Most Common Risks of Outsourcing

Outsourcing is a hot topic in business circles these days from software development to manufacturing and others. And it's no wonder why — according to the most recent trends, outsourcing is booming, with more and more companies across all industries discovering the advantages of this phenomenon. What's more, the latest trends in outsourcing show no signs of slowing down any time soon. 

But as businesses find a ‘home’ in outsourcing companies, the risks are not waiting and it’s critical that you understand the risks early enough in your outsourcing quest. 

These are the 9 most common outsourcing risks. The goal is not to discourage your company from outsourcing but to better equip you for the best outcomes. 

1. Poor control

Lack of control is one of the biggest risks when it comes to outsourcing. Because you're not in charge of the work being done, you can't always be sure that it's being done correctly. Workers, for example, may not have the same high standards as you do. This can lead to a lot of frustration, wasted time and money. 

There are plenty of examples of how lack of control can lead to serious problems when outsourcing. Here are a few:

  1. Your organization may outsource a process, but if the vendor fails to meet the agreed-upon standards as a result of poor control, you may be unable to complete the project on time or within budget.
  2. You may outsource your customer service operations, but since you don't have control on how the vendor trains their staff or handles customer complaints, your company's reputation could be damaged.
  3. If you are a manufacturer, you may outsource your production operations to a third-party manufacturer. But since you don’t have full control over quality standards, you might be forced to recall the products. 

There are a few steps that can be taken to mitigate the risk of lack of control when outsourcing. First, it's important to have a clear understanding of what is required from the supplier and what is expected of them. This should be outlined in a contract or agreement, which both parties should sign.

Second, it's important to regularly communicate with the supplier and ensure that they are meeting your expectations. This can be done through site visits, face to face meetings, video conferencing, or regular updates.

Finally, it's important to have a backup plan in case things go wrong. This could mean having another supplier lined up, or having processes in place to quickly and efficiently bring work back on track.

2. Difficulties finding the right partner

It can be difficult to find the perfect outsourcing partner. You need to find someone who understands your business and your needs, and who can provide you with the same high level of quality you would expect if you were to do the work in-house.

Additionally, each project is unique. This uniqueness means that each project has specific requirements which may range from the required skill set to industry experience. Therefore, it is important to take the time to interview potential vendors and ask for referrals in order to find the best possible match for your project. However, this process can be time-consuming, which can lead to frustration and ultimately result in a less than ideal outsourcing arrangement.

One way to avoid the challenge of finding the right outsourcing partner is to work with an agency that specializes in the outsourcing market. They already have the networks and manpower to quickly understand your needs and match you with the right outsourcing firms. 

3. Language challenges 

The risk of language barrier is derived from cultural differences. This rsk can hinder proper communication which is fundamental in any business relationship. Also, it can lead to misunderstanding of processes and workflows which might impact the project adversely. The other party might not be able to understand the requests or directions given which can disrupt the progress of work. 

There is also a possibility that they would misinterpret the instructions which can again result in an unsatisfactory outcome. Furthermore, language barriers can also hinder the building of trust and rapport between the company and service provider which is crucial for a successful partnership.

To overcome this risk, it is important to ensure that there is a good level of communication between both parties by appointing a dedicated team or person who can act as a bridge between your organization and the offshore vendors. Another solution is to outsource to countries which speak the same language or have a cultural affinity with your country. 

4. Privacy and security issues

When you outsource work to a third party, you're essentially handing over control of your project and your data to complete strangers. This can be a scary prospect, as you're never quite sure what could happen if that information falls into the wrong hands.

Hackers are always on the lookout for vulnerable data, and once they have access, they can easily damage or steal your information. Additionally, many companies outsource work without properly vetting contractors. 

To avoid this risk, it is important to carefully select the service provider. The outsourcing provider should have a good reputation and should be transparent about their security and privacy policies. They should also be willing to sign a contract that includes provisions for protecting the client's data.

Secondly, you need to be clear about what data you are outsourcing and how it will be used. You should only provide the minimum amount of data necessary and ensure that it is stored securely. You should also put in place procedures for handling any data breaches.

Finally, you need to keep track of how your data is being used by undertaking regular audits of the security and privacy measures in place. 

5. Lack of experience with remote teams

One of the key risks of outsourcing is that your team may not have the experience or expertise to work with remote teams. When you're working with a team that's in-house, you can easily spot any issues or problems as they happen and address them immediately. However, when you have this other team located in a different time zone or country, it can be difficult to identify and solve these problems in a timely manner. This can lead to missed deadlines, unhappy clients, and even lost revenue.

One of the best ways to avoid or minimize this risk is by taking your time to learn the basics of outsourcing and best practices of outsourcing operations. Of course top management might not get the time to study outsourcing or be so much invested. So the best compromise is to train some of the in-house staff on outsourcing and have them be the lead coordinators for your outsourced projects. 

You might also go for the staff augmentation model to minimize this risk by outsourcing only those skills you lack in-house. 

6. Intellectual property protection

When you outsource work to third-party service providers, you face the risk of losing control over your Intellectual property (IP). This is because outsourcing arrangements often involve the transfer of IP-related assets and information to the service provider. If these assets are not properly protected, they may be misused or copied by the service provider, or leaked to competitors.

One way to avoid this risk is to ensure that all IP-related assets are properly protected through contracts and agreements. You should also require them to sign a Non-Disclosure Agreement (NDA) to protect your trade secrets.

7. Broken promises

When you outsource, you're essentially contracting a third party to do a job for you that you either don't have the time or the skill to do yourself. You're trusting them to deliver on their promise to do the job well. If they don't, it can cost you time and opportunity. 

Broken promises can occur if the outsourcing company does not live up to its commitments. There are a number of ways this can happen. For example, the outsourcing company may not have the necessary skills or experience to complete the work to the required standard. Alternatively, they may simply not be able to deliver the work on time. 

Here are some ways to avoid the risk of broken promises when outsourcing:

  • Do your research. Check out reviews and testimonials before outsourcing to any company.
  • Get everything in writing. Make sure you have a contract that outlines what is expected from both parties.
  • Communicate clearly. Be clear about what you want and expect from the project. The more specific you are, the less chance there is for misunderstandings.
  • Set realistic expectations.
  • Be prepared to walk away. If a supplier doesn't seem like they're going to be able to deliver on their promise, don't be afraid to walk away and find a supplier who is capable. Always make provisions for smooth terminations. 

8. Hidden expenses

Hidden costs are those that aren't included in the original quote or proposal, and they can quickly add up. These might include things like translation or interpretation services, travel and accommodation expenses, or even taxes and duties.

These hidden costs can quickly eat into any cost savings you might have gained from outsourcing. As a result, it's important to carefully consider all of the potential risks and costs, so you can make sure you're budgeting appropriately. Otherwise, you could be in for a nasty surprise when the final bill arrives.

9. Poor quality

When it comes to quality, outsourcing can often be a hit-or-miss. Let’s say you are contracting an outsourcing software development company. Because you're relying on an outsourcing company to develop your software from scratch, there's always the risk that they may not meet your standards or produce something that's not up to par.

To avoid this, it's important to be very specific about what you're looking for and to have a detailed plan in place. Make sure the company you're working with understands your vision and is willing to remain committed to your objectives throughout the project.

Further reading: Pros and cons of software development outsourcing 

Final Thoughts

Despite these risks associated with outsourcing, we believe that the pros of outsourcing definitely outweigh the cons for most businesses. Treat the risks like you would any business risk, and take proactive steps to respond to any of these risks when you encounter them. Preparation will always conquer even the most dreadful risks. 

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