According to numerous pieces of research, about ¾ of all companies that applied for the outsourcing of at least one process in their company are happy with their decision. And although this is a quite significant success rate, the remaining 25% shan’t be underestimated. Below, we’re considering what are the typical risks of outsourcing and consider possible scenarios of avoiding these from happening.
Benefits and challenges of outsourcing
There are multiple benefits of getting to outsource. Practically any process in a company can be given to some third party to be executed – except those major processes, which make the company a company: receiving profits from the commercial activity and adopting managerial decisions. Which of the following is a benefit an organization can receive from outsourcing? Let’s briefly consider:
- cutting costs for a particular process thanks to executing it by lower-salary specialists
- increasing its scalability
- lowering time of getting into a market (for new companies) or new markets (for already operating companies)
- accessing a bigger pool of talents
- an opening way for reorganization in the company
- accelerate time to market of some new product or service
- access to newer or better software
- a possibility to outrun the competitors.
However, not every company decides to outsource for multiple reasons even if it has a necessity in it and signs that outsourcing could be done. Which of the following is the least common reason why companies outsource? In many cases, outsourcing isn’t started because of the reluctance of management to implement changes, which must trigger a significant change management process, which could last anywhere from months to years. Some bosses are simply okay with the things in their companies even if they aren’t going great, as they simply feel well enough about dealing ‘fine’ or even ‘average’ (it’s not a secret that for some people, owning or running a company is just a matter of obtaining a milch cow).
With the outlined typical gains, there are distinct problems & dangers, which any company faces or might face during the implementation and operation under outsourcing. While all of these can be solved (and some really don’t require much effort or time to do that), it is clearly obvious that these issues may become major problems and lead to failure of the entire outsourcing process if outsourcing will be implemented in companies with indifferent or hesitant management. It is simply so because solving many of those issues requires high involvement, political will, and practical helpfulness of management at least at the implementation stage.
Typical problems of outsourcing
- Data security. This is often pondered as the biggest problem with outsourcing. Data are about your clients, HR, confidential information, processes, know-how, commercial secrets, and the rest of things, which you shan’t allow to leak. Not only responsibility of the outsourcer has to be clearly defined in the contract for data leakage and stealing but also practical measures implemented, like protected data exchange channels, firewalls, access only to a list of authorized people on both sides, many-level access hierarchy, automated monitoring of actions of users in the system, data encryption and decryption protocols, controlling & audit procedures, etc.
- Not having a clear budget plan. What you have in your contract for outsourcing is never the full price of it. Additional expenses will be up half of that (or more) and include costs of benchmarking to determine the need for outsourcing and the right vendor, costs for internal procedures’ SWOT analysis or another investigation, costs for the process of change management implementation (the process of shifting to outsourcing), the costs of HR rotations and company’s internal structure change due to this process, costs of auxiliary processes and controls. So when elaborating your plan, adopt about ½-1 of the cost as the cost of implementation.
- Time zone difference. If you’re located somewhere in Norway while outsourcing to someone from Pakistan, the time zone difference is 3 hours. Even more tangible it will be with so distant locations from one another as Canada and Thailand (12-14 hours). Hey, even within one country it could be serious! Take France and all its territories as an example – it changes from UTC-10 to UTC+12! The solution is to pick a company with 24/7 delivery or one located close to your time zone.
- Language and cultural barriers. If that is crucial for call centers and client support services, then it is less tangible for employees who simply write emails to one another to deal with routine work issues. However, it shall be adopted as a rule of good tone to speak at least one common language – that should be the solution.
- The whole project and working scopes can be slipping through the fingers. While it is definitely not necessary for any employee to know the full picture, it becomes crucial for managers. Too many ‘event horizons’ and layers of processes in a company is a sure way to confusion and loss of something important. Thus, making a mistake.
- Unclear delivery and quality.
You don’t make things work properly unless you define everything in writing! All the risks and issues described above can (and should!) be mitigated or avoided in full by writing everything in an outsourcing contract, to fine detail. Even if your contract will have 500+ pages eventually, that’s fine for you as an orderer of outsourcing – in this case, you will be protected on all sides if things go wrong. Surely, every letter of the contractual “small text” shall be discussed, agreed upon, spoken over and over, and made sure that the outsourcing company can really deliver all your requests. The most important positions shall be brought to a separate PowerPoint presentation to put it in front of the eyes of key workers responsible for the delivery. It is also desirable to elaborate as many tools of control of all deliverables as possible (preferably, as software).
Only in this case, all outlined risks can be taken off the table. Our company Tres Commas will help you avoid all of these problems to increase your sales.