Things to keep in mind when outsourcing offshore – Risk Mitigation
February 22, 2019
A business is not only about the management of returns but also about the management of risks. Offshoring of business operations is beneficial to the company in numerous ways. But there a number of problems related to outsourcing as well. Mitigating those risks is the need of the hour.
Risks of outsourcing offshore:
All business initiatives have an associated degree of risks and outsourcing is one of such drives. There are different types of risks in outsourcing offshore. Some risks are real while some are perceived. While some of the risks are inevitable to all sort of outsourcing engagements, some are specific to outsourcing offshore.
- Competitor risk: Offshoring is often accompanied by the transfer of valuable intellectual properties and other confidential information to other countries. This could create a way for unwanted competition. For example, Over the past 30 years, American automakers were outsourcing to China for the production of vehicle parts. By 2006, China leveraged this know-how and announced to compete with American automakers in the U.S. market.
- Risk of delays: Outsourcing offshore could offer time reduced time to market due to time zone advantage or could cause declined delivery performance and customer satisfaction levels due to delay in the supply chain. Various factors (such as labor disputes, weather, and political unrest, lack of scalability of the country’s infrastructure, etc.) could be the reason for such delays
- Performance risk: Loss of control, lack of visibility and inflexibility across the extended supply chain could affect the performance of the business. Even time zone issues, cultural and dialect differences, and difficulty in communicating clearly could also be major factors in affecting the overall staging of the company.
- Financial viability risk: Vendors/providers might not be financially viable which could cause a delay in the turnaround time thereby affecting the revenue of the company. However, the outsourcing arrangement itself is not a financially sound option as this generally includes hidden costs and risks.
- Transition risk: The company might experience a fatal fall if there is insufficient and inappropriate planning and/or resources for achieving the schedules and budgets.
- Security and confidentiality risk: If a company is outsourcing business processes like payroll, medical transcriptions, and other confidential information, the risk of security breach is high.
- Political and reputation risk: Offshoring processes might be affected due to politicians, policymakers or economists who are against the offshoring. Companies that prefer offshoring to a large extent could be exposed to the public relations aspect inevitably.
Mitigating the offshoring risks:
Outsourcing offshore could be disastrous if proper care and steps are not taken to mitigate the associated risks. Here are a few steps you could consider to mitigate the offshoring risks.
- Extensive research about the potential outsourcing provider is mandatory:
There are thousands of outsourcing providers offering different perks and promises. But how genuine are they? It is your duty to decode the genuinity of the providers by conducting extensive research. It will help you narrow down these providers and choose the expert in the field.
- Use free technical trials and testings:
Generally, outsourcing companies provide free technical trials and testings. When the company you are interested to work with offers this, grab it. Through the trials, you would get hands-on experience of their services and their method of working with their clients. It would help you in avoiding the blind selection of the service provider.
- Build the team:
Although a part of the business process is outsourced, it is always better to be aware of the key people, such as Project managers, Team leaders, and architects, in the offshore team. Ask for their resumes or at least brief profiles of the prospective team members before locking them into the project.
- Set up expectations in the start-up phase:
Each organization has a different way of working. While some of the companies prefer a slow, measured and process-oriented style of working, others prefer continuously changing the dynamic way. So, let the provider know what is your expectations. This awareness could mitigate the risks for both sides.
- Stay in touch:
Once you are satisfied with the result of the research and the technical trials and you decide to proceed with an outsourcing company, establish good communication with the outsourcing company’s personnel, preferably director or customer services representative or the account manager. Account managers are the one with whom clients can get in touch at any point of time if they have any concerns regarding the quality of service or regarding the outsourced staff.
- Visit your offshore team:
When the team has a feeling of belonging, they would take the accountability of their work. So, provide the outsourced team a feeling of being a significant part of your company. Travel and visit your outsourced team as often as possible or fly your outsourced team to your country. This would provide the time to bond and have fun while also investing time to collaborate and conceptualize thoughts and ideas.
- Discuss the risk and mitigation strategies openly:
Risks could be mitigated to a greater extent if the client and the vendor openly discuss the risks and their mitigation before offshoring the project and also have a follow up with periodic reviews. So, ensure to document the risk management plan as a part of the overall engagement.
Outsourcing is an effective management tool. While it delegates the non-core business operations to the vendors and provides the peace of mind to focus on core competencies, it could bring along significant risks into the business process. If the risks are not recognized and properly managed, the outsourced business functions could affect adversely and could be crippling for the brand and the reputation of the company. So, the process of mitigating these risks is as cardinal as it could be.
After all, the process of business operations could be outsourced but the risks to brand and reputation cannot!