Outsourcing is the process of transferring a particular business activity or operation of the company to a third-party service provider. IT services, delivery, logistics and distribution services, human resource services, marketing, finance and sales services and customer care services are some of the business functions commonly outsourced by companies.
Systematic and well-organized outsourcing systems help businesses to streamline their workflow through proper distribution of workload and departmentalization. This also brings about several benefits to the customers. While Outsourcing is a very useful tool for companies, it also comes with certain risks and challenges.
What Are The Risks Of Outsourcing?
Outsourcing may provide significant benefits, but there are several risks and obstacles to consider when negotiating and managing outsourcing contracts. Here’s what you need to know to ensure the success of your IT outsourcing projects.
Bad Outsourcing Vendor:
Choosing the right outsourcing vendor is very crucial. Bad outsourcing vendors fail to deliver good quality leads to the failure of a project, hamper the workflow, or bring about losses. Thus while choosing a vendor for outsourcing services several criteria have to be kept in mind. Often the cost of the service is prioritized over other aspects.
When you choose a company solely because it offers the services at a lower price, quality is usually compromised. The company’s experience and expertise in the field should be taken into account before anything else. A vendor lacking the required infrastructure, resources, knowledge, and competence would fail to deliver the job or would deliver poorly.
One that meets all these requirements even at a comparatively higher price, would be a wiser and more profitable choice. However, even after careful selection of a vendor, the output they deliver may not be of desired quality as most of them are in a rush to deliver the product. Moreover, the outsourcing vendor might not have a good understanding of your specific requirements or the ideologies and visions regarding your project.
Having your tasks outsourced to a vendor in a different time zone can create additional problems such as flexibility issues, cultural differences, and communication issues. Thus a bad vendor can hamper your business in numerous ways.
Data Security Issues
Outsourcing your business functions to a service provider means exposing your company’s possessions partially or completely to an outsider. No matter how reputed the company is, the risk of data breaches still exists. Special emphasis has to be made on protecting your company’s data, privacy, and intellectual property while outsourcing.
Thus it is necessary to select service-providing organizations that comply with the same standards such as ISO standards and PCI for online retail. However, it becomes more dangerous when the vendor is from a different nation and does not abide by the laws of your country. In such cases using a corporate VPN becomes mandatory. Data security is a very sensitive issue and should be the top priority.
Loss Of Control
One of the major risks of outsourcing is the loss of control over your business functions. When carried out by in-house professionals, these tasks could be easily monitored but when transferred to an external agency, it takes away all the control or at least most of it. This can hamper the quality of the service.
The risk of the outsourcing company attempting to exploit the loopholes in the contracts and incorrectly detailed work specifications to their benefit is also there. Communication is a major challenge faced while hiring distant offshore vendors which makes monitoring the performance and quality all the more difficult.
In case there is an inconvenience, communication struggles hinder the process of solving it. With the loss of control over business operations, mismanagement by the vendor becomes hard to supervise.
Delays In Tasks
It usually takes four times longer for an outsourcing company to carry out the delegated task. There can be several reasons for the delay such as miscommunication, communication lag, inaccuracies, etc.
Miscommunication within teams or team members leads to misunderstandings and confusion which often elongates the process unnecessarily. Often the third-party vendors are unaware of the milestones and objectives of your project. Adjusting to new software can be time-consuming and slow down the process.
Differences in nationalities and geolocation issues can lead to communication gaps and become a major cause of delays. Failure of the vendors to deliver on time can affect your business adversely.
What Are The Benefits Of Outsourcing?
Despite the challenges mentioned above, outsourcing is a useful approach for businesses. Let’s take a look at the benefits of outsourcing:
Get More Profit:
Professional Outsourcing companies are equipped with all the resources and infrastructure required to perform specific tasks or projects. Therefore by delegating certain operations to them, you can get the job done more efficiently and at a lower cost. Therefore by choosing a well-reputed and proficient vendor, you make a profitable deal both in terms of cost and quality.
Save On Cost Of Labor:
By outsourcing your tasks to a company that has professional teams dedicated to the specific task, uses updated technologies, and has the required resources, you save a lot of funds. As most of the operations are performed digitally besides ensuring high accuracy and simplification of the tasks, it cuts down the cost of hiring employees.
The use of automated machinery reduces or even eliminates certain direct and hidden costs. This allows companies to save a substantial amount of money that can be utilized for other functions.
Get 24/7 Support:
Outsourcing streamlines a business by reducing complexities such as setting up a help desk. Service partners, holding expertise in the niche, provide a better organized and well-developed support framework and 24/7 support through IT help desk services, better response time, and customer loyalty. A well-managed support service is essential for the growth of a business.
Boost Your Business Growth And Productivity:
Outsourcing provides access to high-level expertise, and advanced and latest technologies and increases the efficiency of your work. By choosing the right outsourcing partner you can ensure higher quality in products and services. Thus outsourcing not only increases productivity but also provides an extra edge to your business.
Concentrate More On Core Business Tasks:
To maximise production and increase revenue, all aspects of a firm must be controlled with similar efficiency. With some of your responsibilities delegated to a competent outsourcing partner, you will have more time, energy, and resources to focus on your main company duties. Outsourcing simplifies your activities, streamlines your operations, and dramatically minimises your workload.
For instance, a corporation called Boeing suffered financial losses and manufacturing delays as a result of outsourcing crucial aeroplane components like the fuselage and wings to worldwide vendors. This resulted in quality difficulties, higher pricing, and a drop in Boeing’s profitability and reputation.
On the other hand, Nike and Accenture have both successfully utilized outsourcing in their supply chains. Nike’s strategy involves outsourcing manufacturing to countries with lower labour costs, such as Vietnam and China, resulting in cost savings and a competitive edge. Accenture, a global professional services company, has also thrived through outsourcing services, offering IT, business process outsourcing, and consulting to clients worldwide. Both companies have generated substantial profits and maintained their position as leading providers of outsourcing services. Even organisations like Google, Whatsapp, and Basecamp have benefitted from outsourcing services.
The impact of outsourcing varies depending on the industry, implementation method, and market conditions, with both good and negative consequences. Examples exhibit both positive and negative consequences, but not the overall experience of the organisation.