When done right, outsourcing can bring in a lot of benefits for a business and paint a smile on the faces of owners everywhere. There are numerous advantages of outsourcing, from helping avoid unnecessary overheads spent on hiring a dedicated team to freeing up employee-time to focus on things that matter.
It’s inevitable that the exponential growth of IT during the last few decades has created a need to deliver IT services & products through increasingly economical means. Over the past two decades, Outsourcing has innovated many sectors like Information Technology, Human Resource, Customer Service, Finance & Accounting, BFSI (Banking, Financial Services & Insurance), Engineering, Knowledge Services, Legal, Research & Development, Medical Trials, etc.
The Biggest Mishaps in Outsourcing History
As with all things great, not all is well in OutsourcingLand. Great outsourcing is the result of good communication, teamwork and a well-oiled workflow mechanism. Without this even the biggest brands of the world can falter in their outsourcing practices.
From money to manpower, let’s take a look at some of the biggest losses as a result of mistakes made in outsourcing:
- Virgin Blue Airlines X Navitaire
In 2009, Virgin Blue Airlines based in Australia had outsourced its reservation, travel commerce and departure control solutions to Accenture’s subsidiary Navitaire. In September 2010, Virgin’s Internet booking, check-in and boarding system, reservation, and other mission-critical applications abruptly crashed and unfortunately, it took nearly 24 hours for the IT provider Navitaire to resolve the issue. In such a scenario, all the Virgin Blue flights were grounded by the FAA, leaving more than 50,000 passengers stranded and frustrated. A classic example of outsourcing failure.
- Queensland x IBM
In December 2007. Queensland outsourced IBM to develop an application to administer payroll for its health department. IBM agreed to deliver the application by mid-2008 for $6 Million. While developing the application, IBM realized that there are many technical glitches to deal with and announced it would need $27 Million to complete the project. The whole mess dragged on for years and ended up costing $1.2 Billion.
- J.P. Morgan x IBM
In 2002, J.P. Morgan Chase & Co. set a contract with IBM for $5 Billion. JP Morgan outsourced its data processing technology infrastructure, including data centers, help desks, distributed computing, data networks and voice networks to IBM. But later in 2004, JP Morgan canceled the contract and opted to hire its own IT talent in house. Though there was no blame game between the two, it ended up in a loss for both the parties. IBM lost billions of dollars and JP Morgan also spent a huge sum in dismantling the whole deal and reassembling its own IT team.
Royal Bank of Scotland x Their IT Vendor
In June 2012, a failed software update of Royal Bank of Scotland (RBS), left millions of its customers stranded. They were unable to access their bank accounts. The bank, itself, was unable to conduct transactions. RBS didn’t disclose their outsourcing partner’s name but this blunder resulted in paralysis of critical banking systems. In this case, there was a contingency plan that either didn’t exist or was not sufficient.
As you can see from the above examples, even the biggest names in the business have had their time under the spotlight for the wrong reasons. Thus, choosing the right outsourcing partner is critical for business success.
Common Outsourcing Mistakes Made By Business Owners
The above case studies are clear enough to state that no matter how big an outsourcing company is, one cannot rely on them blindly. Carefully examine all the pros and cons of your outsourcing agency to ensure that the benefits outweigh the risks. Here are few biggest and most common outsourcing mistakes, and how to avoid them:
1. Not Shopping for Experience
You get what you pay for. This is one of the most common mistakes business owners make. Many fail to understand the true costs of hiring a random outsourcing vendor. Small businesses with insufficient profit or funds, quickly look for a cheap overseas vendor while building a development team. Yes, cost-saving is what you need to look out for while choosing an outsourcing partner but also consider the long term implications. They might cost you more if they are not experienced or if they don’t have contingency plans if anything goes wrong, or they don’t have back up teams/options to recover from a situation. All these can do more harm than good. The lowest rates often come with poor quality. Choose your partner wisely.
2. Lack of Communication with Vendors
Communicating effectively with an in-house development team is hard enough. Imagine sending it across to someone on a different continent. It makes you vulnerable to miscommunication and error. Ensure your requirements are put forth clearly in an easy-to-understand format. When working with overseas vendors, hire a translator to ensure your intentions are clearly communicated in their native language. Hold weekly meetings to track progress and to ensure everyone is on the same page.
3. Not having a Single Point of Contact
Even if you are cent percent sure that your global outsourcing partner is an expert in its field, you cannot rely on them without checking out the regular progress. Don’t forget that they are a helping hand and are not responsible for running your business.
The outsourcing provider might have their own internal processes but they will still rely on your guidance and direction. After all, it’s your product that they are working on. Hire an in-house manager to ensure that your projects are meeting business objectives. Having a single point of contact tells the vendor who they should reach out for queries and discussions.
4. Not Considering Cultural Sensibilities/Workstyles
The Wonderful World Wide Web has made it easy to outsource from any part of the world. But from a customer support angle, there are factors like language barriers, time zones, holidays, cultural differences that will create a communication gap. You don’t want that. Hiring an overseas partner might save you money but the process might drag long due to all these barriers. The project time will only increase which will eventually burn an unsightly hole in your pocket. Evaluate all these factors before choosing the best suitable outsourcing partner for you.
5. Not Being Transparent
Your vendor is a third-party but in order to grow your business, they need to know your goals. Transparency is a necessity in outsourcing. To protect intellectual property and business secrets, companies often fail to properly articulate their needs from vendors. This not only hampers the relationship between the two but also damages the work progress. Often the desired result is not achieved due to this game of hide-and-seek in communication. The vendor ends up making assumptions about the direction of a project, further increasing the time to market the product or service. Make sure to be clear about what you need.
6. Not Performing Credibility Checks
An outsourcing service handling customer support for a brand will be the face of the brand for the entirety of the contract period. Hence, it is critical to ensure that the outsourcing provider is genuinely capable of upholding the brand’s reputation. Before committing to an outsourcing vendor, don’t hesitate to ask for their portfolio and previous recordings of customer interactions. A confident provider will have no qualms about sharing such information and will put your worries to rest.
7. Not Considering Technological Challenges
Apart from the cultural indifferences, you’ll need to understand differences that might arise from technical and process aspects. For e.g. your company would prefer Google Sheets for reports while your vendor might prefer Excel. Never assume that your vendor uses the same technology, apps, and software as you do. Question. Question again. Question even more! Make sure you are technically sound and have all the necessary devices to collaborate smoothly and continuously. Always analyze these compatibility factors before stepping in.
How to Avoid these Mistakes
Now that you have about the most common outsourcing mistakes businesses make, here are a few tips on how to avoid these pitfalls.
Avoid Using Fixed Price Bidding on All Projects
Fixed price is good for short-term projects like a helpline for a one-time event. But it doesn’t scale well to long-term projects. Do not fall for the notion that outsourcing is always a cost-cutting technique. A fixed price is certainly not usable everywhere. Like any business, the outsourcing vendors also need fair compensation for their expertise and time.
Manage Your Project
Your vendor might be an expert in the field and is completely capable of building your project. But make sure you guide them with your company’s needs and objectives. Their output is directly proportional to the clarity of your input. With good management, the vendor will have a better understanding of the business and be able to foresee in which direction the project is headed.
Avoid Impulse Decisions
Once you’ve outsourced a project, a lot of time, effort and money are invested from both sides. At this stage, the worst thing you can do is stop halfway through. Breaking ties with a vendor is like firing a complete in-house team. You spent a lot of time finding out the best talents in the industry and it will take double the effort if you want to hire a new team. Meanwhile, you’re spending money and your project is going nowhere.
Do not cancel a project hastily. Have a deep consideration regarding what are the problem points and how you can help your vendor to solve them. Chances are you can come up with a great team and a good outcome.
Bonus: The Biggest Mishaps in Outsourcing History
These are just standalone examples. What are they substantiating at the end? You can add them in the beginning stating the fallout of some critical outsourcing mistakes.
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