OUTSOURCING’S EXPENSIVE ALTERNATIVES: Why The PEO Model Is Gaining Ground

Throughout the last half of the 20th century and the first part of this one, we had the opportunity to learn the same lesson over and over: For business, “business as usual” wasn’t working – at least not as well as it needed to or should. Traditional models of ownership, management, investment, employment, marketing and distribution all underwent repeated phases of major disruption as technology, demographics, wealth distribution and market demand experienced major change. With each upheaval, the choice was stark: Adapt or perish.

Sure, you could try to stick with the way you’d always done things – but chances were that there would be a new, aggressive upstart ready and waiting to eat your lunch. The rise of the Japanese auto industry, Chinese consumer goods, and Silicon Valley tech startups were all made possible by seismic changes in old-guard industries. Smarter companies adapted, evolved, and survived; those who didn’t disappeared. RIP, Packard. RIP, Howard Johnson’s. RIP Union Carbide.

One upheaval that hasn’t been broadly addressed: The slow, steady decline of the old employment model. American business still maintains hundreds of thousands of atomized individual HR departments, doing what HR departments have always done: reviewing resumes, managing paperwork, negotiating contracts, and administering benefits. While practices have remained largely the same, though, costs have not: Estimates have shown that the average company now spends $5,000 per year per employee on HR administration expense alone. In an era of narrow margins and savage competition, such nonproductive capital expenses seem not only unjustifiable, but unsustainable.

Many companies have tried to blunt the impact of this inefficiency and expense by turning to temp agencies. Companies that once were called on to provide only short-term or ad hoc personnel now are called on to handle a significant portion, if not all, of many businesses’ staffing needs. While this can be a valuable short-term solution, it probably isn’t the best way to address all long-term needs..

Over time, cost and consistency can emerge as issues. Temp agencies depend upon the availability of a steady supply of skilled personnel willing to work in a temporary capacity. In an economic downturn, that doesn’t pose a tremendous challenge as the labor supply rises; in a tightening labor market, though, it becomes a bigger problem as temp workers find long term or permanent employment, or create their own businesses or individual consultancies. The continuing need for new recruits, and to handle the associated paperwork, adds to infrastructure costs which are passed on to clients.

Traditional employment models are becoming less suited to many of today’s efficiency-driven, stability-seeking businesses. That’s why Professional Employer Organizations (or PEO) like Trion Solutions have prospered. The ability to provide a high-quality, stable, and affordable labor pool while containing costs has become a pivotal competitive advantage—and one that more and more forward looking businesses are finding impossible to ignore. There will always be temp agencies, of course, and there will always be companies that insist upon maintaining their own extensive HR infrastructure—but as labor and administration costs rise and as a technology-empowered workforce becomes ever more mobile, these will become more challenging to sustain.

Taking Care of Business for 2016 and Beyond

We are now nearly two months into 2016. For many business owners, the close of 2015 was an opportunity to take account of where their business stood – what it had accomplished in the past year, and where it’s likely to go in this one.

From our perspective, our year-end analysis found the overall US business climate to be an interesting one—a mixture of good and bad news, with both bright and daunting prospects on the horizon. By nature, Trion is a company that thrives in times of change and challenge, but that certainly doesn’t hold true for the majority of businesses. Stability, order, and a logical progression of events create the best overall business climate, but 2015’s close found all three in somewhat shorter supply than many companies might like.

Here’s where it seems we stand. On the plus side, the economy is still enjoying general growth overall, though it is faltering in some sectors and growth never really started in others. The unemployment rate is edging back towards something resembling normal levels. Interest rates remain at historically low levels for the moment. There are few signs of significant inflation, and we’re just starting to see some slight upward pressure on wages.

That’s the good news. Now, the other side of the coin.

Nobody has to tell you that globally we are experiencing tremendous uncertainty and upheaval—the broadcast news networks will certainly never let you forget it. Headlines are filled with terrorist attacks, plunging oil prices, downed airliners, military skirmishes throughout the Middle East and dotted throughout Asia. We’re facing the distinct possibility that US troops may be called to take an active role in Syria; the US is simultaneously in significant diplomatic and economic disputes with Russia and China; and there’s no clear favorite in sight for next year’s presidential elections, leaving considerable uncertainty as to future tax and economic policies. From a business owner’s standpoint, any and all of these circumstances have the potential to be disruptive.

As a business owner, you can’t control national or global events – but you have at least some control over your response to them. That control is amplified when plan ahead for them, and are ready to make changes on the fly as consumer sentiment changes, economic conditions shift, prices rise, or supply chains contract. Just as in the natural world, adaptation is the key to survival, and the advantage goes to companies ready to right-think, right-size, and right-strategize for the times they’re in and the times to come.

As human resource services specialists, that’s what Trion is all about. A big part of our business is helping our clients adapt constructively to change and meet emerging business challenges head on. We work to give companies the flexibility to adapt, both responsively and proactively as needed, making sure they have the right number of the right people in the right positions to get the job done—and freeing management up to focus on handling today’s urgent business needs, strategizing to meet tomorrow’s demands, and laying the groundwork for stability and success, no matter what the coming years may bring.