Six wrong assumptions about IT outsourcing tech leaders make
July 16, 2014, by
Outsourcing continues to be a contentious subject in the IT services and BPO industry. While some have made up their minds to keep all of their work in-house, more and more company leaders are outsourcing, nearshoring and insourcing projects to external vendors.
Certainly, not every IT company needs to outsource. And some simply should not—there are projects that need to be completed on-site, with direct, in-person supervision. Every company’s leadership team should make its own decision on whether and what to outsource. And they should decide with a firm grasp of what is outsourcing and what it isn’t.
There is much bad press about IT offshore outsourcing that company leaders had best set aside outright. Here are six widely-held but very erroneous assumptions:
- Outsourcing leads to loss of control. Delegating a service to an outside vendor can be a scary prospect to a business leader. That vendor might fall far short of the in-house standards, or it might disregard project specifications and deadlines. Some vendors are indeed disappointing—as are some in-house teams. The key is to screen your vendor thoroughly to make sure that they share your priorities and have thorough business process management strategies. Most importantly, maintain open communication from the project’s beginning to its end – and you can obtain the quality and results you expect.
- Outsourcing is too expensive. While transferring operations to an outside vendor may involve some expense, the outsourcing company can more than recoup those costs in the long run. The vendor brings assets of its own and thus does not require as large an investment as an in-house team might. Nor does it need technical updates to get its technology optimized to work on a global scale—unlike an in-house team, it’s working on a global scale already.
- The outside vendor will not understand the company’s business. Outsourcing is a partnership. Look for a partner with whom you can do business, and you will not be disappointed. This means putting in the time to find a vendor that has the specialized expertise that your project needs, and closely supervising the transfer of services to make sure that it proceeds as seamlessly as possible. A well-qualified vendor brings years of experience to the job, and possibly some experience that you cannot find on-site.
- An ironclad contract is necessary. Some companies require vendors to sign contracts with lengthy, technical language that is intended to pre-empt any potential adverse outcome and explicitly protect the company from negative consequences. In so doing, those companies waste time on contract litigation and sour their relationships with their vendors before the projects have even begun. Furthermore, they consign the vendors to inflexible protocols and standards that make achieving a satisfactory product much more difficult. It is impossible to predict every possible outcome, and a company should not try. It is better instead to make sure that both parties clearly understand their roles and responsibilities, and then lay out a process for negotiating changes as needed.
- Outsourcing is not secure. The outsourcing market is far safer today than it was in its early days. Most vendors, like most corporations, employ sophisticated security programs and management teams that safeguard their data (and their clients’ data) from leaks and confidentiality breaches.
Overall, outsourcing is a more useful strategy than its critics suggest. Software development and information systems companies across the globe are finding affordable yet reputable IT support and expertise by looking outside their in-house workforces. Nonetheless, the critics’ concerns merit consideration, too. Outsourcing does truly carry some risks for those who undertake it with inadequate planning and vetting. This brings us to wrong assumption number six:
- Outsourcing is always cheaper. Beware of saying “always”. In 2011, Lieberman Software surveyed IT professionals who had outsourced operations; 27% told the surveyors that the contracts had cost “significantly higher” than expected. It costs money to transfer technology to a site that does not have it, to train a vendor who does not know the technology, and to communicate regularly over long distances. Companies that do not anticipate outsourcing’s potential costs can get unpleasantly surprised. This does not mean that yours will, too—provided that you plan ahead. Know in advance what you are outsourcing, why you are outsourcing it, and whom you are outsourcing it to, and then communicating with that vendor every step of the way. External workforces, like internal ones, work best when you engage with them, not only before you hire them, but after.
IT and business process outsourcing can be a great strategy. It can enable companies to build more innovative products, as well as remain cost-efficient. Alas, it is not for everyone. Different sourcing strategies should be used depending on the type of project. But before ruling outsourcing completely it is important to know its real benefits.
Outsourcing risk management: Loss of visibility and control
Selecting your IT outsourcing provider
Evolution of sourcing models
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