Top 5 Outsourcing Challenges And How To Overcome Them

For all those who are planning to outsource, we have put together an Outsourcing Costs Guide. This is an all-encompassing guide that will tell you everything you need to know about your costs, calculations, savings, and tips to save more for a successful outsourcing relationship. 

Outsourcing cannot be considered just a trend, it is the way wise companies do business. It is only because of the benefits of outsourcing that many Fortune 500 companies have chosen to outsource their functions.

While there are many advantages that outsourcing offers, it does not come without challenges. Here, in this blog, I will discuss the challenges that businesses may face with outsourcing along with how to overcome these challenges.

Who will exercise authority and make important decisions about the project can lead to contention between a business and an outsourcing company. Employees of a business may think that they have full authority over the project along with full decision rights. They may not support the change in the management of the project.

A famous case of outsourcing failure to cite here is of the outsourcing contract between the State of Indiana and IBM. The State of Indiana outsourced its welfare processing systems to IBM. To accomplish this project, IBM (outsourcing service provider) required unconditional support from the State of Indiana (client). But the state of Indiana’s representatives interfered with the IBM’s management of subcontractors. So, here change in the management of the project or change in project control was not supported by the client (State of Indiana) and this became one of the reasons for the failure of this outsourcing venture.

The Solution: The best way to overcome this challenge is to define in the outsourcing contract to what extent the employees of the outsourcing company can exert control over the project. It should be clear what type of decisions can a service provider make regarding the outsourced project. Terms of the service contract should be made crystal clear to the employees of both the business seeking outsourcing services and the vendor.

A business may have exaggerated expectations from an IT outsourcing company. It may think that everything will be taken care off by the outsourcing service provider and it has nothing to do. Such unrealistic expectations can result in project failure and disappointment for the business.

To deal with this challenge, the best practice is to discuss beforehand in detail what role will be played by the outsourcing service provider and what results should be expected from the outsourcing venture. It is important to inform the project management team of the company seeking outsourcing services about the reasonable risks and the potential costs associated with outsourcing.

Companies also may have unrealistic expectations such as selecting a service provider and starting a project can be done quickly. Also, they may think that the project will be completed in the minimum amount of time.

Selecting an outsourcing vendor without giving due diligence only increases the risk of failure. Companies should spend adequate time in selecting an outsourcing vendor. They should select a vendor that they think fully suits their project requirements. For example, if a business wants to outsource web development, then it should select a vendor that is adept and experienced in web development.

The Solution: A business should take the strategic approach to outsourcing and get a time estimate for project completion from the outsourcing service provider before the project gets started. This would eliminate any false expectation on the part of the business regarding the delivery of the project.

Globalizing companies find great talent but the cultural barrier becomes an imminent challenge. When businesses outsource their projects to offshore destinations, they have to cope with two types of cultural differences - corporate and regional differences. Corporate differences arise because outsourcing involves dealing between two different organizations. Regional differences arise because the business and the outsourcing services provider are located in different countries.

These organizational and regional cultural differences can impact different aspects of your business. It can impact the communication, interaction, understanding, interpretation, and even the commitment and productivity of the team.  There might be a lot of misunderstandings and friction between the two team because of this cultural differences.  

The Solution: To overcome this challenge, a business that wants to outsource a project should organize a training program to provide awareness to its employees about the organizational and regional cultures and norms of the outsourcing service provider. A similar program targeting the organizational and regional cultures of the clients can be run by an outsourcing service provider for its employees.

Another set of challenges that businesses face when they outsource their projects to far-off destinations is about language differences and communication. People might have their regional dialects that might not be easy for you to understand. Another communication challenge that crops up in outsourcing is unsaid assumptions.   

Many companies have faced this issue during outsourcing. When confined to the same premise of the office space, workers tend to discuss stuff and have a clear understanding of what needs to be done. However, when the developers are sitting oceans apart, there may be things that could be assumed to be a part of the service offered on the company's end. This creates yet another barrier in communicating the expectations. 

The Solution: Communication challenge can be overcome by using tools for instant messaging and video calling. For collaboration, remote working tools such as Basecamp and Jira can be used. For overcoming language differences, businesses in English-speaking countries can outsource to India or other countries where professionals can easily understand and speak English.

Outsourcing comes with a risk of losing intellectual properties such as business plans, trade secrets, etc. Moreover, there is a risk of breach of data of a company’s customers. If not handled properly, one might lose the developed application or its rights. 

Irrespective of how large and established your organization is, be it a startup, MSME, or enterprise, having complete security of your data and IP is important. While working with remote tech team or remote developers, you might be required to share a lot of important information regarding your business, core operations, and other business assets. Not just the important details, you might also be required to share your resources and tools while working. 

If you haven't included explicit statements in your outsourcing contract about the seriousness of protecting your IP and other details & resources, you may be risking all of it. You are leaving the door open for others to use your IP in unwanted ways. 

The Solution: This challenge can be overcome by signing legally binding documents such as a non-disclosure agreement with the outsourcing vendor. The risk of data breach gets mitigated when the service provider follows stringent data protocols.

Outsourcing vendors should use technical safeguards such as protocols for access to data, physical safeguards to prevent unauthorized entry into premises, and administrative safeguards for regulating operations and employees’ conduct. Apart from the above-mentioned safeguards, service providers should comply with the GDPR (General Data Protection Regulation) if they are dealing with the data of EU citizens. If an outsourcing service provider has to develop a health mobile app for its client in the US, then it should comply with the Health Insurance Portability and Accountability Act (HIPAA).

The above discussion shows that outsourcing does pose challenges that can make it difficult for businesses to adopt it. But fortunately, there are ways available to easily overcome these challenges so that the beneficial practice of outsourcing can be readily used by the businesses of all sizes.

Originally Published On 7th August 2019; Updated On 2nd September 2020