Common outsourcing risks and how to address them

Globalization has made the flow of goods, services, and people common. In almost every corner of the world, outsourcing service providers have a branch of their own, locally or internationally. 

Outsourcing helps a lot in the conduct of business. It smoothens the workflows and fills in the gaps in the workforce. It also provides huge cost savings for enterprises as they can project their finances for the entire fiscal year. 

Not all experiences are pleasant, and some businesses fall prey to common outsourcing risks. Some also experience underperforming contractors, while others defaulted from their obligations. 

This article highlights enterprises’ common pitfalls when farming services and the best ways to mitigate these outsourcing risks. 

Is outsourcing good or bad for you?

Generally, outsourcing is beneficial for any business. Companies can scale much faster, and their expansionary ambitions are more achievable since third-party providers handle all the time-consuming tasks. 

Bad experiences with outsourcing are almost a rare thing to happen. With the increasing competition due to the growing number of outsourcing companies, providers aim to create long-term relationships with their clients, as it is difficult to forge one. 

In the rare cases that outsourcing problems emerge, there are several ways to resolve them. It all boils down to the willingness of the parties to negotiate and compromise.

Common outsourcing risks

Here we have the four common types of outsourcing risks focused on the client’s perspective: 

Lack of Due Diligence

Due to the competition, outsourcing providers tend to oversell their capabilities to stand out. They often promise better performance, workflow, and synergy. If these are not met, or certain lapses fail to be addressed, the limitations come in. 

In some cases, insiders vouch for the credibility of an outsourcing provider as they have become familiar with its services. As a result, other companies looking to outsource no longer opt for extensive background checks. 

More often, this is the root of most outsourcing problems. Clients fail to counter-check the documents leading to a costly endeavor.  

Overpricing

The lack of transparency in industry rates outsourcing services provides leeway for providers to put hidden fees in their quotations. Clients without enough knowledge about the outsourcing industry might fall easily into this, especially with the lack of due diligence in the service contract. 

Lack of Control

One of the major problems in outsourcing is that companies do not have full control over their outsourced staff. The third-party service provider will often assume the lead, giving little oversight to the management.

But this is one major outsourcing misconception. While their outsourced staff work outside the realms of their office, they still gain full control over their remote teams. 

Communication Issues

Just like in any arrangement, communication problems occur. Miscommunication can lead to serious problems that might jeopardize the agreement. 

Without the right communication channels, both parties cannot communicate properly to manage and address issues. 

How to prevent outsourcing risks from affecting your business?

All the outsourcing risks identified in the previous section can be addressed in several ways: 

Look for established partners.

This cannot be overstated. Reliable and industry-leaders have time-tested systems and experience handling multiple and diverse outsourcing jobs. Usually, these providers have certifications and awards from all the years they have been in the sector. 

A thorough background check would not hurt too. Vetting their records and asking around past clients is the best way to get the verification needed. 

Use hybrid approach

Companies can select only a few tasks or projects that need outsourcing. It can be the case that the team leader remains a member of the company while its subordinates are outsourced. 

This way, the company retains full control, making it easier to change course. 

Maintain a list of contractors

Trust is at the heart of outsourcing. Trust can only be given and earned due to years of interaction. It is better to maintain a comprehensive list of individual contractors and outsourcing providers that companies can tap into at any time of the year. 

Mitigating outsourcing risks

Just like any other venture, outsourcing risks are unavoidable. A thorough and transparent negotiation process is essential to ensure that both parties are amenable to it. 

Firms must ensure that their outsourcing arrangements suit their business goals. With the plethora of outsourcing service providers, it is not difficult to look for the better one.

To better understand outsourcing risks, we at Outsource Accelerator help companies of all shapes and sizes find the best partner for their business needs.

Book a call with us to help you get started with your business needs!