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The Virtual Org Chart

Posted on Sunday, May 17th 2009

By Guest Authors Richard Hooker and Steve Monas

[The series, which started with “The Outsourcing Imperative”, continues with a discussion of what needs to be planned before and while working with an outsourcer.]

Not only does outsourcing allow entrepreneurs to build full-scale enterprises, building a virtual organization, at least in part, is an absolute requirement to be competitive in an age of accelerated change. Developing outsourcing competence, however, is a daunting task, especially when all the other imperatives of a startup come crashing down around your head. In this excerpt from our book, “Shoestring Venture: The Startup Bible”, we discuss all the necessary planning that goes into building a partly- or fully-outsourced startup. 

Like much else in starting a business, running a company using outsourced vendors requires skills you may not have and tasks you may never have performed. And outsourcing management involves one mighty steep learning curve.

Top on that list is building and maintaining an effective organization chart.

“Wait a minute! If I outsource most or all of my business functions, what do I need an org chart for? I have no employees!”

It’s because your outsourcing so much of your business functions that you need an organization chart, even more than if you were building all your company’s capabilities in-house.

Simply put, an organization chart and its accompanying materials organize a business by answering three questions:

  • What are the “things” that need to be done in order for the business to succeed?
  • Who does these “things”?
  • And at what level of performance?

So an organization chart consists of a chart, a set of job descriptions, and a set of performance expectations to go with each job description.

With an organization chart, the people running the business have a handle on all the functions and tasks that have to be performed. Without a dynamic, living, breathing organization chart and job description catalog, it’s highly likely that very important tasks — in fact, survival tasks — won’t get done. Or they’ll be done poorly, which is just as much a business-killer.

Disorganization has many virtues, I’ll admit. Business owners don’t have to manage and employees don’t have to work . . . among other benefits. But without an organization chart, critical tasks go undone. Or only partly done.

And in my experience, that is the number one pitfall businesses that outsource go tumbling into: critical tasks go undone because the outsourcing is not organized. In fact, most shoestring entrepreneurs and small businesses I deal with are initially attracted to outsourcing because they believe it essentially liberates them from having to organize their businesses.

On the contrary, organizing the business is ten times more critical for businesses that outsource critical functions than for traditionally staffed businesses.

Unlike a traditional organization chart, an outsource organization chart is “virtual” in the sense that the slots are filled by functions rather than actual people. But the process is very similar:

  • You start by listing all the tasks and functions that your business must perform.
  • You assign those tasks to “virtual” vendors.
  • You draw up “job descriptions” for these virtual vendors.
  • You draw up performance expectations for each of these job descriptions.

These become the basis for finding, negotiating with, and evaluating the performance of vendors.

You should never draw up an ad, RFP, or contract for a vendor without working out the “job description” and performance expectations relative to the functions of your business as a whole.

The great benefit of outsourcing is it can be used on an “as-needed” basis. But even when a vendor is hired on an ad-hoc basis, that’s no excuse for the improvised, catch-as-catch-can style of outsource management, which, more often than not, leads to bad endings. “As-needed” outsourcing should never mean “as-unplanned” if you want your business to succeed.

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