“The important thing about outsourcing or global sourcing is that it becomes a very powerful tool to leverage talent, improve productivity and reduce work cycles.” – Azim Premji, Chairman of Wipro Limited.
Well, I agree with it. However, just like a coin has two sides, there are several risks associated with outsourcing a project.
A few days back, one of my friends was looking for an outsourcing partner. However, he knew that outsourcing is not risk-free. Hence, finding their solutions became his utmost priority, and guess what, he finally found them out.
Then, I thought that I must prepare a blog post on this!
So, if you also want to know the main outsourcing risks and how to mitigate them, be with me for the next 5 minutes. Yes, I am here to clear all your doubts.
However, before that, let me take you through a quick overview of the current outsourcing market scenario.
Table of Contents
Outsourcing Market: Current Market Predictions
- Revenue in the segment of IT outsourcing is supposed to reach US$359,832.3m in 2021. The standard spend per employee in IT Outsourcing is predicted to reach US$104.79 in 2021.
- The worldwide IT outsourcing market is anticipated to rise by $98B from 2020 to 2024, growing at a CAGR of 5%.
- Deloitte’s 2020 Global Outsourcing Survey took a more private approach to their study due to the pandemic. They questioned 40 officials across their clients, lawyers, and service providers globally, both before and after the inception of the pandemic, to get an actual representation of how businesses have responded.
13 Top Outsourcing Risks and their Solutions
Before I come to outsourcing risks, I would suggest you hire a trusted and experienced outsourcing company in India to avoid any risks. This is one of the best things to avoid outsourcing risks.
Risk 1: The Issue of Trust
For many businesses, it’s hard to trust outsourcing partners with their data, especially when they are sending this data to other companies in the same country or abroad. If there is a trust issue between partners, a business can be severely affected, which is one of the main reasons outsourcing fails.
- A solid contract can help outline precisely what should be shared and how the data should be used.
- Regular meetings with outsourcing partners may also provide a better understanding of each other while leaving both companies feeling comfortable about their relationship.
- The transparency of calculating development rates per project rather than hourly or weekly rates may also help with trust issues.
Risk 2: The Boundary of Responsibility
Outsourcing companies are always subject to highly skilled specialist employees’ availability, which is why they sometimes protect themselves by splitting their teams into multiple units. This can be done to ensure that the local/outsourced staff members cannot access critical information about your company or its technologies since it would pose a security risk to your company.
Make it clear that any information you have will stay within your walls, and share only what’s needed to ensure the smooth delivery of the project.
Risk 3: Lack of Transparency
Lack of transparency is one of the key outsourcing risks. Some outsourcing companies like to keep some information unobtainable on their website (and sometimes even when speaking directly). This might be the case if they don’t want to share their technology stack used in past projects. It is all related to the technological advantage gained for this company, based on experiences and achievements within its specializations.
The initial round of talks should at least make you aware of what technologies are used or at least point you towards the direction in which to look for them.
Risk 4: Understanding Your Business Issues and Priorities
As a rule, an outsourcing company will want to help its clients solve their problems regardless of the initial intention. In some cases, it might just not have been made clear enough during the initial talks what the client’s main focus was.
Also, it might be that various issues have to be solved at once. An inexperienced or just not-so-skilled outsourcing company could miss the essential items and overemphasize less significant ones. The problem will arise should you decide to tackle other issues after the deal has already been signed, get charged for it, and not get the promised quality of service.
You can mitigate this outsourcing risk by hiring a reliable outsourcing partner. A professional outsourcing company will always report its work to you after every development cycle to be 100% certain about what is actually being developed. Tracking one or more projects in real-time through your project management tool of choice will allow you to not only track the progress but give you access to historical information too.
Also, by reporting your developers’ work in everyday business language with screenshots and diagrams, you can make sure that everyone is on the same page with what needs to be done when it should be done, and what has been completed before moving on to the next task.
Risk 5: Non-Disclosure Agreements
This is a standard tool for those who want to protect their information from falling into the wrong hands. Outsourcing companies working with some of your competitors may have access to some of your crucial data and intellectual property, thus disclosing it would be damaging to you as a business. Make sure you agree on non-disclosure agreements before you hire an outsourcing company.
You should have a written agreement between you and the outsourced company before providing any information or starting your first project. This should include each party’s responsibilities, limits of confidentiality, penalties for breaching it, etc. The NDA can also be negotiated to cover only data related to your business and nothing else.
Risk 6: Handling Your Data
Transparency will always be needed in the outsourcing business, but this area is where many of them fall short. You should demand to know exactly how your data is handled within an outsourced company’s network and what measures are taken to ensure its safety. The security measures that protect the outsourcer’s network also have to defend yours.
An outsourcing company will make sure that you know who has access to your data, which precautions are imposed on the employees, and the kind of security systems in place. The client’s information should be kept in an isolated network with limited access control. Employees should only need to know, and the company’s security services have to include not only the usual anti-hacking measures but robust authentication systems too.
Risk 7: Tracking Your Project Progress
If you are outsourcing website maintenance or development, you are critical of how others are handling your necessary data. You won’t want to end up paying the price for a service that you’re not going to receive. Most outsourcing companies will post reports of their work regularly, but there is no guarantee they’ll be complete and accurate.
You should ask your outsourced company for tracking tools such as project management software so you can keep a close eye on what is being developed, who’s working on it, and how much time has been spent doing so. The best outsourcing companies have a project management tool that you can access from anywhere – either via an online interface or a VPN connection to the company’s server.
Risk 8: Lack of Flexibility
The outsourcing company has been delivering the same service for several years now and cannot adjust its services easily to your requirements. This and any other related fact can be checked during the initial talks with no difficulties whatsoever. There will be no need for you to hire an outsourcing company that simply cannot adapt its services to your needs.
You should be able to discuss this issue with the outsourcing company staff directly. If they don’t change their stance towards flexibility, they might only offer you limited service at the price of higher cost.
Risk 9: Outsourcing Company’s Extent of Knowledge in Your Business
The company you hire has to have the expertise, essential skills, and experience needed for your project, with no exceptions. If they cannot meet your requirements at all levels, you should keep looking for another outsourced company that can do so.
Assess an outsourcing company’s level of expertise in your business sector. Ask questions about their experience, the size of projects they have handled, what kind of tools they employ within their organization, etc. When you find a company that meets all your expectations, make sure it can provide references upon request.
Risk 10: Outsource Company’s Reliability
A company that will provide you with a complete service – from quality services to transparent handling of your data – has to be reliable too. This means acting honestly at all times, not taking advantage of the power differential between you and them, etc. You should only trust an outsourcing company that can be relied upon.
There are several things you can do to ensure the reliability of your outsourced company. However, one basic rule will take care of all of them – go for multinational companies with offices in different countries. This way, you’ll know that even if something happens to their office location, they’ll still be able to provide you with your desired services.
Risk 11: Poor Project Scope and Lack of Communication
If an outsourcing company can’t meet its deadlines or deliver what was initially agreed upon, it will not only cost you time and money – but may even cost you your business as a whole. A good outsourcing company will make sure to communicate with you, update you on the progress of your project and any setbacks it encounters, etc.
Ask about an outsourced company’s communication policies before starting a project. Find out if they have meetings set up with all their clients throughout the development process or if they prefer to report back to clients after certain milestones are reached. The company’s project management tool may also be of considerable help in this respect.
Risk 12: Outsourcing Company Proposes Uncomplicated Solutions
You should only hire an outsourced company if they can provide you with a solid solution for your business problem, not simply the means to work around it. Any outsourcing company that proposes simple solutions to your business problem instead of working on long-term solutions is likely to not be doing its job correctly.
Asking the outsourcing company for case studies they’ve handled in the past will help you gain clarity on whether they’re capable of providing good outcomes or if their idea of a good solution matches up to your needs.
Risk 13: Unclear Project Objectives and Scope
One of the essential things in business is being clear about what you want, so it makes sense that a lack of clarity will only cause problems down the road. The vaguer you are with an outsourcing company at the beginning of your project, the less likely it is that they’ll be able to come up with an accurate estimate of its time and cost.
You should always communicate your needs clearly to your outsourcing company – but never tell them exactly what you want. This way, you’ll give them the space they need to actually come up with solutions of their own, and you can select the one that suits your business needs best.
Why Does Your Business Need Outsourcing?
“The real power of outsourcing going forward is going to be that it increases an organization’s core capacity for change and growth. The business challenges over the next decade are going to be very different than anything we’ve seen so far and the companies that weave a powerful network of global partners through outsourcing will be the winners.” – Michael Corbett, Chairman of the IAOP
- Save time and money
Your business has a limited amount of resources. Time and money included. With the right outsourcing strategy, it’s possible to extend these resources smartly throughout your process.
- You have the opportunity to focus on what you do best!
We all have our own strengths. What if we can concentrate only on those things we do the best. It is effortless; let someone else take care of those bits you aren’t strong with.
- Nowadays it isn’t a choice anymore!
Outsourcing is an undeniable fact. In many spheres, it’s necessary to have a developer team around available as a true partner for your business.
- You can focus on what you love in your business!
With the right outsourcing strategy in place, it’s possible to achieve more than ever before. You can focus on what you like and delegate all the rest to specialists with the required expertise.
- Outsourcing might lead you into new markets or opportunities!
If you try to tackle all challenges of the IT industry, it’s almost impossible to play on several fields simultaneously. With an outsourcing provider, you can focus on what’s most important for your business without worrying about anything.
So, above, we have discussed all the possible outsourcing risks you might go through while outsourcing and how to avoid them. This list may not be complete – there may always be new outsourcing risks showing up. But using it as a guideline will certainly help you keep those outsourcing risks at bay. So, what are you waiting for? Go ahead, hire one of the best software outsourcing companies in India to take care of your projects!
Frequently Asked Questions
Ques.1 What are the most frequently reported problems in outsourcing?
Different customers have different expectations from their outsourcing contracts. However, the most common problems in outsourcing include:
- Lack of Documentation
- Not setting up milestones
- Scope Creep
- Communication Breakdowns
- Lack of Quality Control
- Delays in response to requests for quotations and project documents
- Incompetent Support Staff or Contractors
Ques.2 How can I avoid outsourcing problems?
There isn’t any easy way to answer this question. But it’s safe to say that the best way to avoid outsourcing problems is by hiring a reputed company. And when it comes to choosing an outsourcing partner, look for a company willing to work with you.
Ques.3 What are the benefits of outsourcing?
There are many benefits of outsourcing, but the truth is that they depend on your specific scenario.
If you are not sure of what outsourcing can do for you, here are some ideas:
- Reducing costs
If your current situation is anything like mine (where I had to take care of 100% of my work by myself), outsourcing will reduce costs in different ways:
- Removing administrative work from your plate
Reducing the number of hours you spend on a specific task. For example, instead of spending 20% of your time writing proposals and doing accounting work, outsourcing these tasks to a company will allow you to focus on other areas where you can bring more value.
- Better results
In most cases, outsourcing will bring in better results. Why? This is because the people working on tasks are specialists at what they do. If you look at any successful company, you will find that they outsource part of their work to specialized companies!
- More control over the process
Control is another one of the benefits of outsourcing. When working on a specific task, you can stay in control by setting deadlines for reports or milestones. Even better, when you outsource small tasks, you will have more control over quality and delivery.
Ques.4 What countries should I consider for outsourcing?
This is a complicated question to answer because there are many factors to consider. However, in general, if you are looking for cheap labor, things might not go as smoothly as you had hoped.
Instead, look for countries that are good with technology. Why? Because this is what you will be outsourcing. However, how can you tell? Instead of guessing, why not use the internet to your advantage? Yes, you can check out reviews on service providers in different countries. It is possible to find these reviews on websites like G2Crowd, Capterra, TrustRadius, or SoftwareAdvice.