Workforce

Out Is In: Outsourcing Strategies for Small Construction Businesses

Outsourcing isn’t just for large corporations. Small to medium-sized companies can also benefit from hiring third-party organizations to perform key tasks, functions or roles.
By Brad Werner
March 21, 2024
Topics
Workforce

Construction companies of all sizes are facing a common challenge: the need to optimize their operations and drive sustainable growth in an increasingly competitive and less predictable market. One solution that has emerged is a greater reliance on outsourcing—hiring external professionals or third-party organizations to perform specific tasks, functions or roles.

While traditionally associated with large corporations, outsourcing can be equally beneficial for small to medium-sized firms, presenting opportunities to leverage specialized expertise, mitigate talent shortages and drive innovation.

INPUT TO OUTCOME

There are several factors explaining the growing popularity of outsourcing. First, there simply isn’t enough talent available to fulfill the diverse needs of construction companies, from finance to human resources to marketing. High turnover rates further exacerbate this challenge, making it difficult for organizations to maintain continuity and momentum.

Outsourcing represents a strategic talent-management approach, enabling companies to better focus their internal resources on core competencies while leveraging external expertise for non-core functions. For example, finance departments can play a pivotal role in facilitating outsourcing initiatives, supporting functions such as human-capital management, marketing, procurement and information-technology governance and strategy. By reallocating resources in this manner, construction companies can optimize their cost structures, enhance operational efficiency and drive overall profitability.

A fundamental shift is also underway in how outsourcing is perceived and implemented within the construction industry. Traditionally, outsourcing arrangements were input-based, focusing primarily on cost reduction. However, the changing landscape demands a paradigm shift toward outcome-based outsourcing, with an emphasis on delivering tangible results rather than merely reducing expenses. This shift is driven by a recognition of the need to maximize value and efficiency while maintaining quality standards.

Whether it’s outsourcing a position or a project, companies can no longer outsource a single, fragmented slice of a process and hope to see much improvement in results. Instead, according to an article from McKinsey & Company, for the highest impact, the provider usually needs to own—and transform—the entire end-to-end process, through optimization, digitization, automation and the elimination of manual processes and work.
Consider an example of a young controller tasked with leading a finance team. By incorporating outsourcing into the company’s talent strategy, the controller can leverage external expertise while providing skills-development opportunities within the team. This dual approach not only enhances the team’s capabilities but also fosters a culture of continuous learning and professional growth.

Labor productivity is another critical area where outsourcing can yield significant benefits for construction companies. Historically reliant on domestic talent pools, firms now recognize the importance of diversifying their labor sources to mitigate risks and enhance scalability. In today’s globalized economy, the traditional model of sourcing labor solely from major urban centers is no longer sustainable.

Outsourcing provides a viable solution, enabling companies to tap into diverse talent pools and achieve greater flexibility in workforce management, especially with the increasing shift in flexible work environments. Upwork projects that 22% of the workforce will be fully remote by 2025.

SMALL TO MEDIUM-SIZED

You shouldn’t view outsourcing as a wholesale replacement for your in-house capabilities but rather as a strategic augmentation. By supplementing internal resources with specialized external expertise, you can enhance your operational agility and responsiveness to market dynamics.

This approach is particularly relevant for smaller firms seeking to establish a competitive edge in a crowded marketplace. By investing in practical tools and adopting innovative strategies, smaller companies can position themselves as nimble and adaptable players better able to drive long-term growth. In fact, a recent Wipfli survey of C-suite executives, founders and boards of directors at mid-market companies finds that technology investments bolstered efficiency, revenue growth and new client acquisition for 91% of the companies.

Outsourcing can also help small to medium-sized companies navigate complex organizational structures by providing a standardized framework that can be tailored to their specific needs through streamlining processes and enhancing overall efficiency. This level of operational cohesion is essential for companies seeking to scale their operations and drive sustainable growth.

Moreover, outsourcing offers smaller companies a unique opportunity to compete with their larger counterparts on a more level playing field. By embracing outsourcing as a strategic enabler, smaller firms can access a similar level of expertise and resources as their larger counterparts, without the associated overhead costs. This level of parity allows smaller companies to focus on their core competencies while leveraging external expertise to enhance their value proposition and market competitiveness.

AGILE TO COMPETITIVE

Looking ahead, the role of outsourcing in the construction industry is poised to become even more pronounced, particularly among lower-middle-market contractors with an annual revenue ranging from $10 million to $150 million. These companies, while recognizing the same industry trends as their larger counterparts, often possess the agility and flexibility to execute on outsourcing initiatives relatively quickly within reasonable costs parameters. By making strategic investments in outsourcing, they can unlock new growth opportunities and drive sustainable returns over the long term.

Outsourcing represents a viable option for construction companies of all sizes that are looking to maximize their growth potential in an increasingly competitive marketplace. By embracing outsourcing as a catalyst for innovation, efficiency and scalability, they can position themselves for long-term success in a dynamic landscape. Whether it’s tapping into specialized expertise, diversifying labor sources or streamlining organizational processes, outsourcing offers a pathway to enhanced competitiveness and sustainable growth.

by Brad Werner
Brad Werner is a partner and the national leader for construction and real estate with Wipfli. For more information, visit wipfli.com.

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