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Top 10 Challenges of Outsourcing and the Best Practices to Avoid Them

Problems and Challenges of Outsourcing

For many entrepreneurs, outsourcing is one of the best business decisions that they have ever made. Why not? The benefits of outsourcing come in hundreds and thousands of success stories. It is practical and cost-effective. But are businesses ready to face the outsourcing challenge? We listed down the most common problems of outsourcing and the best practices that companies can adopt to overcome these challenges.

The 10 Most Common Challenges of Outsourcing According to Experts

Challenge #1: Little to No Outsourcing Experience

The outsourcing processing itself is tricky as the needs and demands of consumers change from time to time. For businesses with little to no knowledge of outsourcing, this is even more challenging. Business owners who are not familiar with business process outsourcing tend to underestimate the importance of familiarizing the workflow, meeting project requirements, productivity standards, and the best practices to keep their business up and running against its competitors.

Best Practice: Choose a good and experienced vendor.

Choosing an excellent outsourcing partner is a way to avoid this type of problem. You should choose outsourcing vendors that are knowledgeable and experienced in the BPO field. It would also be ideal to choose a vendor that offers a wide range of services just in case you might want to venture into different fields.

Challenge #2: Inaccurate Cost and Budget Estimates

Inaccurate Cost and Budget Estimates

Outsourcing has become a way for businesses to save more money while delivering their services to clients and consumers on time but without the proper budget and cost planning, you could miss saving opportunities and revenue growth. Inaccurate cost and budget estimates are the results of the lack of a timeline as well as a precise listing of requirements and resources. Many companies that outsource services dedicate specific amounts to project management and software development. Missing the proper costing for these is very crucial to your company’s financial agenda.

Best Practice: Create a clear project plan.

Entrepreneurs who struggle in preparing clear project plans may choose to hire expert firms and freelancers in determining the needs of the company for a particular project. It is important to identify the specific time and material which will be required in the project. Moreover, setting budget limitations is also crucial to avoid misunderstanding with your outsourcing partner and at the same time, to protect your business assets.

Challenge #3: Cultural Differences, Language Barriers

Working with different people from different time zones is already challenging but working with people from diverse cultural backgrounds is also one of the major outsourcing challenges that businesses face. Lack of cultural context and knowledge of cultural diversity may result in communication challenges that could also cause a breach of trust and negative professional relationships with your clients.

Best Practice: Set up cultural awareness training programs.

Cultural diversity is an exciting aspect that could positively affect business operations in the longer run. Successful outsourcing involves the proper orientation of staff regarding regional and organizational culture differences. Sharing your norms and values and being familiar with the language of different people is one the best ways to avoid miscommunication. Basic cultural awareness training and seminars on language differences should be implemented. Businesses that adopt cultural awareness programs tend to have a higher competitive advantage because they build trust among different cultures and organizations.

Challenge #4: Choosing a Reliable Vendor

With hundreds and thousands of outsourcing companies and outsourcing agencies emerging, it is not surprising to know that choosing a reliable vendor is one of the most common challenges that businesses face. Selecting the right vendor might result in business failure if the type of outsourcing that they offer does not match your business processes and needs. The outsourcing decision must be created based on the size of your business, the demands of your clients, and the type of services that you offer. This is very difficult when there are lots of BPO companies around.

Best Practice: Find the common denominators.

To properly assess whether a vendor is a perfect fit for your business, finding the common denominators is the key. How is this possible? Avoid overestimating and underestimating. Find a vendor that matches the size of your business, check the quality of services by taking the initiative to review the feedback of current and previous partners, and choose a vendor appropriate to your financial capacity. It is not advisable to settle with a service provider with the cheapest rate as it might actually come with possible risks such as poor staffing and mediocre performance.

Challenge #5: Complicated Legal and Contractual Procedures

Complicated Legal and Contractual Procedures

Along with cultural diversity and language barriers, one of the main challenges that businesses face with outsourcing is the more complicated legal and contractual procedures. Offshore outsourcing poses the challenge of dealing with different legal practices in different locations that might affect the outsourcing deal. This could happen after the signing of contracts and misunderstandings caused by unclear agreements and terms.

Best Practice: Be familiar with the legalities and prepare a detailed NDA.

If your business cannot afford a legal team yet, it is very important for you to be familiar with the legalities. These include labor laws and practices in other places, compensations and benefits, and other employment-related matters. If you are dealing with someone you have never worked with before or if you choose to work with an offshore company, a well-written contract and a Non-Disclosure Agreement is necessary. This will protect your business from possible data breaches after the termination of the relationship with the vendor.

Do not forget to mention security concerns as well as the level of service that you expect from them. Lastly, always remember that outsourcing contracts should be made with equal responsibilities and benefits that both parties must share.

Challenge #6: Security and Privacy Concerns

When you outsource your IT services, you are entrusting a third party with access to your sensitive data. This can understandably create security and privacy concerns for many businesses.

Best Practice: Make sure your outsourcing provider has security practices and policies

Fortunately, there are steps you can take to mitigate these risks. Firstly, make sure to do your due diligence when selecting an outsourcing partner. Research their security practices and policies and look for any red flags. Once you’ve chosen a partner, put together a comprehensive security agreement that outlines each party’s responsibilities in protecting your data.

It’s also important to have regular check-ins with your outsourcing partner to ensure that they are meeting your security expectations. If at any point you have concerns, don’t hesitate to raise them with your vendor. By taking these precautions, you can help protect your data while still enjoying the benefits of outsourcing.

Challenge #7: Knowledge Transparency and File Turnover

Transparency is essential in all types of businesses and if you choose to outsource, you must take note of the importance of keeping a complete documentation and filing system to properly delegate tasks and assign duties to the outsourcing firm. Failure to turn over all the necessary documents might result in a complicated learning curve among the BPO staff which could lead to poor quality of work and performance.

Best Practice: Proper documentation and knowledge transfer.

It does not matter if the documentation and knowledge transfer will be initiated by your business or by the outsourcing firm but businesses find great harmony and connection with their vendors if they have the same sets of goals and plans that can be utilized through available resources. If you want a smooth-sailing outsourcing operation, share your resources and tools and come to terms with the common concepts.

To effectively utilize your company resources and tools while working, code logic should also be well documented and properly disseminated. Coordinate with the DevOps engineer to ensure proper process unification and automation.

Challenge #8: Miscommunication with the Service Provider

Miscommunication with the Service Provider

Communication is a key to success and its opposite surely creates a negative effect on the business process. Miscommunication with the service provider and its outsourcing staff is another communication issue that creates poor results if not resolved. Because you are dealing with different organizational and regional cultures, there will be normal occurrences of misinterpretations.

When you cannot convey the message that you want to deliver, you also cannot express your demands and expectations so your business may suffer too.

Best Practice: Continuous and close communication with the outsourcing team.

If you are working with a local outsourcing team, make sure to maintain continuous and close communication with them. This could be done through regular office visits, planning and meeting with the team members, monthly or quarterly reporting of the number of projects finished, updating of business functions and operations, and replenishing or upgrading of tools and resources.

If you are offshoring, set up reliable communication channels like instant messaging and video calling to ensure that objectives are met and there will be no bottleneck situations in the future. You may also want to try project management tools such as Basecamp and Jira.

Challenge # 9: Expectation and Goal Mismatch

One of the top challenges when outsourcing is that there is often a mismatch between expectations and goals. This can happen when the client and the service provider have different understandings of what is to be accomplished.

Best Practice: Be as clear as possible about your goals and expectations from the start

It’s important to avoid this by being as clear as possible about your expectations and goals from the start. Make sure that you and the service provider are on the same page about what needs to be done, and agree on a plan for how it will be accomplished.

If you find that there is a mismatch after work has already begun, don’t hesitate to communicate with the service provider to get things back on track. It’s better to deal with these issues early on, rather than letting them cause problems down the road.

Challenge #10: Adopting the right outsourcing approach

Adopting the right outsourcing approach

Selecting the right outsourcing approach for your business is a critical decision that you should consider. Appropriate outsourcing models could effectively aid in time management, performance, and productivity issues for the services that you may choose to outsource. But if outsourcing is new to you, this could be very tricky.

Best Practice: Get familiar with the common outsourcing models used by businesses

  • Time and Material Model – ideal for long-term partnerships, flexible, and open to sudden changes, the client will only pay for the added features to avoid extra costs and mediocre results.
  • Fixed Price Model – suitable for clients who want full control over the project. This model will require you to list all requirements, deadlines, and the corresponding budget. Take note that the service provider may also remove a specific feature just in case it fails to make it to the time frame and budget cut.
  • Dedicated Teams – this model allows you to take charge and at the same time, hire a team of short-term experts to do specific tasks, just to fill the knowledge gap.

Quick Tips to Ace the Outsourcing Challenges:

  • Find a great vendor. Check reviews.
  • Prepare a detailed budget plan.
  • Prioritize the importance of cultural diversity and awareness.
  • Do not overestimate and underestimate in selecting a service provider.
  • Be involved with the legalities, and be meticulous.
  • Maintain an organized filing system.
  • Use project management tools like JIRA or Trello to facilitate better team communication.
  • Choose the best outsourcing model for your business. Study the risks and benefits involved.

Conclusion

There is no doubt that outsourcing can help you achieve your business goals. But the key to a successful outsourcing venture lies in choosing the right outsourcing partner and being prepared for the challenges ahead.

Just like any other industry, outsourcing faces inevitable challenges but with the right amount of knowledge and confidence to take and consider the risks involved and create a strategic direction for your business, beating these challenges will be much easier. 

With the BPO sector surpassing its revenue targets and setting more employment opportunities globally, it is safe to say that any challenge under it is worth taking.

If you’re thinking about outsourcing some or all of your business processes, be sure to contact us at Digital Minds BPO. We have years of experience helping businesses just like yours realize the benefits of effective outsourcing. Let us show you how we can help streamline your operations and improve your bottom line!

Do you have any questions about outsourcing? Let us know in the comments below!

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