Outsourcing can, in general, be a significant boost to your business. Third-party companies are often much more efficient and cost-effective than anything you can do in-house.
Outsourcing is popular too. According to the Global Outsourcing Survey (yes, there is such a thing), more than 78 percent of companies outsourced some part of their operations in 2016.
Outsourcing can be used for all kinds of things: managed security services, accounting, finance, marketing, data management, employee tracking, and CRM. There are now so many outsourcing opportunities that companies can effectively concentrate solely on their core offering, without having to worry much about ancillary services.
But, as they say in economics, there’s no such thing as a free lunch. And even though outsourcing offers companies many benefits, there are also a host of pitfalls to be avoided.
The good news, though, is that with the right strategy, you can avoid some of the problems that come along with outsourcing while getting all of the benefits, like not having to worry about things unrelated to your core competency.
Pitfall #1: Failing To Check For Training
Deloitte, a professional services company, did an investigation into whether companies offering outsourcing services used trained employees. The firm found that one-in-four companies relied on untrained labor, presumably to save on cost.
Although untrained labor might still be adequate for your operations, it can be your downfall. The problem is that without the relevant expertise, you really have no idea whether the services you’re receiving are high quality or not.
It’s a good idea to make sure that specific skill sets are guaranteed in your agreement with the outsourcing company before heading into a contract. You want to make sure that they commit in writing to provide people with the necessary skills to provide a high-quality service. If a company refuses to sign something like this, then you may want to try another which will.
Pitfall #2: Not Overseeing Outsourced Services
Outsourcing companies want you to believe that they can take care of all your operational needs. Firms will often make bold claims about how they can take away all of the hassle of the day-to-day running of your company for a small monthly fee. And while that might be true for relatively robotic and straightforward tasks, like payroll, it’s not at all correct for more complex matters.
Let’s say that your firm has decided to outsource talent acquisition to a third party. If your talent needs are anything more sophisticated than say, hiring people to man a call center, then the recruitment company will struggle to find exactly what you need.
To make ancillary services useful, you ideally need at least one person in your organization who really knows what they’re doing. In the talent acquisition example, you need a person who understands the requirement of the role and the needs of the firm. It’s unlikely that a generic recruiter will be able to make the best choices under these circumstances.
Pitfall #3: Avoid Reactive Services
Outsourcing companies often try to offer their services at the lowest cost possible. The reason for this is because they know that business managers want to reduce costs. But this can cause problems: some outsourcing companies are so focused on getting costs down that they neglect to upgrade and update their services as time goes by.
Deloitte says that something like 46 percent of providers fail to deal with client issues proactively. In other words, problems are only resolved when the client makes a mistake.
As a business, you don’t want this. Problems could be severe and cost you a lot of money: more than you’d save going to a cheap outsourcing firm. Look for signs that a company seeks to actively solve issues before they affect clients. Check for IT services providers who say that they actively monitor problems on your network and resolve them before you experience a system failure.
Pitfall #4: Failing To Check The Ability Of The Provider To Scale
Businesses don’t stay the same size forever. If you’ve got a great idea and the market likes what you’re doing, you can grow a company quickly. During a rapid growth phase, you want to avoid hiccups in your ancillary functions. But if an outsourcing provider is unable to scale with you, you could quickly run into trouble.
Before signing up to any outsourcing agreement, check with the provider about how much capacity they can offer. Most of the time you’ll find that they can accommodate expansion easily, but some services may not. For instance, if you run an ecommerce business, check with your fulfillment provider whether they can double or triple volumes in time frames of weeks and months, not years.
Pitfall #5: Failing To Establish Expectations
According to director of consulting, Simon Tarsh, one of the main problems with outsourcing is that the company asking for services doesn’t know how to specify what they want. Often, the reason outsourcing happens in the first place is because a company doesn’t have the internal talent to carry out the processes.
Communication issues can lead to misdefined goals and expectations, and companies can end up with services that are neither effective nor warranted.
When outsourcing, companies must do two things: define the goals that they want to achieve and put governance strategies in place to make sure that the goals are being reached.
Establishing goals is often a much better way to use company time than investigate the intricacies of a particular service. Outsourcers should be able to commit to achieving the goals you set, or not, explaining why they’re unattainable or unrealistic.
Great governance is important too because it ensures that providers remain committed to your company’s individual cause. But be aware of mission creep. After you’ve been through all the regulatory and compliance hurdles, the original goals you set might become distorted. Governance helps both your company and the outsourcing firm stick to the original plan, ensuring that you get value for money, no matter what they’re doing for you.