While outsourcing can provide many potential benefits to businesses, it also comes with risks if not approached properly. Making the wrong moves can lead to costly failures, security breaches, and partnerships that create more headaches than solutions.
To ensure outsourcing success, it’s crucial to avoid common pitfalls. To that end, here are some key mistakes companies should strive to prevent:
Unclear Strategy and Goals
Before even considering outsourcing, an organization must have a crystal-clear outsourcing strategy aligned with overarching business objectives. Lacking this vital blueprint inevitably results in ad-hoc, piecemeal outsourcing decisions that cannot generate meaningful value. Outsourcing initiatives should always be driven by well-defined goals, whether reducing costs, increasing efficiency, accessing skills, or some combination.
Inadequate Planning and Preparation
Even with goals established, rushing blindly into outsourcing is a recipe for disaster. Therefore the experts at Information Services Group (ISG) emphasize comprehensive planning and preparation are critical first steps:
- Workload Analysis – Carefully assess and document requirements and workloads for processes being outsourced.
- Internal Impact – Determine how outsourcing will affect remaining in-house staff in terms of interaction, processes, and hand-offs.
- Governance Model – Establish metrics, key performance indicators (KPIs), reporting requirements, and accountabilities.
- Risk Management – Conduct risk assessments regarding compliance, security, business continuity and other vital concerns.
Skipping this diligence leads to inevitable problems downstream like mismatched expectations, dropped balls, lack of oversight, and general chaos.
Poor Provider Selection
Simply taking the cheapest bid is one of the biggest outsourcing mistakes. While cost is certainly important, low pricing alone does not indicate value or capabilities fit for purpose.
Thoroughly vetting potential providers is essential based on criteria such as:
- Relevant experience and subject matter expertise.
- Certifications, quality processes and performance reputation.
- Data security and regulatory compliance capabilities.
- Cultural compatibility and communication approach.
- Financial stability and business continuity protocols.
The costliest scenario is having to re-outsource soon after because of issues with an ill-fitting bargain provider.
Loose Contract Terms
Outsourcing contracts and service level agreements must be comprehensively drafted to protect a company’s interests. Overlooking key details can spell trouble:
- Missed Scope – Ensure all specific tasks, deliverables, volumes, and timeframes are crystal clear with no vague language.
- Cost Creep – Lock in pricing for the full engagement with restrictions on excessive fees, overages, and other surprise charges.
- Performance Guarantees – Define measurable, enforceable KPIs with appropriate penalties for missed metrics.
- Exit Plan – Include provisions for intellectual property ownership, data retrieval, and termination protocols.
Hoping good faith alone will suffice is naïve. Outsourcing deals require airtight legal agreements vetted by experienced counsel.
Cultural Disconnect
When outsourcing, companies often must navigate linguistic, geographic, and corporate cultural gaps with providers. Discounting these human factors can undermine the engagement.
Issues like time zone differences, communication styles, work practices and organizational compatibility must be considered. Training, escalation processes and feedback loops are critical to syncing operations.
Many failures stem from companies treating providers as disposable rather than cultivating collaborative partnerships built on mutual understanding.
Lack of Ongoing Governance
Even with a great start, many companies get lax with governance and oversight of outsourced operations over time. This hands-off approach is dangerous:
- Performance Drift – Lack of diligent monitoring allows service quality and efficiency to gradually decay.
- Innovation Stagnation – Complacency causes operations to become stagnant rather than continuously improving processes.
- Resource Shortfalls – Demand fluctuations require active adjustments to sourcing solutions to ensure adequate capacity and skills. The experts at ISG recommend governance through inspections, audits, performance management and regular meetings to help ensure operations stay on track and issues get promptly addressed.
Conclusion
Outsourcing relationships require constant tending and managing like any other business capability. Those treating outsourcing as a set-it-and-forget-it solution are headed for certain disappointment and failure. Rigorous oversight and continuous improvement discipline are essential to maximize value.
