How Outsourcing Firms Cope With Economic Downturns

Some outsourcing companies fly high, others crash in a tough job market.

John W. Allen, president and COO of G&A Partners, recently participated in an interview with PB Oil & Gas, the Permian Basin Petroleum Association's monthly magazine about how a variety of outsourcing firms are faring in the oil and gas economic downturn.

There are many degrees of outsourcing, from using a service to vet and hire employees for the end user, to sending all work for a department such as Human Resources to another company. Some of those are doing better than others in this economy. Companies who handle the outsourcing of HR are doing better than most, even acquiring new clients. But that success is due as much to the increasing complexities of the Affordable Care Act as to the economic impact.

With employee leasing and hiring, times are tough. At least one Permian Basin staffing company has shut down its staffing department due to clients who stopped hiring and, in too many cases, went out of business.

Downturns push businesses to evaluate costs Houston-based G&A Partners, an HR outsourcing company, has had their share of clients dose their doors since the start of 2015. But the same bust that has sunk some ships has made those still afloat look more closely at ways to cut costs, and one of those ways is often the offboarding of the Human Resources department, said John W. Allen, G&A cofounder and President/ COO.

G&A's client list includes small, medium and large businesses that have outsourced their HR functions in order to concentrate on their core business-- which, in very many cases, is oil and gas. A typical scenario involves G&A placing a small number of employees at the client site, with the rest of the client's work being done by people at the G&A office. Allen pointed out that this cuts costs by keeping the client from having so many staff dedicated to one task At G&A, employees can work as long as needed for client A, then shift their attention to client B or C in order to stay productive.

"A lot of companies are downsizing," he said, recalling one Houston client who has reduced its workforce from 165 to 100 and another in the Permian Basin that has had to lay off half its workforce.

"I just made a proposal to a large oil and gas company that's downsizing considerably. They were at 5,000, now they're at 1,500. They've already cut a lot of employees, and now what they're doing—they had a 20-person HR department and they wanted to get rid of everybody who had anything to do with HR, and just do what they absolutely had to do from a transactional perspective to comply with the law. It's all really about survival at this point."

And it is precisely at "this point" that other companies begin looking at HR outsourcing for the same reason. "When the economy is rocking along, people are much more reluctant to abandon the status quo. It's not until things go south, and people begin to struggle, that they take a good hard look at, 'How can we do things better?' So, as strange as it sounds, difficult times can actually be good for us." He quickly added, "On the one hand we'll lose clients that struggle in this economy and go out of business, but on the other hand we'll bring on new clients who finally see the value in outsourcing their HR, both in cost and from a focus perspective."

Allen gladly admits to following his own philosophy, saying, "We've outsourced our CFO for the past two years. My partner (co-founder and Chairman/CEO Antonio R. Grijalva) and I are both CPAs. So, while we could do the CFO's work, that's not the role we need to play in the organization, so we outsource it.”

The Affordable Care Act overwhelms smaller HR Departments

Looking to the future, Allen mused, “As government regulations become more and more complex—as owning and operating a business becomes more and more difficult—I think the demand for our services will increase."

This is actually already happening. "The Affordable Care Act has had a tremendous impact on the growth of our business over the last three or four years." The fact that companies do not know how to comply with the complex ACA regulations—Allen said he had heard that as many as 100 pages of new regulations are being written every day—G&A is contacted by many companies who would never before have even thought about outsourcing HR.

"So, sadly—because, individually, I'm opposed to more and more regulations—oddly, it's actually good for my business."

This information was originally published in the May 206 issue of PB Oil & Gas. Click here to view the full article in the online version of the publication.