed, and in what form you are going to deliver work.  Online apps that are universally available make exchanges of information, project updates and deliverables easy and seamless.

PayPal has changed the face of payment.  PayPal is available in 190 markets and 18 currencies around the world.  Small businesses are using PayPal to invoice, make and receive payments.

Skype, an Internet based telecommunications and messaging system, likewise has made telephone conversations and quick message exchanges easy and inexpensive to do.

How to benefit from this trend:

• Decide what collaboration tools you need, and pick the one that best fits your needs, and does not confuse you with too many bells and whistles.
• Coach your outsourcing partner on how to use the tool most effectively, if required.

8. Pushing the frontiers of complexity

Services that are critical and complex like legal services, management accounting, and employment training are being increasingly outsourced globally.  In part this is due to point #2 above, where we are increasingly becoming more comfortable dealing across the web with people we have never met.

This trend will require providers, too, to become more skilled and efficient in handling greater complexity.

How to benefit from this trend:

• Take a second look at specialized services that are the most expensive in your business – these are areas you might consider outsourcing.
• Start small, and send out chunks of it to lower cost providers who can do the simpler components of the task for less.
• Expand the relationship as both sides become more confident in handling the additional complexity.

9. Offshore or Homeshore? The choice is yours!

Small businesses are maturing to look at a variety of factors before making the outsourcing decision.  Tasks that require presence in the same time zone and a cultural awareness are being Homeshored.  Tasks that are not time sensitive or heavily influenced by culture are being Offshored.  

How to benefit from this trend:

• Evaluate if your outsourcing partners can train themselves on some of the cultural aspects if they belong to a different geography.
• Offshore only those tasks that are well defined. For tasks that need your input several times a day, choose a provider who can work in your own time zone. 

10. Just tell me when it is done! 

Small businesses appreciate vendors who can support them through the project execution process.  Small businesses are increasingly realizing that bringing clarity to tasks, defining milestones and timelines, tracking progress etc. play a pivotal role in project success. 

We’re seeing the emergence of more agencies and firms that place outsourced talent and handle all the overhead for the client.  These services are increasingly sought and valued by small businesses.  Almost every client we have tells us that the service we provide in managing their outsourcing is what they value most.

How to benefit from this trend:

• Evaluate how much time you and your employees are ending up spending on finding providers and on assigning and tracking their tasks. This could be another service you could outsource to an outside agency.
• Look for strong communication skills and experience in setting up processes that produce results.
• What are the trends you are seeing in your own business and in businesses around you when it comes to outsourcing?

By Amit Mullerpattan