While there are many benefits and rewards to outsourcing certain business processes to offshore business provides, there are also risks and trade-offs to this strategy.
The very first challenge that companies are likely to experience when embarking on outsourcing certain functions, is that of a possible lack of buy-in from people inside the company, which may take the form of active or passive resistance. The prospect of outsourcing also creates uncertainty for existing employees, who may decide to look elsewhere for employment. The best way to address both these problems is to implement an effective change management strategy as soon as the outsourcing contract has been signed.
A comprehensive communication programme should be developed and dessiminated to all stakeholders who will be affected by the outsourcing process. The message should be personalized for different levels of employees, and should essentially answer the question: “What about me?” Employees should be given the opportunity to ask questions and be heard.
When embarking on offshore outsourcing, cultural differences should not be ignored. Two types of cultural differences cause difficulties between companies and their outsourced service providers: corporate differences, and national or regional differences. In terms of corporate culture, a company and its outsourcing partner may have different norms in terms of organizational structure, authority and style. In terms of national culture, there may be differences of language, religion, values, etc.
An example is the fact that so-called high-context cultures, such as Asian cultures, value politeness and respect more than clarity, and will minimize confrontation in order “not to lose face”. So-called low-context cultures, such as American or Australian cultures, focus more on figures and closing a deal, and can be perceived as aggressive.
A diversity or multicultural awareness training programme will assist employees at the client company to understand the culture of the service provider employees’ norms and customs. Often outsourcing service providers already have such awareness training in place for their own staff, and will be happy to share material and content with their clients. The outsourcing service provider, on the other hand, may be trained in the corporate culture of the client.
Another challenge to the success of outsourcing is the expectation by clients that the outsourcing service provider will take care of everything. If the expectations of outsourcing, especially by the management of a company, are too high, this will soon lead to overcritical feedback and disappointment.
It is important that a company’s executive management team is informed about the reasonable risks of an outsourcing project, the potential costs and the mitigation strategies. Equally, employees, customers and other stakeholders should also be kept informed as the project unfolds. Managing expectations is not difficult, but it is frequently overlooked as a risk, because it involves confronting problems before they arise. However, if handled effectively, managing the expectations of outsourcing can create a great deal of goodwill among stakeholders for the venture.
The intellectual property of companies includes business plans, trade secrets and other proprietary knowledge. Outsourcing presents a considerable risk of theft or hacking of this property to client companies. In addition there is the challenge of securing the confidential information of companies’ customers and, in some instances, patients when outsourcing business processes.
In order to mitigate this risk, it is necessary to develop stringent safeguards and protocols when outsourcing. Technical safeguards include the protocols governing access to information; physical safeguards will protect buildings and equipment from unauthorized access; and administrative safeguards stipulate policies and procedures for operations, the conduct of employees and the use of security controls. An outsourcing service provider should adopt an information security risk management strategy that complies with best practice.