Outsourcing. It is a perfect solution for businesses seeking technological advancement but don’t have the proper infrastructure or the required knowledge. With many advantages like time flexibility, reduced skill gaps, cost saving, etc., outsourcing eventually became popular among entrepreneurs.
However, with these advantages came the risks of outsourcing. These risks took the form of scams, delays, losses, quality issues, and more. This induced doubts among clients, who questioned whether the benefits of outsourcing outweighed these risks and whether it was worth investing in.
The answer to the question is yes and no. We mean, no, the risks never did, nor will they ever outweigh the benefits, and yes, it is worth putting your money in; all you need is a more in-depth knowledge of the risks and some best practices to avoid them.
Top 7 Risks Of Outsourcing At A Glance
- Selecting Wrong Vendor – This might affect the quality of the final product as the complete control over the development team cannot be established.
- Cultural Differences – Work ethics and methods vary from country to country, and unpredictable “off-days” might delay development.
- Communication Barrier – Many factors, like differences in methods and language, pose a challenge to effective knowledge exchange.
- Privacy And Security – A whole operation handled by a third party increases the chances of data breaches and secure development methodologies.
- Unforeseen Expenses – when policies aren’t fully transparent, hidden costs like infrastructural updates and legal processes like documentation might arise.
- Poor Management – Mismanagement causes unnecessary delays, making the process extremely tedious
- Lack Of Required Expertise – The remote team members do not have domain knowledge, and the team on the client’s end is inexperienced in working with the remote team.
A Detailed Look At The 7 Risks Of Outsourcing
#1 Selecting The Wrong Vendor
Outsourcing some services implies letting a third party oversee the project or a part of it. This means the client won’t be able to handle the team directly but through a vendor. So, they become the connecting link between the team and the client.
If the vendor cannot understand the requirements or lacks the proper tech stack to fulfill them, then the vendor is not suitable for your project. This is a major risk of outsourcing as it can make or break the complete process, and at times, clients do not realize this till it is too late.
The wrong vendor would mean either compromised quality of the end product or getting something completely different from what was requested. Also, there won’t be any accountability for what went wrong and when.
How To Select The Right Outsourcing Vendor?
These are some of the best practices clients can follow to overcome the outsourcing risks of choosing the wrong vendor:
- Set Clear Requirements – Communicate your requirements precisely. Specify everything from the tech stack to complexity and integrations if you have the expertise. This will ensure clarity for everyone involved throughout the process.
- Create A Service Level Agreement(SLA) – This communicates the provisions in writing. Make sure that the SLA covers everything, from the expected services to promised results. Quality, estimated time frame, metrics to be used, and more can and should also be included.
- Choose A Reliable Partner – Do thorough research. Whether you look for reviews online, rely on your trusted sources, or check client testimonials. Choose an outsourcing partner with tonnes of relevant experience to ensure reliability.
#2 Cultural Conflicts
Outsourcing means connecting with diverse groups of people from across the globe. This may seem an exciting opportunity from an outsider’s perspective. Still, from a business’s point of view, this is a hotspot for major risks with outsourcing – potential cultural clashes.
For example, in France, people are expected to disconnect upon completion of their working hours, while in Asian countries like Japan and South Korea, working late is the norm. Both cultures would find each other’s work ethics strange.
The ignorant remarks, different working styles, communication methods, etc., can result in cultural friction. Some might find these practices disrespectful and feel discouraged from joining the team for a longer time. Another issue is regional holidays, which might delay the process due to the sudden off days.
How To Ensure Minimal To No Cultural Differences Between Your In-House And Remote Team?
Keep these few pointers in mind to overcome the culture-driven risks with outsourcing:
- Provide Apt Training – Design a culture-sensitive training program to increase awareness about how different areas of the world function. This will ensure the remote team feels more welcomed and increase their confidence in a streamlined collaboration.
- Aligned Goals And Values – Despite the cultural differences, certain shared values can become the common ground for connecting your in-house team with remote employees. Partner with someone who has the same goals and values as you for a streamlined process.
- Don’t Skip The Holidays – When hiring from another country, do not forget to discuss this point or request a calendar. This way, you are always aware of when the remote team will be on leave, so you can design a schedule keeping this variable in mind.
#3 The Infamous Communication Barrier
Hiring from another country means the outsourcing risks aren’t limited to cultural barriers but can also show up as differences in native languages and communication styles. Remote hiring means there would be minimal to no real-time communication.
The process would be exhausting for everyone involved if the remote team and your in-house team don’t have a common language proficiency. This would contribute to the communication gap because information gets lost in translation. An outsourcing setup necessitates mutual language proficiency.
Another risk of outsourcing is a misaligned time zone, creating a situation where your in-house team would sign off by the time the outsourced team starts their day. So, there would be a delay in resolving the issues because there’s no common slot for everyone to participate in the discussion.
How To Make Sure That Communication Is NOT One Of The Risks Of Outsourcing?
Here are some of the ways to minimize the communication gaps and maximize the benefits:
- Flexible Working Hours – Keep a note of time zones when outsourcing. This will ensure that overlapping time slots are always available. Additionally, flexible working hours should be encouraged in the company so both the in-house and remote teams can easily connect and collaborate.
- Establish A Clear Communication Channel – Whether it is through emails, messages, some task/project management software, or anything else that checks all your requirements, choose that. Keep all the discussions and progress in one place for streamlined operations.
- Create A Knowledge Transfer Plan – Document everything. How your team works, requirements, project-related crucial information, training program, etc., should be shared when outsourcing. This will provide clarity for both the parties involved.
#4 Privacy And Security Related Concerns
Data is today’s goldmine, and outsourcing services means allowing a third party to easily access it (which is a considerable risk of outsourcing). Critical business information like customer details, financial information, and intellectual property are shared with the outsourcing partner.
This increases the possibility of data breaches and IP mismanagement, damaging the clients’ reputation and customer base. This is why taking proper measures to mitigate this should be their primary concern.
Being one of the most critical risks with outsourcing, clients should not ignore any signs of data threat. A reliable service provider can stop it, but finding one is difficult, especially for those just stepping into the outsourcing market.
How Can Outsourcing Be Made A Secure And Reliable Solution?
While the control over the remote team is limited, there are a few things that can be done to secure the process:
- Check Vendor’s Security Practices – Ask about how safe their infrastructure is, their security measures, and if the policies also cover effectively managing your IP addresses. If you are outsourcing from a foreign country, ask about the local policies as well.
- Sign A Non Disclosure Agreement(NDA) – Before sharing sensitive data, sign the NDA, a legal document that confirms the confidentiality of all the shared details, negotiations, and conversations. Check that all parties involved sign the document for a completely secure process.
- Regular Security Audits – The importance of this cannot be stressed enough. Refrain from settling after the initial check; conduct one at a regular interval. This is to guarantee that what was promised is being delivered regularly.
#5 Unforeseen Expenses
Known as a cost-effective solution, outsourcing can take a hundred and eighty-degree turn if not done right. This takes us back to risk #1, choosing the right vendor. This is because cost transparency must be maintained throughout the process.
These costs can include documentation, engineering techniques, infrastructural updates, or employee compensation(in case of relocating). These hidden costs are the most commonly occurring risks of outsourcing. These costs seem like something minor in the beginning, but they can turn into a massive financial issue.
Some vendors do not maintain 100% transparency about these costs during the initial discussion and then abruptly bring them under the pretense of terms and conditions.
How To Guarantee That You Get A Fair Quotation?
While some expenses are inevitable, keeping a flexible budget is advised. But to ensure you are not paying more than you should, here are a few things to keep in mind:
- Compare The Prices – Ask multiple vendors about the price estimate and discuss any potential expense that might come up. Don’t choose right away. Take your time and then decide to avoid any outsourcing risks.
- Read Before You Sign – Make sure you read and understand the agreement thoroughly before signing it. This can bring some of these “hidden” costs to light and under discussion.
- Transparent Price And Exit Clause – Finalize the vendor that offers a transparent pricing model, highlighting all the confirmed and potential costs beforehand. Also, include an exit clause to safeguard yourself from huge financial burdens.
#6 Poor Management
The issue of improper management can come from both sides, either the client’s or the vendor’s. However, these little management issues can lead to delays, miscommunication, and turn the development process to a completely different route.
If the requirements provided by the clients aren’t clear and are neither resolved, it will become a huge roadblock since going back and forth to add or remove functions will cause delays. Also, it will complicate things for the development team as well.
If the well-communicated instructions from the client’s team are not interpreted correctly by the vendor, then that would cause a similar issue. Miscommunication and remote teams make a perfect recipe for outsourcing risks. This will cause huge chaos and irreversible changes to the end product, thus a complete project failure.
How Can You Mitigate The Issue Of Poor Management?
Sometimes, this becomes one of those risks of outsourcing that one would not think of, at least not initially, but if it does happen, then here are a few ways to tackle that:
- Check Reviews – Before deciding on a vendor, check their reviews and testimonials from previous clients to know what to expect from them. This will give an insight into how well they manage the projects.
- Start Small – Do not invest in a huge assignment from the get-go. Start with a part of it first to see if the two teams can work together in the long run. If things go well, it is good; if not, most of your resources will be saved.
- Questions over Assumption Approach – Do not assume that the project team understands all your needs; instead, ask questions and hold them accountable if the promises are not delivered. This will ensure an organized and seamless process of development.
Suggested Read – How Offshoring Works?
#7 Lack Of Proper Expertise And Experience
Hiring experts for faster and quality services but not getting either is a deal breaker. Just like management issues, this can also become a two-way situation – not getting the right expertise from the vendors’ side or the client not having enough experience managing remote teams.
It is now a known fact that managing remote teams poses different challenges than in-house team management. From regular online meetings to finding the right time slot for discussion and minimizing the communication gaps to understanding the complexities. There’s a lot that goes into remote team management.
Looking at this from the vendor’s side, some are not fully transparent about the skillset and tend to promise something while delivering something entirely different. The project is highly likely to be compromised if the vendor’s team doesn’t have the right tech stack.
How To Mitigate These Two Risks Of Outsourcing?
Some of the best practices to ensure you get the right experts and manage them well are:
- Know Your Requirements – Do not jump into outsourcing with a half-cooked plan. Rather, ideate, define, reflect, and finalize the features, technology needed, complex integrations, etc. Once all this is clear, look for experts with the right skill set.
- Build The Team Wisely – For your in-house team, choose the people wisely. Make sure that the team members have worked with the remote team once or have the required expertise. This will minimize the scope of issues coming from your end.
- Define The Scope – Do not put the complete project in the hands of the remote team. Either divide it among your in-house team and them or allot it in parts. This way, it won’t be too late to make amends, and you will be in the loop throughout the process.
Also Read – Custom Software Development Outsourcing
Eliminate The Risks Of Outsourcing With OpenXcell
Almost all the outsourcing risks can be resolved when working with the right outsourcing company. This is why it eventually boils down to choosing the right vendor.
Who would classify as the right vendor? An outsourcing company that understands your requirements, is skilled in effective conflict management, maintains transparency, and has outstanding management policies. At OpenXcell, you can have it all.
Our team of qualified experts offers quality services and on-time delivery so clients can focus on their primary operations while expanding their business. Our global presence ensures round-the-clock services. Whether it is discussions or virtual meetings, it can be scheduled at your convenience.
Don’t take our word for it; experience it first-hand in the case studies about how our well-adept professionals helped clients realize their ideas. We take pride in our top-quality products and client-oriented development strategies.
Whether you are a startup genius or a business enthusiast, we have solutions that fit your budget and expectations. So connect with us and join the amazing world of digital disruption.
FAQ
What Are The Different Types Of Outsourcing?
Depending on the nature, outsourcing can be differentiated into three types –
Offshore Outsourcing – Partnering with a company from an overseas location with a different time zone and culture
Nearshore Outsourcing – Partnering with a company that is from a nearby country for easy communication and on-site visits
Onshore Outsourcing – Seeking services from a different outsourcing company from the same country for no cultural differences and cost-effective solutions.
What Are The Benefits Of Outsourcing?
Outsourcing has many benefits, like cost-effective professional services, zero infrastructural costs, accessing a global talent pool, etc.
How Is Outsourcing Beneficial For Employees?
Employees can focus on the core business operations when outsourcing the other services. This saves them a huge chunk of time that they can utilize to complete their high-priority tasks. It makes them feel more productive and accomplished.
Is Managing A Remote Team Challenging?
Yes, there can be challenges in the initial coordination and communication since both the client and the team are familiarizing themselves with each other. However, investing in good management and communication tools can solve this problem easily.