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 The global outsourcing sector is booming and revenues and profit margins are steadily growing. Outsourcing buyers and suppliers can significantly profit from outsourcing and engage in highly valuable, global business relationships. Nevertheless, many outsourcing evaluation studies come to the conclusion that especially buyers are often not satisfied with the outcomes. The reasons for this include false promises from a provider side, too high expectations from a supplier side or simply misconduct. Indeed, there are several risks within outsourcing processes and obstacles that both, suppliers and providers, should be aware of.
One major challenge that might often turn into a drawback is to successfully manage and coordinate a third party provider. Miscommunication between the in-house and the offshore team lead to flaws in the project execution and often to fatal errors that affect the quality of the outcome. Another drawback of outsourcing that buyers are likely to face is a potential over-dependence on the service provider. If the in-house team is no longer responsible for certain, business-essential tasks, knowledge about them will consequently decrease. A loss of crucial and necessary in-house skills might be the consequence as well as the team’s disability to integrate processes.
One major risk that can turn any outsourcing engagement into a nightmare is the exposure of confidential information. Sometimes even unwillingly, the offshore provider might have security gaps that make it easy to access private information or steal business essential data. Often the provider does not recognize the importance of data security and information leaks. Another pending problem is bad project management skills on side of the service provider that can potentially result in delayed project delivery or hidden costs that occur in the middle of the development process.
The working culture in a company that might be located on the other side of the world or at least on a different continent might be significantly different from one’s own. Sometimes different cultural values are clashing in an outsourcing engagement and lead to miscommunication or frustration. Language issues are common especially if a company outsources to countries with fairly low amounts of English speaking workers. Another obstacle might be a serious lack of loyalty on side of the external provider and a lack of motivation that might result in sloppy product accomplishment.
The buyer company might make the mistake to regard its supplier merely as low-cost, artless building platform and not as a valuable and skillful business partner. Such irritating opinions might as well damage an outsourcing relationship. Within outsourcing engagements, the general control over processes and service development is compromised significantly. Consequently, it is always risky to assign work to a third party provider in case he is not 100% trustworthy. In-house, the strategic decision to outsource can have panic and internal dissent as consequences; often outsourcing is connected with downsizing activities and the in-house employees might feel seriously threatened by an offshore partner.
In a nutshell, this article outlined numerous potential risks, drawbacks and pitfalls that can possibly occur in outsourcing relationships. The best way for both parties to protect themselves from such traps is to agree on an accurate and capacious contract or license agreement. In case of doubt, it is always recommendable to conduct a lawyer.
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