Top 7 Outsourcing Risks and How to Avoid Them

Top 7 Outsourcing Risks and How to Avoid Them

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Top 7 Outsourcing Risks and How to Avoid Them

Our Top 7 Outsourcing Risks and How to Avoid Them

Outsourcing is becoming more and more popular from year to year among small start-ups as well as big enterprises. And there is no surprise as this is an efficient business strategy used to reduce recruitment and operational costs, focus on core processes, increase quality and bring in innovations. Besides, it is an excellent opportunity to bring talented specialists to your project without having long-term commitments.

According to market research conducted by KPMG, app development outsourcing is the best option for customers who want to secure expenses without loss of quality. The statistic provided by Computer Economics shows that more than 45% of businesses that already used outsourced services are going to increase the amount of outsourcing workload in future.

No doubt, the benefits of outsourcing are numerous.

Save costs with outsourcingImprove service quality with outsourcing

For example, a significant number of businesses choose customer support outsourcing as an effective way of providing qualified customer care. Experience has proven that cooperation with reliable outsourcing service can increase customer satisfaction a lot.

Although there are many perks, so are the pitfalls that can easily sidetrack your project. Therefore, what are the common risks of outsourcing and how can you successfully avoid them? It is important to mention that your decision to outsource should be well-considered after accurate analysis. In such case, all hidden obstacles can be prevented or even turned into additional advantages.

Here are the most common risks that a company can face when using outsourced services and some advice on how to avoid them.

The Risks of Outsourcing IT

The main advantages of outsourcing are cutting on operational costs, ability to concentrate on the core business processes and not on IT routine, and hassle-free compliance with any local or global regulations, among others. No matter of the key objective, outsourcing causes a lot of controversy and worries in managers and business owners.

Thus, we decided to gather and dispel myths associated with outsourcing services to an external provider. Also, besides the possible risks of outsourcing, we will talk about the right scenarios of utilizing outsourcing to get the maximum of such services. These recommendations and information will be useful both for companies that stand against outsourcing and businesses that want to improve their outsourcing activities. 

Risk #1: Loss of control

No one wants to lose control over the project when trusting it to an outsourcing company. In fact, unclear communication and lack of visibility lead to unforeseen expenses that can transform your product into a costly one.

But how to keep control over it? First, manage the outsourced project equally between your company and service provider. Build strong business relationships with outsourcing team by improving communication. Also, don’t forget to make sure that your in-house staff is aware of how to handle the outsourced project. Choosing the vendor, opt for the one that offers high transparency of communication with customers using reliable tracking systems.

The Ability of the Outsourcing Company to Nurture Your Project

One of the most important questions that come to the minds of stakeholders and business owners is, “Will the outsourcing company be able to meet the needs and requirements that I have?” Although many companies tend to brag about their expertise and readiness to start right away, how can one ensure that the chosen vendor is a credible, reliable company that will help your business to reach the desired goals?

Broken Promises

Every first outsourcing services provider talks about a huge experience in any field and dozens of experts working round the clock, but is there any proof to these sayings? It’s a normal fear to assume that the outsourcing company will not meet the initial requirements or even abandon your project in the midst of development.

Here is how to protect your business from such risks:

  • Check the provider’s website. If the outsourcing company can’t make a neat website for themselves, will they be able to build a high-end product for you?
  • Read case studies (if there are any). Reputable outsourcing companies always have case studies available on their site to show the most successful cooperations, tell about the initial requests and the solutions provided, etc. Although case studies don’t give a full picture of what to expect, they do showcase the company’s expertise and approach to work.
  • Check reviews. It’s crucial to read not only what the outsourcing company tells about itself but also independent reviews about the services provider on such independent platforms, like Clutch. It will give more details on the previous projects and ratings given by previous clients of the company.
  • Talk to former clients. The best way to find out about the credibility and professionalism of the vendor is to have a talk with some companies that used their services before.
  • Check social media. Does the outsourcing company keep their social sites up to date and share valuable information with the community? Does the services provider participate in any global contests, local conferences, or IT events in general? If yes, it’s a good sign.
  • Visit the company’s office, if possible. Of course, nowadays, it may not be an actionable point, but if you have a possibility, check how the vendor works, speak to people that work there, etc.
  • Set clear expectations and responsibilities in the contract. Prepare an agreement that allows your business to take over the critical infrastructure and own all resources and developments within the project. Also, check if the cooperation complies with local and global laws for fruitful long-term cooperation.

Intellectual Property Protection 

Following the last point, when a business shares sensitive data with the outsourcing services provider, it’s essential to set up regulations regarding this data use, as well as intellectual property rights. For example, for some products, it’s impossible even to start the development process without signing NDAs, patent protection, and other necessary agreements.

Reputational Risk

To avoid any negative impact on the company’s name, the business should check all the details regarding the outsourcing services provider to ensure full compliance with the company’s vision. These can include the hiring policy, employee treatment, environmental violations, and more.

Other important factors regarding the potential vendor include:

  • Costs and risks compared to hiring an in-house team/local contractors;
  • Time zone differences;
  • Cultural differences;
  • Transportation and logistics specifics (if relevant);
  • Documentation and law compliance;
  • Consulting costs;
  • Political and environmental stability, etc.

Risk #2: Different time zones

The onrush of technology and Internet has changed the world tremendously and turned it into the global marketplace. This has opened many doors to business development and made the outsourcing possible. Still, there are challenges to overcome. The main problem of global outsourcing is related to time zone difference. Just imagine that you have an urgent issue, but all members of your remote team are offline. In such case, you should wait until the next day to solve your problem. Such unpredictable delay can be the cause of missed deadlines and even project failure.

The best way to avoid risks is to use Follow the Sun (FTS) strategy. Due to this model, the outsourcing team works on your task when it is a night on your side and sends the completed work when it is morning. This process helps to reduce response time and make the workflow much faster.

Risk #3: Problems with language

As you can see, clear communication is fundamental for effective outsourcing. But if the hired team can’t speak your language, communication will lead to poor results. So if you don’t want to get into hot water, select the outsourcing company carefully and pay special attention to its location. Choose a service provider with firm guarantees. The company should ensure that remote staff would be able to keep in contact with you in the preferred language while working on the given project.

Risk #4: Hidden charges

If you decide to outsource, you know that this method of business cooperation is cost-effective. Even though, it won’t fix all your issues with additional expenses on the project. The problems may appear when vendor charges fixed rates but hires unqualified specialists. The reason for this is obvious: the lower costs on employees are, the higher revenues the company receives. Such unprofessional approach can bring poor-quality results.

The best way to avoid extra spending is learning more about the potential hidden costs of outsourcing. Make an in-depth business analysis to plan the budget including all possible charges that can appear at any stage of the process. Doing this, you will find out an exact cost reduction that outsourcing can bring to your company. Besides, opt for “cost plus” model that gives you an opportunity to control the remote team. You’ll be able to choose specialists and determine their salaries. That is also an effective way of taking control of expenses.

Risk #5: Lack of technical documentation

Preparing thoughtful technical documentation is fundamental as it determines the course of the whole project. In other words, it is the roadmap for the team that helps avoid threats and challenges. Thus, the more informative and detailed your technical documentation is, the more accurately your expectations as a client will be met.

To avoid failure and miscommunication, make sure that technical documentation is written clearly, and all your requirements are mentioned. Also, don’t be afraid to ask clarifying questions. There is no general standard, so the structure of technical documentation can vary considerably depending on the service provider and type of the project.

Risk #6: Protection of data

Hiring experienced and reliable company is crucial for the protection of provided information. The security issue is especially significant when the outsourced project involves highly sensitive data. In such case, it’s better for you to conduct a background check of the potential vendors and find out how they have dealt with security problems in the past. Don’t hesitate to ask about some case studies that clarify security measures and show how service provider has handled sensitive data in the previous projects.

Risk #7: Outsourcing the key project

Outsourcing the key project is quite dangerous. Starting cooperation with a remote team, you run a risk of becoming dependent on a service provider and losing project expertise. To avoid these risks, don’t outsource the whole project. What is more, keep management in your in-house staff.

Are there any risks you can add to this list?
Maybe there are more of them, feel free to contact us, if our help is needed!

Top 7 Outsourcing Risks and How to Avoid Them

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Maya Momotok

Written by Maya Momotok
CEO and cofounder of Wow24-7

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