Top 7 Risks of Outsourcing (And How to Prevent Them)

In a fast-paced, digital world, outsourcing has become a buzzword, a trend that’s taking the business landscape by storm. With the increasing need for efficiency and the constant pursuit of cost-cutting, businesses across the globe are embracing the power of delegating their tasks to an external entity — an outsourcing provider.

From tiny startups in their budding stages to massive corporations with their fingers in many pies, the appeal of outsourcing services is universal. It’s an alluring prospect, after all, to be able to have a remote team handling various operations while you focus on the core areas of your business.

However, as beneficial as outsourcing might be, it’s not all smooth sailing. The outsourcing process can bring with it a host of risks that businesses need to consider and navigate. That’s where this blog post comes in, and here’s what we’re set to uncover:

• The top 7 risks that come with outsourcing, and importantly, how to prevent them.
• The vital role an outsourcing partner plays in managing these risks.
• A glance at how We Are Amnet is uniquely positioned as your ideal outsourcing solution.

Top 7 Outsourcing Risks

While the concept of outsourcing can be a game-changer for many businesses, it’s not without its fair share of challenges. Venturing into the outsourcing arena without a clear understanding of the potential pitfalls can result in setbacks rather than progress.

Here’s a snapshot of the top 7 risks that businesses face when outsourcing:

1. Loss of Control: Handing over certain tasks or functions to an outsourcing partner means losing a degree of control over those areas. This could potentially impact the quality, timing, or manner in which these tasks are completed.
2. Communication Breakdown: Communication is key in any business relationship, especially when dealing with a remote team. A lack of clear, consistent communication can lead to misunderstandings, mistakes, and inefficiencies.
3. Privacy and Security Concerns: Outsourcing inevitably involves sharing sensitive data about your business with the outsourcing provider. This raises concerns about data security and privacy, especially in our increasingly digital world.
4. Unforeseen and Hidden Costs: Outsourcing is often seen as a cost-saving measure, but it can sometimes involve unexpected expenses. Hidden costs, currency fluctuations, or changes in tariffs can make outsourcing more costly than initially projected.
5. Dependence on Provider: Relying too heavily on your outsourcing partner can become a risk in itself. What if they suddenly increase prices or, worse, go out of business?
6. Quality Control Issues: Ensuring the quality of work is upheld to your standards can be challenging when an external party completes tasks. Different standards and procedures between your business and the outsourcing provider can lead to inconsistencies and quality control issues.
7. Cultural and Time Zone Differences: When outsourcing to a company in a different geographical location and time zone differences can complicate the relationship and the workflow.

Understanding these risks is the first step toward successful outsourcing. The next vital step is implementing strategies to prevent them, ensuring that the decision to outsource propels your business forward rather than holding it back.

Risk 1: Loss of Control

Outsourcing often means handing over some of your business operations to an external party. While this can free up time and resources, it also means relinquishing a degree of control. Suddenly, critical tasks or processes are being handled outside your immediate purview by the outsourcing company, and you’re left hoping they meet your expectations.

For instance, a software development firm might outsource the testing phase to expedite the overall development process. However, if the outsourcing company lacks a clear understanding of the project’s objectives, it may overlook key software glitches or fail to test certain functionalities, ultimately affecting the final product’s quality.

So, how do you mitigate such outsourcing risks? Here’s a proactive business strategy:

• Clearly Define Expectations: Before you begin any outsourcing process, ensure your expectations are clearly defined and communicated. This includes detailing the quality standards, timeline, deliverables, and any other important elements related to the task.
• Create a Robust Service Level Agreement (SLA): An SLA is a contract that explicitly outlines the services to be provided, the expected quality of work, and the metrics for evaluating performance. A well-structured SLA can help you maintain control and ensure that the outsourcing company meets your expectations.
• Choose a Partner with a Proven Track Record: Always check the company’s portfolio before entering into a partnership. An outsourcing company with a history of successful projects like yours will likely understand your needs better and deliver accordingly.

Risk 2: Communication Breakdown

The success of any outsourcing venture hinges heavily on effective communication. Yet, communication breakdowns remain one of the most prevalent risks in outsourcing, especially when dealing with offshore vendors. Language barriers, different time zones, and contrasting cultural communication styles can all contribute to communication issues, leading to misunderstandings and potential project setbacks.

Let’s take the case of a global financial company that outsourced IT services to an offshore vendor.

Unfortunately, due to language differences and the lack of regular, structured communication, there was a failure in the proper transfer of critical information. This led to significant delays in deploying a major software update, resulting in financial loss and customer dissatisfaction.

Another case involved a clothing retailer outsourcing work to a design company located in a different time zone. Due to poor planning and irregular communication, the design company missed important details about the new clothing line. The final designs didn’t align with the retailer’s vision, causing a significant setback in their product launch.

So how can we prevent such communication issues in outsourcing relationships?

1. Establish Regular Communication: Schedule regular meetings via phone and video calls to discuss project progress and address concerns promptly. This can ensure all parties are aligned, minimizing miscommunication.
2. Clarify Expectations: Clearly articulate your expectations to your service provider from the get-go. Explain your requirements, objectives, and any important details they need to know about your business or project. Agree on deadlines and protocol around delays.
3. Create a Knowledge Transfer Plan: When outsourcing, a comprehensive plan for transferring critical information from your team to the outsourcing company is essential. This could involve training sessions, documentation, and demonstrations. Important information and files, decided upon by your company or the agency, should be shared upfront.
4. Use Collaborative Tools: Tools like shared calendars, project management software, and cloud-based platforms can help streamline communication, keep everyone on the same page, and ensure information is accessible to all relevant parties.
5. Use Smartshoring: To alleviate any fears or concerns over communication with outsourced teams, use the Smartshoring model to connect with your account manager located in your time zone and country of operation.

Risk 3: Privacy and Security Concerns

In our tech-driven world, data is gold. As businesses, we hold sensitive information, from customer data to internal operations, intellectual property, and even strategic plans. When we entrust a part of our operations to outsourcing companies, we inevitably share some of this sensitive data, sparking privacy and security concerns – one of the most common outsourcing risks.

Take, for instance, a healthcare marketing firm that outsources its customer support. The outsourcing company now has access to sensitive patient information, making it a potential target for cybercriminals. If the outsourcing company doesn’t have airtight data security protocols, it can lead to a data breach, impacting both patient privacy and the firm’s reputation.

Given these potential risks, how can businesses safeguard their privacy and uphold security when outsourcing? Here are some strategies:

• Engage Tech-Savvy Specialists: It’s essential to partner with outsourcing companies that understand and prioritize data security. Engage with firms that demonstrate competence in cybersecurity and uphold stringent data protection standards.
• Include Privacy and Security in the Contract: Incorporate specific clauses in your contract related to data privacy, security requirements, and incident management protocols. Define what is deemed confidential information and specify how it should be handled.
• Non-Disclosure Agreements (NDAs): An NDA is a legal document that keeps your trade secrets and business practices safe from unauthorized disclosures. Ensure all parties involved sign an NDA before sharing sensitive information.
• Regular Audits and Reviews: Conduct regular audits to ensure that the outsourcing company is adhering to any privacy and security standards stipulated in the contract.
• Education and Training: Offer or encourage training on data protection best practices to ensure everyone involved understands the significance of data security.

Risk 4: Unforeseen and Hidden Costs

Outsourcing is often hailed for its cost-savings potential. However, one of the common risks that can undermine all the benefits of this business strategy is the potential for unforeseen and hidden costs. Many companies start their outsourcing journey with a focus on the anticipated cost savings, only to be surprised by additional expenses down the line.

Hidden costs may come in various forms, such as training costs, technology or software upgrades, transaction fees, or even costs associated with communication or time zone differences. For instance, a company might outsource its customer service to take advantage of lower labor costs, only to face unexpected expenses like additional training or higher telecommunication fees.

To steer clear of such pitfalls, here are some strategies that can help:

1. Thoroughly Understand Your Agreement: Before signing any contract, make sure you understand all its terms. Look for clauses related to additional fees or costs that might crop up during the project’s lifecycle.
2. Clarify Costs Beforehand: Discuss potential hidden costs with your outsourcing partner upfront. Ask them to provide a detailed quote that includes all possible expenses.
3. Regularly Review Expenses: Don’t just set it and forget it. Keep a close eye on your outsourcing expenses and regularly review them against your budget and the agreed terms.
4. Opt for a Transparent Pricing Model: Some outsourcing companies offer a transparent pricing model, where all costs are clearly outlined from the start. This can help you avoid any unexpected costs down the line.
5. Include an Exit Clause: If you discover hidden costs that make the outsourcing model untenable, having an exit clause in your contract can provide a way out without severe financial repercussions.

Risk 5: Dependence on the Service Provider

In the business world, outsourcing is not merely a transaction; it’s a relationship. While leveraging an outsourcing company’s expertise can be highly beneficial, there lies a hidden danger in becoming overly reliant on them. This risk is especially pronounced when the contractor’s expertise is pivotal in areas that align closely with the company’s core competencies.

The decision to outsource shouldn’t lead to a relinquishing of knowledge or essential capabilities. Excessive dependence on your outsourcing partner may place your company in a vulnerable position, especially if the relationship turns sour or if the partner fails to meet project requirements.

Here’s how to avoid excessive dependence on an outsourcing partner:

• Maintain In-House Expertise: Outsourcing should complement, not replace, your in-house abilities. Even if you outsource specific functions, maintain an in-house establishment that can oversee the outsourced product or process and can take over if needed.
• Invest in Knowledge Transfer: Encourage the sharing of expertise between your team and the outsourcing company. This way, your team continues to grow and can function independently if needed.
• Diversify Your Outsourcing Partners: Engaging multiple outsourcing companies for different aspects of a project can prevent you from becoming overly reliant on one partner.
• Define Clear Boundaries: Recognize the difference between outsourcing specific tasks and giving away core competencies. Determine what you want to outsource and what must stay within the company.
• Regular Assessments and Reviews: Keep the pulse on your relationship with the outsourcing company. Regular assessments can help identify areas where dependence might be growing excessively and take corrective actions as needed.

Risk 6: Quality Control Issues

Quality control is paramount to any business operation, and it becomes a focal concern when tasks or processes are outsourced. The risk of compromised quality is a significant outsourcing risk that can mar an otherwise fruitful relationship with an outsourcing firm.

When working with remote teams, especially those situated in different parts of the world, ensuring that the quality standards are uniform and meet the expectations of the business becomes a challenging endeavor. Poor quality work not only affects the final product but can also tarnish a company’s reputation and lead to a loss of trust among customers or clients.

Despite these challenges, quality control is not an insurmountable obstacle in outsourcing. Here are ways to ensure quality control with your outsourcing partner:

• Define Quality Standards: From the beginning, clearly state your quality standards, expectations, and criteria. Document these guidelines and share them with your outsourcing firm to ensure that everyone is on the same page.
• Implement Regular Checks: Instead of waiting until the completion of a project, implement regular checks and evaluations throughout the process. This ongoing scrutiny helps catch any quality issues early, making them easier to correct.
• Encourage Open Communication: Create channels for transparent and continuous communication with your outsourcing partner. This encourages the free flow of feedback and enables quick action if quality issues arise.
• Utilize Technology: Leverage the use of technology to monitor quality. If possible, work with tech-savvy specialists who can utilize modern tools and software to maintain the quality of work.
• Build a Collaborative Relationship: Foster a relationship that encourages collaboration rather than mere delegation. Engaging your outsourcing partner as a part of your team ensures they are invested in maintaining the quality standards that define your brand.
• Provide Training if Necessary: If specific skills or knowledge are required to maintain quality, provide the necessary training or resources to your outsourcing partner.

Risk 7: Cultural and Time Zone Differences

In our increasingly globalized business world, outsourcing often implies working across different cultures and time zones. While this presents exciting opportunities, it also introduces two significant outsourcing risks: cultural differences and time zone discrepancies.

Cultural differences can manifest in various ways, from contrasting work ethics to varying communication styles, which may lead to misunderstandings, poor communication, and discrepancies in work output. Similarly, time zone differences can complicate scheduling, coordination, and timely responses, thereby hindering the smooth execution of tasks and progress toward business goals.

Overcoming these challenges requires conscious effort, understanding, and the implementation of smart strategies:

• Cultural Sensitivity Training: Encourage your team to participate in cultural sensitivity training. Understanding and respecting the cultural norms of your outsourcing partner can enhance collaboration and reduce misunderstandings.
• Clear Communication Guidelines: Ensure that your communication expectations are clear, addressing things like acceptable response times, preferred communication channels, and the level of formality or informality.
• Flexible Scheduling: Time zone differences can be a hurdle, but flexible scheduling can help. Identify overlapping work hours and use those for meetings and collaboration. Utilize tools and software that facilitate asynchronous communication.
• Shared Values and Goals: Despite cultural differences, ensure that your outsourcing partner shares your core values and business goals. This shared vision can bridge cultural gaps and foster mutual understanding.
• Language Proficiency: Ensure that language proficiency is a criterion when selecting your outsourcing partner. Effective communication is crucial in bridging cultural and geographical distances.

That’s not to say outsourcing is a dangerous game. By utilizing time zones, assigned work can be completed quicker than it otherwise would. With a team working in India, the difference in time means an assignment briefed at the end of a working day in US or UK zones will be completed by the next morning.

Trust We Are Amnet: Your Outsourcing Solution

In a world where the landscape of outsourcing is filled with opportunities and challenges alike, We Are Amnet stands out as a leader in Smartshoring. We understand the complexities of outsourcing and have developed unique strategies to handle the risks and deliver exceptional results.

Here’s what sets We Are Amnet apart:

• Leadership in Smartshoring: We Are Amnet’s innovative Smartshoring approach ensures that you receive top-notch services that are both cost-effective and tailored to your specific needs. By blending in-country account management with offshore production expertise, we provide a balanced, efficient solution.
• Risk Management: Our dedicated team of tech-savvy specialists understands the importance of control, privacy, and security. By employing robust measures such as our ISO 27001 and 9001 certifications, we protect your intellectual property and data while avoiding common outsourcing risks.
• Quality: By utilizing a unique Certainty Index including quality and timeliness, the reliability and efficiency of your outsourced team is ensured with Smartshoring. These aren’t just words, our Certainty Index is set in stone and we have the sums to prove it.
• Creative Production Services: Our range of creative production services can cater to a diverse set of needs. Whether it’s designing, content creation, or tech solutions, our team of experts is equipped to deliver high-quality output aligned with your brand’s vision and values.
• Customized Solutions: We believe in crafting solutions that fit your unique requirements. Through continuous communication and collaboration, we strive to understand your goals, challenges, and opportunities, creating services that genuinely resonate with your business.

With We Are Amnet, you’re not just outsourcing tasks; you’re engaging with a partner who is invested in your success and growth. Trust us with your next project, and experience the We Are Amnet difference.